Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-88560;
333-88560-01 through
333-88560-75; 333-88560-77
PROSPECTUS
MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
MERISTAR HOSPITALITY FINANCE CORP. II
OFFER TO EXCHANGE $250,000,000 OF THEIR 10 1/2% SENIOR NOTES DUE 2009
TERMS OF THE EXCHANGE OFFER
- It will expire at 5:00 p.m., New York City time, on July 19, 2002, unless
we extend it.
- If all the conditions to this exchange offer are satisfied, we will
exchange all initial notes that are validly tendered and not withdrawn.
- You may withdraw your tender of initial notes at any time before the
expiration of this exchange offer.
- The exchange notes that we will issue in the exchange offer will be
substantially identical to your initial notes except that, unlike the
initial notes, the exchange notes will have no transfer restrictions or
registration rights.
- The exchange notes are new securities with no established market for
trading.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION
IN THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 19, 2002.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Summary..................................................... 1
Risk Factors................................................ 9
Use of Proceeds............................................. 21
Ratio of Earnings to Fixed Charges.......................... 22
Capitalization.............................................. 23
The Exchange Offer.......................................... 24
Description of the Exchange Notes........................... 35
United States Federal Tax Considerations.................... 71
ERISA Considerations........................................ 75
Plan of Distribution........................................ 77
Legal Matters............................................... 77
Experts..................................................... 77
Available Information....................................... 78
Incorporation by Reference.................................. 79
</Table>
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information both included and incorporated by reference in this prospectus
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934, and as such
may involve known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements, which are based on
certain assumptions and describe our future plans, strategies and expectations,
are generally identifiable by use of the words "may," "will," "should,"
"expect," "anticipate," "estimate," "believe," "intend" or "project" or the
negative thereof or other variations thereon or comparable terminology. Factors
which could have a material adverse effect on our operations and future
prospects include, but are not limited to:
- the current slowdown of the national economy;
- economic conditions generally and the real estate market specifically;
- the impact of the September 11, 2001 terrorist attacks or actual or
threatened future terrorist incidents;
- legislative/regulatory changes, including changes to laws governing the
taxation of REITs;
- availability of capital;
- interest rates;
- competition;
- supply and demand for hotel rooms in our current and proposed market
areas; and
- changes in generally accepted accounting principles, policies and
guidelines applicable to REITs.
These risks and uncertainties, along with the risk factors discussed in the
section entitled "Risk Factors", should be considered in evaluating any
forward-looking statements contained in this prospectus.
We undertake no obligation to update or revise publicly any forward-looking
statement, whether as a result of new information, future events, or otherwise,
other than as required by law.
ii
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before participating in the exchange offer. You should read this
entire prospectus carefully, including the section entitled "Risk Factors"
beginning on page 9 and the financial statements, including the notes to those
financial statements, included elsewhere in this prospectus.
Unless the context otherwise requires, the words "we," "our," "us," and
"MeriStar LP" refer to MeriStar Hospitality Operating Partnership, L.P. and its
direct and indirect subsidiaries. The term "initial notes" refers to the 10 1/2%
Senior Notes due 2009 that were issued on December 19, 2001. The term "exchange
notes" refers to the 10 1/2% Senior Notes due 2009 being offered by this
prospectus. The term "notes" refers to the initial notes and the exchange notes,
collectively.
ABOUT OUR COMPANY
We own a portfolio of primarily upscale, full-service hotels. We are the
operating partnership of MeriStar Hospitality Corporation, a real estate
investment trust that operates all of its business through us. MeriStar
Hospitality Corporation, which we also refer to as MeriStar, is our sole general
partner and controls us. As of March 31, 2002, we owned 112 hotels with 28,653
rooms. The hotels are located in major metropolitan areas or rapidly growing
secondary markets in the United States and Canada. A majority of the hotels are
operated under nationally recognized brand names such as Hilton(R), Sheraton(R),
Westin(R), Marriott(R), Radisson(R), Doubletree(R) and Embassy Suites(R).
We believe that the upscale, full-service segment of the lodging industry
offers strong potential operating results and investment opportunities. The real
estate market has recently experienced a significant slowdown in the
construction of upscale, full-service hotels. Also, upscale, full-service hotels
have particular appeal to both executives and upscale leisure travelers. We
believe the combination of these factors offers good potential ownership
opportunities for us in this sector of the lodging industry.
MeriStar Hospitality Corporation and our company were created on August 3,
1998, when American General Hospitality Corporation, a corporation operating as
a real estate investment trust, and its associated entities merged with CapStar
Hotel Company and its associated entities. MeriStar Hospitality Finance Corp. II
is a wholly-owned, special purpose subsidiary of our company that was created on
December 7, 2001. The principal executive office of the issuers is located at
1010 Wisconsin Avenue, N.W., Washington, D.C. 20007. Our telephone number is
(202) 965-4455.
1
THE PROPERTIES
The following is a summary of our brand affiliations as of March 31, 2002:
<Table>
<Caption>
NUMBER OF
PROPERTIES
----------
Hilton Brands:
Embassy Suites............................................ 3
Doubletree and Doubletree Guest Suites.................... 6
Hilton and Hilton Suites.................................. 23
Six Continents Brands:
Holiday Inn............................................... 10
Crowne Plaza and Crowne Plaza Suites...................... 5
Holiday Inn Select........................................ 4
Starwood Brands:
Sheraton and Sheraton Suites.............................. 11
Westin.................................................... 4
Marriott Brands:
Courtyard by Marriott..................................... 5
Marriott.................................................. 3
Radisson Brands:
Radisson.................................................. 12
Other....................................................... 26
---
Total Hotels...................................... 112
===
</Table>
FRANCHISES
We employ a flexible strategy in selecting brand names based on a
particular hotel's market environment and the hotel's unique characteristics.
Accordingly, we use various national trade names under licensing arrangements
with national franchisors.
2
SUMMARY OF THE EXCHANGE OFFER
MeriStar Hospitality Operating Partnership and MeriStar Hospitality Finance
Corp. II, the issuers, are offering to exchange $250,000,000 aggregate principal
amount of their 10 1/2% Senior Notes due 2009 for like amounts of their existing
10 1/2% Senior Notes due 2009. The form and terms of the exchange notes are the
same as the form and terms of the initial notes, except that the exchange notes
will be registered under the Securities Act, will not bear legends restricting
their transfer and will not be entitled to registration rights under our
registration rights agreement. The exchange notes will evidence the same debt as
the initial notes, and both the initial notes and the exchange notes will be
governed by the same indenture.
THE EXCHANGE OFFER.................. The issuers will exchange their
exchange notes for a like aggregate
principal amount at maturity of their
initial notes. In order to exchange
your initial notes, you must properly
tender them to the issuers and we must
accept your tender. The issuers will
exchange all outstanding initial notes
that are validly tendered and not
validly withdrawn.
EXPIRATION DATE..................... This exchange offer will expire at 5:00
p.m., New York City time, on July 19,
2002, unless the issuers decide to
extend it.
CONDITIONS TO THE EXCHANGE OFFER.... The issuers will complete this exchange
offer unless the exchange offer is not
permissible under applicable law or
Securities and Exchange Commission
policy.
Please refer to the section in this
prospectus entitled "The Exchange
Offer -- Terms of the Exchange
Offer -- Conditions to the Exchange
Offer."
PROCEDURES FOR TENDERING INITIAL
NOTES............................... To participate in this exchange offer,
you must complete, sign and date the
letter of transmittal or its facsimile
and transmit it, together with your
initial notes to be exchanged and all
other documents required by the letter
of transmittal, to U.S. Bank Trust
National Association, as exchange
agent, at its address indicated under
"The Exchange Offer -- Terms of the
Exchange Offer -- Exchange Agent." In
the alternative, you can tender your
initial notes by book-entry delivery
following the procedures described in
this prospectus. If your initial notes
are registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee, you should contact
that person promptly to tender your
initial notes in this exchange offer.
For more information on tendering your
initial notes, please refer to the
section in this prospectus entitled
"The Exchange Offer -- Terms of the
Exchange Offer -- Procedures for
Tendering Initial Notes."
GUARANTEED DELIVERY PROCEDURES...... If you wish to tender your initial
notes and you cannot get the required
documents to the exchange agent on
time, you may tender your initial notes
by using the guaranteed delivery
procedures described under the section
of this prospectus entitled "The
Exchange Offer -- Terms of the Exchange
Offer --
3
Procedures for Tendering Initial
Notes -- Guaranteed Delivery
Procedure."
WITHDRAWAL RIGHTS................... You may withdraw the tender of your
initial notes at any time before 5:00
p.m., New York City time, on the
expiration date of the exchange offer.
To withdraw the tender, you must send a
written or facsimile transmission
notice of withdrawal to the exchange
agent at its address indicated under
the "The Exchange Offer -- Terms of the
Exchange Offer -- Exchange Agent"
before 5:00 p.m., New York City time,
on the expiration date of the exchange
offer.
ACCEPTANCE OF INITIAL NOTES AND
DELIVERY OF EXCHANGE NOTES.......... If all the conditions to the completion
of this exchange offer are satisfied,
the issuers will accept any and all
initial notes that are properly
tendered in this exchange offer on or
before 5:00 p.m., New York City time,
on the expiration date. The issuers
will return any initial note that they
do not accept for exchange to you
without expense as promptly as
practicable after the expiration date.
The issuers will deliver the exchange
notes to you as promptly as practicable
after the expiration date and
acceptance of your initial notes for
exchange. Please refer to the section
in this prospectus entitled "The
Exchange Offer -- Terms of the Exchange
Offer -- Acceptance of Initial Notes
for Exchange; Delivery of Exchange
Notes."
FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE EXCHANGE OFFER...... Exchanging your initial notes for
exchange notes will not be a taxable
event to you for United States federal
income tax purposes. Please refer to
the section of this prospectus entitled
"United States Federal Tax
Considerations."
EXCHANGE AGENT...................... U.S. Bank Trust National Association is
serving as exchange agent in this
exchange offer.
FEES AND EXPENSES................... The issuers will pay all expenses
related to this exchange offer. Please
refer to the section of this prospectus
entitled "The Exchange Offer -- Terms
of the Exchange Offer -- Fees and
Expenses."
USE OF PROCEEDS..................... The issuers will not receive any
proceeds from the issuance of the
exchange notes. The issuers are making
this exchange offer solely to satisfy
their obligations under their
registration rights agreement.
CONSEQUENCES TO HOLDERS WHO DO NOT
PARTICIPATE IN THE EXCHANGE OFFER... If you do not participate in this
exchange offer:
- you will not necessarily be able to
require the issuers to register your
initial notes under the Securities
Act,
- you will not be able to resell, offer
to resell or otherwise transfer your
initial notes unless they are
4
registered under the Securities Act
or unless you resell, offer to resell
or otherwise transfer them under an
exemption from the registration
requirements of, or in a transaction
not subject to, the Securities Act,
and
- the trading market for your initial
notes will become more limited to the
extent other holders of initial notes
participate in the exchange offer.
RISK FACTORS........................ Please refer to the section in this
prospectus entitled "Risk
Factors -- Your failure to participate
in the exchange offer will have adverse
consequences."
5
SUMMARY OF TERMS OF THE EXCHANGE NOTES
ISSUERS............................. MeriStar Hospitality Operating
Partnership, L.P. and MeriStar
Hospitality Finance Corp. II.
SECURITIES OFFERED.................. $250,000,000 aggregate principal amount
of 10 1/2% Senior Notes due 2009.
The form and terms of the exchange
notes are the same as the form and
terms of the initial notes, except that
the exchange notes will be registered
under the Securities Act, will not bear
legends restricting their transfer and
will not be entitled to registration
rights under our registration rights
agreement. The exchange notes will
evidence the same debt as the initial
notes, and both the initial notes and
the exchange notes will be governed by
the same indenture.
MATURITY DATE....................... June 15, 2009.
INTEREST PAYMENT DATES.............. June 15 and December 15, of each year,
commencing June 15, 2002.
MANDATORY REDEMPTION................ None.
GUARANTEES.......................... The issuers' payment obligations under
the exchange notes will be
unconditionally guaranteed on a senior,
unsecured basis by MeriStar Hospitality
Corporation and by all of the
subsidiaries that guarantee our payment
obligations under our senior secured
credit facility. Under some future
circumstances, we or MeriStar
Hospitality Corporation may be required
to cause one or more other subsidiaries
to guarantee the exchange notes on a
senior, unsecured basis. The guarantees
will rank equally with all of the
guarantors' existing and future
unsecured senior debt and senior to all
of the guarantors' subordinated debt.
The guarantees will be effectively
subordinated to all of the guarantors'
secured debt. For more information
about the guarantees, please refer to
the section of this prospectus entitled
"Description of the Exchange
Notes -- Guarantees."
OPTIONAL REDEMPTION................. At any time on or after December 15,
2005, the issuers may redeem all or
part of the exchange notes at the
redemption prices specified in this
prospectus under "Description of the
Exchange Notes -- Optional Redemption,"
plus accrued and unpaid interest and
liquidated damages, if any, to the date
of redemption.
At any time before December 15, 2004,
the issuers may redeem up to 35% of the
aggregate principal amount of the notes
with the proceeds of one or more public
offerings of the common equity of
MeriStar Hospitality Corporation at a
redemption price equal to 110.500% of
the principal amount, plus accrued and
unpaid interest and liquidated damages,
if any, to
6
the date of redemption; provided that
at least 65% of the original principal
amount of the notes remains outstanding
immediately after each such redemption.
Please refer to the section of this
prospectus entitled "Description of the
Exchange Notes -- Optional Redemption."
CHANGE OF CONTROL................... In the event of a change of control of
our company or MeriStar Hospitality
Corporation, you will have the right to
require us to purchase all or any part
of your exchange notes at a purchase
price in cash equal to 101% of the
aggregate principal amount of the
exchange notes, plus accrued and unpaid
interest and liquidated damages, if
any, to the date of purchase. Please
refer to the section of this offering
memorandum entitled "Description of the
Exchange Notes -- Repurchase at the
Option of Holders -- Change of
Control."
RANKING............................. The exchange notes will be the issuers'
general unsecured, senior obligations
and will rank equally with all of the
issuers' existing and future unsecured
senior debt and senior to all of the
issuers' subordinated debt. The
exchange notes will be effectively
subordinated to all of our and our
subsidiaries' secured debt and to all
other debt of our non-guarantor
subsidiaries, including without
limitation trade payables in the
ordinary course.
As of March 31, 2002, we, MeriStar
Hospitality Corporation and our
respective subsidiaries on a
consolidated basis had approximately
$1.7 billion of indebtedness
outstanding, including $1.4 billion of
senior debt. The $1.4 billion of senior
debt includes $369.6 million of
non-recourse indebtedness of our
non-guarantor subsidiaries to which the
exchange notes will be effectively
subordinated, which indebtedness is
secured by all of the assets of such
subsidiaries. As of March 31, 2002, our
non-guarantor subsidiaries had total
assets of $1.5 billion.
COVENANTS........................... The indenture under which the exchange
notes will be issued limits our ability
and the ability of MeriStar Hospitality
Corporation and our respective
restricted subsidiaries to:
- incur indebtedness and issue
disqualified stock or, in the case of
subsidiaries, preferred stock;
- pay dividends or other distributions;
- repurchase equity interests and
subordinated indebtedness, or make
other specified restricted payments;
- consummate specific asset sales;
7
- enter into certain transactions with
affiliates;
- make investments;
- create or incur some liens; or
- merge or consolidate with any other
person or sell, assign, transfer,
lease, convey or otherwise dispose of
all or substantially all of our
assets.
All of these limitations and
prohibitions have a number of important
qualifications and exceptions. Please
refer to the section of this prospectus
entitled "Description of the Exchange
Notes -- Covenants" and "-- Repurchase
at the Option of Holders -- Asset
Sales."
FALL-AWAY COVENANTS................. Under the indenture governing the
exchange notes, in the event, and only
for so long as, the exchange notes are
rated investment grade and no default
or event of default has occurred and is
continuing, many of the covenants
described above will not be applicable
to us and our restricted subsidiaries.
TRADING............................. The exchange notes are new securities,
and no established market for them
currently exists. We cannot assure you
that a market for the exchange notes
will develop or be liquid. The initial
notes are currently eligible for
trading in the Private Offerings,
Resale and Trading through Automatic
Linkage, or PORTAL, system. Following
the commencement of the exchange offer,
you may continue to trade the initial
notes in the PORTAL market. However,
the exchange notes will not be eligible
for trading in this market.
RISK FACTORS........................ You should carefully consider all of
the information contained in this
prospectus and, in particular, you
should evaluate the specific factors
listed under "Risk Factors" on page 9
for risks associated with the exchange
offer.
8
RISK FACTORS
This prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this prospectus. Holders of initial notes should carefully
consider, together with other information in this prospectus, the following
factors, which include the material risks, associated with the exchange offer.
FINANCING RISKS
Our significant amount of debt could limit our operational flexibility or
otherwise adversely affect our financial condition.
We are subject to the risks normally associated with debt financing,
including the risks that:
- Our cash flow from operations may be insufficient to make required
payments of principal and interest;
- We are unable to be able to refinance existing indebtedness, including
secured indebtedness; and
- The terms of any refinancing may not be as favorable as the terms of
existing indebtedness.
We may be required to refinance our indebtedness, and the failure to refinance
our indebtedness may have an adverse effect on us.
As of March 31, 2002, we, and our respective subsidiaries had $14.1 million
of debt maturing in 2002, $51.6 million of debt maturing in 2003 and $171.2
million of debt maturing in 2004. If we do not have sufficient funds to repay
our indebtedness at maturity, we may have to refinance the indebtedness through
additional debt financing. This additional financing might include private or
public offerings of debt securities and additional non-recourse or other
collateralized indebtedness. If we are unable to refinance our indebtedness on
acceptable terms, we might be forced to dispose of hotels or other assets on
disadvantageous terms. This could potentially result in losses and adverse
effects on cash flow from operating activities. If we are unable to make
required payments of principal and interest on indebtedness secured by our
hotels, these properties could be foreclosed upon by the lender with a
consequent loss of income and asset value.
Our senior secured credit facility and other debt instruments have restrictive
covenants that could affect our financial condition.
As of March 31, 2002, we, MeriStar Hospitality Corporation and our
respective subsidiaries had approximately $43.0 million outstanding under our
senior secured credit agreement. Our ability to borrow under the credit
agreement is subject to financial covenants, including leverage and interest
rate coverage ratios and minimum net worth requirements. Our credit agreement
limits our ability to effect mergers, asset sales and change of control events,
and limits dividends to the lesser of 90% of funds from operations and 100% of
funds from operations less a capital reserve equal to 4% of gross room revenues.
The credit agreement also contains a cross-default provision which would be
triggered by a default or acceleration of $20 million or more of indebtedness
secured by our assets or $5 million or more of any other indebtedness. The
recent amendment to our credit facility limits dividends paid in each of the
first three quarters of 2002 to the lesser of (1) $0.01 per share of common
stock of MeriStar Hospitality Corporation or (2) $750,000.
In addition to the amounts outstanding under our credit agreement, as of
March 31, 2002, we had outstanding the following borrowings:
- $300 million of senior unsecured notes due 2008 bearing interest at 9%;
- $400 million of senior unsecured notes due 2011 bearing interest at
9.125%;
9
- $250 million of senior unsecured notes due 2009 bearing interest at
10.50%;
- $205 million of notes payable to MeriStar Hospitality Corporation due
2007 bearing interest at a weighted-average annual rate of 8.69%;
- $154.3 million of notes payable to MeriStar Hospitality Corporation due
2004 bearing interest at 4.75%;
- $318.6 million of collateralized mortgage-backed securities due 2009
bearing interest at a rate of 8.01%; and
- $51.7 million of mortgage debt maturing between 2002 and 2012 at interest
rates ranging from 7.5% to 10.5%.
Some of our indirect subsidiaries have guaranteed the issuers' payment
obligations under the senior unsecured notes on a senior unsecured basis. The
issuers and the subsidiary guarantors have guaranteed our payment obligations
under the senior subordinated notes on an unsecured, senior subordinated basis.
The indentures relating to all of the notes contain limitations on our
ability to effect mergers and change of control events, as well as other
limitations, including limitations on:
- Incurring additional indebtedness and issuing capital stock;
- Declaring and paying dividends;
- Selling our assets;
- Conducting transactions with our affiliates; and
- Incurring liens.
Debt instruments we issue in future offerings will likely contain similar
restrictive covenants.
We may be able to incur substantially more debt, which would increase the
risks associated with our substantial leverage.
Although the terms of our debt instruments restrict our ability to incur
additional indebtedness, our organizational documents do not limit the amount of
indebtedness we may incur. If we add new debt to our current debt, the related
risks we now face could intensify and increase the risk of default on our
indebtedness.
Rising interest rates could have an adverse effect on our cash flow and
interest expense.
Some of our borrowings under our credit facility bear interest at a
variable rate. In addition, in the future we may incur indebtedness bearing
interest at a variable rate, or we may be required to retain our existing
indebtedness at higher interest rates. Accordingly, increases in interest rates
could increase our interest expense and adversely affect our cash flow, reducing
the amounts available to make payments on our other indebtedness.
OPERATING RISKS
The recent economic slowdown and the September 11, 2001 terrorist attacks have
adversely affected our REVPAR performance and, if it worsens or continues,
these effects could be material.
We have experienced declines in revenue per available room, or RevPAR, as
follows:
- 16.1% decline during the third quarter of 2001, as compared to the
comparable period of 2000;
- 24.1% decline during the fourth quarter of 2001, as compared to the
comparable period of 2000;
- 10.4% decline during full year 2001, as compared to full year 2000; and
- 18.0% decline during the first quarter of 2002, as compared to the
comparable period of 2001.
10
These declines are due to the economic slowdown that began in 2001, as well
as the terrorist attacks of September 11, 2001. A sharper-than-anticipated
decline in business and leisure travel was the primary cause of the declines,
which were principally reflected in decreased occupancies. We expect that RevPAR
in 2002 will decline approximately 2.5% compared to 2001. If the current
economic slowdown worsens significantly or continues for a protracted period of
time, the declines in occupancy could also lead to further declines in average
daily room rates and could have a material adverse effect on our EBITDA, funds
from operations and earnings.
Our results continue to reflect a cautious economy which has caused
declines in business and leisure travel demand nationwide. Our group business at
our hotels improved during the first quarter, but our transient business
continues to be significantly lower than prior to the terrorist attacks on
September 11, 2001, and also lower than our internal projections for 2002.
Overall, our occupancies were ahead of our internal plan for the quarter, but
our average daily rate was lower than we projected. We have continued to work
with MeriStar Hotels & Resorts, the manager of our hotels to focus on cost
reduction and control measures at our hotels. We expect year-over-year
performance measures to improve in the second half of 2002 when the economy is
expected to gain momentum.
If the hotel industry is negatively affected by one or more particular risks,
our operating results could suffer.
Until January 1, 2001, we leased all but eight of our hotels to MeriStar
Hotels & Resorts, Inc. Each of those leases was a 12-year participating lease
under which MeriStar Hotels & Resorts was required to pay us a fixed base rent
plus participating rent based on a percentage of revenues at the hotel. As a
result of changes to the federal tax laws governing REITs, which became
effective on January 1, 2001, MeriStar Hotels & Resorts assigned those leases to
our taxable REIT subsidiaries and those subsidiaries have entered into
management agreements with MeriStar Hotels & Resorts to manage our hotels. As a
result of this new lease structure, we report operating revenues and expenses
from the hotels subject to this new lease structure. Therefore, we are subject
to the risk of fluctuating hotel operating margins at those hotels. Hotel
operating expenses include, but are not limited to, wage and benefit costs,
supplies, repair and maintenance expenses, utilities, insurance and other
operating expenses. These operating expenses are more difficult to predict and
control than percentage lease revenue, resulting in increased unpredictability
in our operating margins.
Various factors could adversely affect our hotel revenues, which are
subject to all of the operating risks inherent in the lodging industry. These
risks include the following:
- changes in general and local economic conditions;
- cyclical overbuilding in the lodging industry;
- varying levels of demand for rooms and related services;
- competition from other hotels, motels and recreational properties, some
of which may be owned or operated by companies having greater marketing
and financial resources than we do;
- dependence on business and commercial travelers and tourism, which may
fluctuate and be seasonal;
- decreases in air travel;
- fluctuations in operating costs;
- the recurring costs of necessary 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.
11
In addition, demographic, geographic or other changes in one or more of the
markets of our hotels could impact the convenience or desirability of the sites
of some hotels, which would in turn affect their operations. Also, due to the
level of fixed costs required to operate full-service hotels, we generally
cannot reduce significant expenditures necessary for the operation of hotels
when circumstances cause a reduction in revenue.
Acts of terrorism, the threat of terrorism and the ongoing war against
terrorism have impacted and will continue to impact our industry and our
results of operations.
The terrorist attacks of September 11, 2001 have had a negative impact on
our hotel operations in the third and fourth quarters causing lower than
expected performance in an already slowing economy. The events of September 11
have caused a significant decrease in our hotels' occupancy and average daily
rate due to disruptions in business and leisure travel patterns, and concerns
about travel safety. Major metropolitan area and airport hotels have been
adversely affected by concerns about air travel safety and a significant overall
decrease in the amount of air travel.
Prior to the September 11 terrorist attacks, RevPAR at our hotels for the
third quarter was down 8.9% from the RevPAR for the same period in 2000 and
occupancy was down 4.5%. For the remainder of September following the terrorist
attacks, RevPAR was down 41.7% from the corresponding period in 2000, and
occupancy was down 34.3%. During October, November and December 2001, RevPAR was
down 25.6%, 24.1% and 21.7% respectively, and occupancy was down 17.5%, 15.8%
and 13.2%, respectively, from the same periods in 2000.
The September 11, 2001 terrorist attacks have had a dramatic effect on the
insurance and reinsurance industries. Many companies are being subjected to
nonrenewal or cancellations of insurance policies, or renewals of existing
coverage with extreme price increases. Our total annual property and casualty
insurance premiums are approximately $25.0 million under our current policies.
Also, our secured facility requires our property insurance carrier to be rated
AA or better by Standard & Poors. Our manager, MeriStar Hotels & Resorts, is
responsible for securing property insurance and is in the process of renewing
this coverage. As part of that process, they intend to attempt to obtain
coverage from a carrier or carriers that are appropriately rated by Standard &
Poors. If we are unable to obtain insurance that meets our debt covenant
requirements and if we are unable to amend or waive those covenants, it could
have material adverse effect on our business. At our insurance policy renewals
in mid-2002, we may be subject to restrictions as compared to our current
coverages, price increases, or a combination of both restrictions and increases.
The September 11 terrorist attacks were unprecedented in scope, and in
their immediate, dramatic impact on travel patterns. We have not previously
experienced such events, and it is currently not possible to accurately predict
if and when travel patterns will be restored to pre-September 11 levels. While
we have had improvements in our operating levels from the period immediately
following the attacks, we believe the uncertainty associated with subsequent
incidents, threats and the possibility of future attacks will continue to hamper
business and leisure travel patterns for the next several quarters.
We and MeriStar Hospitality Corporation have significant operational and
financing relationships with MeriStar Hotels & Resorts, and MeriStar Hotels &
Resorts' operating or financial difficulties could adversely affect our hotels'
operations or our financial position.
MeriStar Hotels & Resorts manages all 112 of our hotels. As a result, we
depend heavily on MeriStar Hotels & Resorts' ability to provide efficient,
effective management services to our hotels. Although we monitor the performance
of our properties on an on-going basis, MeriStar Hotels & Resorts is responsible
for the day-to-day management of the properties. In addition to this operating
relationship with MeriStar Hotels & Resorts, we have a revolving credit
agreement that allows MeriStar Hotels & Resorts to borrow from us. That
revolving credit agreement matures 91 days following the maturity of MeriStar
Hotels & Resorts' senior credit facility. The maturity date of MeriStar Hotels &
Resorts' senior credit facility is February 28, 2003. MeriStar Hotels & Resorts
has borrowed $45 million as of March 31, 2002 under their
12
revolving credit agreement with us. Additionally, MeriStar Hotels & Resorts
issued us a term note effective January 1, 2002. This $13.1 million term note
refinances outstanding accounts payable MeriStar Hotels & Resorts owed to us.
The maturity date is the same as that of the revolving credit agreement.
MeriStar Hotels & Resorts has incurred significant net losses of $18.9 million
and $9.4 million for the years ended December 31, 2001 and 2000, respectively.
If MeriStar Hotels & Resorts were unable to continue in business as a hotel
operator, we would have to find a new manager for our hotels. This transition
could significantly disrupt the operations of our hotels, and lead to lower
operating results from our properties. In addition, if MeriStar Hotels & Resorts
was unable to repay its borrowings from us, we would experience a loss from the
write-off of this asset.
The lodging business is seasonal.
Generally, hotel revenues are greater in the second and third calendar
quarters than in the first and fourth calendar quarters. This may not be true,
however, for hotels in major tourist destinations. Revenues for hotels in
tourist areas generally are substantially greater during tourist season than
other times of the year. Because of the September 11 events, our operating
results for the 2001 third and fourth quarters were lower than expected.
Seasonal variations in revenue at our hotels will cause quarterly fluctuations
in our revenues. Events beyond our control, such as extreme weather conditions,
economic factors and other considerations affecting travel, may also adversely
affect our earnings.
We may be adversely affected by the limitations in our franchise and licensing
agreements.
As of March 31, 2002, approximately 88% of our hotels were operated
pursuant to existing franchise or license agreements with nationally recognized
hotel brands. 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 our philosophy, shared with MeriStar Hotels & Resorts, of creating
specific business plans tailored to each hotel and to each market. 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 standards could require a franchisee to incur significant
expenses or capital expenditures. Action or inaction on our part or by our
third-party operator could result in a breach of standards or other terms and
conditions of the franchise agreements, and could result in the loss or
cancellation of a franchise license. Loss of franchise licenses without
replacement would likely have an adverse effect on our hotel revenues.
In connection with terminating or changing the franchise affiliation of a
currently-owned hotel or a subsequently acquired hotel, we may be required to
incur significant expenses or capital expenditures. Moreover, the loss of a
franchise license could have a material adverse effect upon the operations or
the underlying value of the hotel covered by the franchise due to the loss of
associated name recognition marketing support and centralized reservation
systems provided by the franchisor. The franchise agreements covering the hotels
expire or terminate, without specified renewal rights, at various times and have
differing remaining terms. As a condition to renewal, the franchise agreements
frequently contemplate a renewal application process, which may require
substantial capital improvements to be made to the hotel. Unexpected capital
expenditures could adversely affect our results of operations and our ability to
make payments on our indebtedness.
The lodging industry is highly competitive.
We have no single competitor or small number of competitors that are
considered to be dominant in the industry. We operate in areas that contain
numerous competitors, some of which may have substantially greater resources
than us. Competition in the lodging industry is based generally on location,
availability, room rates or accommodations price, range and quality of services
and guest amenities offered. New or existing competitors could significantly
lower rates, offer greater conveniences, services or amenities; or significantly
expand, improve or introduce new facilities in markets in which we compete. All
of these factors could adversely affect our operations and the number of
suitable business opportunities.
13
Costs of compliance with environmental laws could adversely affect our
operating results.
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 property. Laws often impose liability whether or not the owner
or operator knew of, or was responsible for, the presence of hazardous or toxic
substances. In addition, the presence of contamination from hazardous or toxic
substances, or the failure to properly remediate contaminated property, may
adversely affect the owner's ability to sell or rent real property or to borrow
funds using 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 these substances at the disposal or treatment
facility, whether or not the facility is or ever was owned or operated by those
persons.
Federal and state laws also regulate the operation and removal of
underground storage tanks. In connection with the ownership and operation of the
hotels, we could be held liable for the costs of remedial action with respect to
the regulated substances and storage tanks and claims related thereto.
Activities have been undertaken to close or remove storage tanks located on the
property of several of the hotels.
All of our hotels have undergone Phase I environmental site assessments,
which generally provide a nonintrusive physical inspection and database search,
but not soil or groundwater analyses, by a qualified independent environmental
engineer. The purpose of a Phase I is to identify potential sources of
contamination for which the hotels may be responsible and to assess the status
of environmental regulatory compliance. The Phase I assessments have not
revealed any environmental liability or compliance concerns that we believe
would have a material adverse effect on our results of operations or financial
condition, nor are we aware of any material environmental liability or concerns.
Nevertheless, it is possible that these environmental site assessments did not
reveal all environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which we are currently
unaware.
In addition, our 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 asbestos-containing materials
and govern emissions of and exposure to asbestos fibers in the air.
Asbestos-containing materials are present in various building materials such as
sprayed-on ceiling treatments, roofing materials or floor tiles at some of the
hotels. Operations and maintenance programs for maintaining asbestos-containing
materials have been or are in the process of being designed and implemented, or
the asbestos-containing materials have been scheduled to be or have been abated,
at these hotels. Any liability resulting from non-compliance or other claims
relating to environmental matters could have a material adverse effect on our
results of operations or financial condition.
Aspects of our operations are subject to government regulation, and changes in
that regulation may have significant effects on our business.
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. MeriStar Hotels &
Resorts believes our hotels are substantially in compliance with these
requirements or, in the case of liquor licenses, that they have or will promptly
obtain the appropriate licenses. Compliance with, or changes in, these laws
could reduce the revenue and profitability of our hotels and could otherwise
adversely affect our revenues, results of operations and financial condition.
Under the Americans with Disabilities Act, or ADA, all public
accommodations are required to meet federal requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA required
upgrades to our hotels, a determination that our hotels are not in compliance
with the ADA could result in a judicial order requiring compliance, imposition
of fines or an award of damages to private litigants.
14
We invest in a single industry.
Our current strategy is to acquire interests only in hospitality and
lodging. As a result, we are subject to the risks inherent in investing in a
single industry. The effects on cash available for distribution resulting from a
downturn in the hotel industry may be more pronounced than if we had diversified
our investments.
We have a high concentration of hotels in the upscale, full-service segment,
which may increase our susceptibility to an economic downturn.
As a percentage of total rooms, we currently have 85% of our hotels in the
upper-upscale, full-service segment. This hotel segment generally demands higher
room rates. In an economic downturn, hotels in this segment may be more
susceptible to a decrease in revenues, as compared to hotels in other segments
that have lower room rates. This characteristic may result from hotels in this
segment generally targeting business and high-end leisure travelers. In periods
of economic difficulties, business and leisure travelers may seek to reduce
travel costs by limiting trips or seeking to reduce costs on their trips. This
could have a material adverse effect on our revenues and results of operations.
CORPORATE STRUCTURE RISKS
We and MeriStar Hospitality Corporation have overlapping officers and
directors with MeriStar Hotels & Resorts.
MeriStar Hospitality Corporation shares five of the ten members of its
board of directors and several senior executives with MeriStar Hotels & Resorts.
MeriStar Hospitality Corporation's and our relationship with MeriStar Hotels &
Resorts is governed by an intercompany agreement. That agreement restricts each
party from taking advantage of business opportunities without first presenting
those opportunities to the other party. We may have conflicting views with
MeriStar Hotels & Resorts on operation and management of our hotels and with
respect to lease arrangements, acquisitions and dispositions. Inherent potential
conflicts of interest will be present in all of the numerous transactions among
MeriStar Hotels & Resorts and us.
We have restrictions on our business and on our future opportunities that
could affect our business.
We and MeriStar Hospitality Corporation are a party to an intercompany
agreement with MeriStar Hotels & Resorts. So long as the agreement remains in
effect, MeriStar Hotels & Resorts is prohibited from making real property
investments a REIT could make unless:
- We are first given the opportunity, but elect not to pursue the
investments;
- The investment is on land already owned or leased by MeriStar Hotels &
Resorts or subject to a lease or purchase option in favor of MeriStar
Hotels & Resorts;
- MeriStar Hotels & Resorts will operate the property under a trade name
owned by MeriStar Hotels & Resorts; or
- The investment is a minority investment made as part of a lease or
management agreement.
The intercompany agreement generally grants MeriStar Hotels & Resorts the
right of first refusal with respect to any management opportunity at any of our
properties we do not elect to have managed by a hotel brand owner. We and
MeriStar Hospitality Corporation will make such an opportunity available to
MeriStar Hotels & Resorts only if MeriStar Hospitality Corporation determines
that:
- Consistent with MeriStar Hospitality Corporation's status as a real
estate investment trust, it must enter into a management agreement with
an unaffiliated third party with respect to the property;
- MeriStar Hotels & Resorts is qualified to be the manager of that
property; and
- MeriStar Hospitality Corporation decides to have the property operated by
the owner of a hospitality trade name under that trade name.
15
Because of the provisions of the intercompany agreement, we are restricted
in the nature of our business and the opportunities we may pursue.
In addition, under the intercompany agreement, each party must cooperate
with the other party to effect any securities issuance of the other party by
assisting in the preparation of any registration statement or other document
required in connection with the issuance.
We may have conflicts relating to sale of hotels subject to management
agreements.
Our management agreements with MeriStar Hotels & Resorts require us to pay
a termination fee to MeriStar Hotels & Resorts if we elect to sell a hotel or if
we elect not to restore a hotel after a casualty. We must pay this fee if we do
not replace the hotel with another hotel subject to a management agreement with
a fair market value equal to the fair market value of MeriStar Hotels & Resorts'
remaining management fee due under the management agreement to be terminated.
Where applicable, the termination fee is equal to the present value of the
remaining payments (discounted using a 10% rate) of the existing term under the
agreement, based on the operating results of the hotel for the 12 months
preceding termination. Our decision to sell a hotel may, therefore, have
significantly different consequences for MeriStar Hotels & Resorts and us.
We lack control over management and operations of the hotels.
We depend on the ability of MeriStar Hotels & Resorts to operate and manage
our hotels. In order for MeriStar Hospitality Corporation to maintain its REIT
status, we cannot operate our hotels. As a result, we are unable to directly
implement strategic business decisions for the operation and marketing of our
hotels, such as decisions with respect to the setting of room rates, food and
beverage operations and similar matters.
Our relationship with MeriStar Hotels & Resorts could have a negative impact
on our acquisitions.
Our relationship with MeriStar Hotels & Resorts could negatively impact our
ability to acquire additional hotels because hotel management companies,
franchisees and others who would have approached us with acquisition
opportunities in hopes of establishing lessee or management relationships may
not do so knowing that we will rely primarily on MeriStar Hotels & Resorts to
manage the acquired properties. These persons may instead provide acquisition
opportunities to hotel companies that will allow them to manage the properties
following the sale. This could have a negative impact on our acquisition
activities in the future.
There are potential conflicts of interest relating to our relationship with
MeriStar Hotels & Resorts.
The terms of the intercompany agreement were not negotiated on an
arm's-length basis. Because the two companies share some of the same executive
officers and directors, there is a potential conflict of interest with respect
to the enforcement and termination of the intercompany agreement to our benefit
and to the detriment of MeriStar Hotels & Resorts, or to the benefit of MeriStar
Hotels & Resorts and to our detriment. Furthermore, because of the independent
trading of the two companies, stockholders in each company may develop divergent
interests which could lead to conflicts of interest. The divergence of interests
could also reduce the anticipated benefits of our intercompany agreement with
MeriStar Hotels & Resorts.
FEDERAL INCOME TAX RISKS
Requirements imposed on us relating to MeriStar Hospitality Corporation's REIT
status could cause us to operate in a manner that might be disadvantageous to
noteholders.
We are the operating partnership through which MeriStar Hospitality
Corporation holds its assets and conducts its operations. MeriStar Hospitality
Corporation has operated and intends to continue to operate
16
in a manner designed to permit it to qualify as a real estate investment trust,
or REIT, for federal income tax purposes.
To obtain the favorable tax treatment accorded to REITs under the Internal
Revenue Code, MeriStar Hospitality Corporation normally will be required each
year to distribute to its stockholders at least 90% of its real estate
investment trust taxable income, determined without regard to the deduction for
dividends paid and by excluding net capital gain. MeriStar Hospitality
Corporation will be subject to income tax on undistributed real estate
investment trust taxable income and net capital gain, and to a 4% nondeductible
excise tax on the amount, if any, by which distributions it pays with respect to
any calendar year are less than the sum of:
- 85% of its ordinary income for the calendar year;
- 95% of its capital gain net income for that year; and
- 100% of its undistributed income from prior years.
MeriStar Hospitality Corporation's income consists primarily of its share of our
income and its cash flow consists primarily of its share of distributions made
by us.
Our partnership agreement provides that we will not take, or refrain from
taking, any action which, in the judgment of MeriStar Hospitality Corporation,
as our general partner,
(a) could adversely affect the ability of MeriStar Hospitality Corporation
to continue to qualify as a REIT, unless MeriStar Hospitality Corporation
otherwise ceases to qualify as a REIT, or
(b) could subject MeriStar Hospitality Corporation to additional income or
excise taxes applicable to REITs under the Internal Revenue Code
unless such action or inaction has been specifically consented to by MeriStar
Hospitality Corporation in writing. Our partnership agreement also provides that
MeriStar Hospitality Corporation, as our general partner, shall use its best
efforts to cause us to make sufficient distributions to enable MeriStar
Hospitality Corporation to meet the distribution requirements described above
and to avoid any federal income or excise tax liability, except to the extent
that such distributions would contravene the terms of any notes or other debt
obligations to which we are subject in conjunction with borrowed funds. Finally,
our partnership agreement generally requires us to make pro rata distributions
to all holders of common units, not just to MeriStar Hospitality Corporation.
Thus, whenever distributions are made to MeriStar Hospitality Corporation in
order to satisfy the foregoing requirements, equivalent distributions must be
made to our other partners holding common units.
These provisions of our partnership agreement could in the future cause us
to distribute amounts that otherwise would be spent on future acquisitions,
unanticipated capital expenditures or repayment of debt, which would require us
to borrow funds or to sell assets to fund the cost of these items. In addition,
it is possible that differences in timing between the receipt of income and the
payment of expenses in arriving at our taxable income or the taxable income of
MeriStar Hospitality Corporation and the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments
could in the future require us to borrow funds on a short or long-term basis to
enable MeriStar Hospitality Corporation to continue to qualify as a REIT and
avoid federal income taxes and the 4% nondeductible excise tax. In these
circumstances, we might need to borrow funds in order to avoid adverse tax
consequences to MeriStar Hospitality Corporation even if we believe that the
then prevailing market conditions generally are not favorable for those
borrowings or that those borrowings are not advisable in the absence of these
tax considerations.
Distributions by us will be determined by MeriStar Hospitality Corporation,
our general partner, and are dependent on a number of factors, including:
- the amount of cash available for distribution;
- our financial condition;
17
- our decision to reinvest funds rather than to distribute the funds;
- restrictions in our debt instruments;
- our capital expenditure requirements;
- the annual distribution requirements under the real estate investment
trust provisions of the Internal Revenue Code; and
- other factors as we deem relevant.
Although we intend to continue to make distributions so that MeriStar
Hospitality Corporation may satisfy the annual distribution requirement to avoid
corporate income taxation on the earnings that it in turn distributes, we may
not be able to do so.
If we were subject to federal income taxation as a corporation, our ability to
make payments on our borrowings could be substantially reduced.
We currently are classified as a partnership for federal income tax
purposes. Although we are organized and operated with a view to maintaining that
status, if the Internal Revenue Service were successfully to determine that we
should properly be treated for federal income tax purposes as a corporation
rather than as a partnership, we would be required to pay federal income tax at
corporate tax rates on our taxable income. As described above, we generally
expect to make distributions to our partners each year at least equal to the
amount of our taxable income so that MeriStar Hospitality Corporation can make
distributions to its stockholders sufficient to avoid federal income and excise
taxes. To the extent we had made such distributions to our partners, we might be
required to borrow funds or to liquidate assets to pay the applicable corporate
income tax. This treatment could substantially reduce the amount of cash
available for payments on the notes. In addition to the direct impact on us, our
treatment as a corporation for federal income tax purposes would also cause
MeriStar Hospitality Corporation to cease to qualify as a REIT, which would have
the possible results described below.
If MeriStar Hospitality Corporation fails to qualify as a REIT, it will be
subject to federal income tax at corporate rates and its ability to satisfy its
obligations as a guarantor of our borrowings might be impaired.
Qualification as a REIT involves the application of highly technical and
complex provisions of the Internal Revenue Code for which there are only limited
judicial and administrative interpretations. In addition, there are presently
only very limited judicial and administrative interpretations of the federal tax
legislation enacted in 1999 with respect to taxable REIT subsidiaries. The
determination of various factual matters and circumstances not entirely within
the control of MeriStar Hospitality Corporation may affect its ability to
continue to qualify as a REIT. The complexity of these provisions and of the
applicable income tax regulations that have been promulgated under the Internal
Revenue Code is greater in the case of a REIT that holds its assets through a
partnership, such as MeriStar Hospitality Corporation does. Moreover,
legislation, new regulations, administrative interpretations or court decisions
might change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of that qualification.
If MeriStar Hospitality Corporation fails to qualify as a REIT in any
taxable year, it will not be allowed a deduction for distributions to its
stockholders in computing its taxable income and it will be subject to federal
income tax, including any applicable alternative minimum tax, on its taxable
income at the applicable corporate rate. In addition, unless it was entitled to
relief under statutory provisions, it would be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification is
lost. This disqualification might reduce the funds available to MeriStar
Hospitality Corporation to satisfy any obligations it might have as a guarantor
of our borrowings because of the additional tax liability for the year or years
involved. In addition, to the extent that distributions to stockholders would
have been made in anticipation of MeriStar Hospitality Corporation qualifying as
a
18
REIT, it might be required to borrow funds or to liquidate assets to pay the
applicable corporate income tax, including assets held by us.
ADDITIONAL RISKS RELATING TO OUR BUSINESS AND THE EXCHANGE OFFER
We rely on the knowledge and experience of some key personnel, and the loss of
these personnel may have a material adverse effect on our operations.
We place substantial reliance on the lodging industry knowledge and
experience and the continued services of our senior management, led by Paul W.
Whetsell and John Emery. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations. In addition, Messrs. Whetsell and
Emery are currently engaged, and in the future will continue to engage, in the
management of MeriStar Hotels & Resorts. Messrs. Whetsell and Emery may
experience conflicts of interest in allocating management time, services and
functions between us and MeriStar Hotels & Resorts.
If we are deemed to be in violation of fraudulent transfer or conveyance laws
at the time of the issuance of the exchange notes and the related guarantees,
our ability and the ability of MeriStar Hospitality. Corporation and the other
guarantors to make payments on the exchange notes and the guarantees will be
impaired substantially.
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer and conveyance laws, if an
obligor under the exchange notes or the related guarantees, at the time it
issued the instrument,
(a) incurred indebtedness with the actual intent to hinder, delay or
defraud creditors or
(b)(1) received less than reasonably equivalent value or fair
consideration for the instrument, and
(2) (A) was insolvent at the time of the incurrence,
(B) was rendered insolvent by reason of the incurrence and the
application of its proceeds,
(C) was engaged or were about to engage in a business or
transaction for which the assets remaining with us constituted
unreasonably small capital to carry on its business, or
(D) intended to incur, or believed that it would incur, debts
beyond its ability to pay as they mature,
then, in each case, a court of competent jurisdiction could avoid, in whole or
in part, the exchange notes or the guarantees or, in the alternative, fashion
other equitable relief. The measure of insolvency for purposes of the above
would likely vary depending upon the law applied. Generally, however, an entity
would be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at a fair valuation, or if the
present fair-saleable value of its assets was less than the amount that would be
required to pay the probable liabilities on its existing debts, including
contingent liabilities, as these debts become absolute and matured. We believe
that, for purposes of the United States Bankruptcy Code and state fraudulent
transfer and conveyance laws, the exchange notes and the guarantees are being
issued without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith; that we and the guarantors will receive reasonably
equivalent value or fair consideration for the exchange notes and guarantees and
that, after the issuance of the exchange notes and the guarantees and the
application of the net proceeds of the exchange notes and the guarantees, we and
the guarantors will be solvent, will have sufficient capital for carrying on our
business and will be able to pay debts as they mature. However, a court passing
on these issues might not agree with the determination of our management.
19
There may not be a public market for the exchange notes.
You may not be able to sell your exchange notes at a particular time, and
the prices that you receive when you sell may not be favorable. We also cannot
assure you as to the level of liquidity of the trading market for the exchange
notes or, in the case of any holders of notes that do not exchange them, the
trading market for the initial notes following completion of the exchange offer.
Furthermore, the liquidity of the trading market in the exchange notes and
the market price quoted for the exchange notes, may be adversely affected by
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally.
The issuance of the exchange notes may adversely affect the market for the
initial notes.
Following commencement of the exchange offer, you may continue to trade the
initial notes in the Private Offerings, Resales and Trading through Automated
Linkages market. If initial notes are tendered for exchange and accepted in the
exchange offer, the trading market for the untendered and tendered but
unaccepted initial notes could be adversely affected. Please refer to the
section in this prospectus entitled "The Exchange Offer -- Your failure to
participate in the exchange offer will have adverse consequences."
Your failure to participate in the exchange offer will have adverse
consequences.
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes pursuant to this exchange offer, or if you do not properly tender
your initial notes in this exchange offer, you will not be able to resell, offer
to resell or otherwise transfer the initial notes unless they are registered
under the Securities Act or unless you resell them, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, you may no longer
be able to obligate us to register the initial notes under the Securities Act,
except in the limited circumstances provided under our registration rights
agreement.
Some persons who participate in the exchange offer must deliver a prospectus
in connection with resales of the exchange notes.
Based on certain no-action letters issued by the staff of the Securities
and Exchange Commission, we believe that you may offer for resale, resell or
otherwise transfer the exchange notes without compliance with the registration
and prospectus delivery requirements of the Securities Act. However, in some
instances described in this prospectus under "The Exchange Offer," you will
remain obligated to comply with the registration and prospectus delivery
requirements of the Securities Act to transfer your exchange notes. In these
cases, if you transfer any exchange note without delivering a prospectus meeting
the requirements of the Securities Act or without an exemption from registration
of your exchange notes under the Securities Act, you may incur liability under
this act. We do not and will not assume, or indemnify you against, this
liability.
20
USE OF PROCEEDS
The issuers will not receive any cash proceeds from the issuance of the
exchange notes in exchange for the outstanding initial notes. The issuers are
making this exchange solely to satisfy their obligations under their
registration rights agreement. In consideration for issuing the exchange notes,
the issuers will receive initial notes in like aggregate principal amount.
21
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated for MeriStar Hospitality Corporation and for us:
<Table>
<Caption>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------
1997(1) 1998(1) 1999 2000 2001(2) 2001 2002(3)
------- ------- ---- ---- ------- ---- -------
MeriStar Hospitality Corporation.............. 2.7x 1.9x 1.9x 1.8x 0.6x 1.4x 0.7x
MeriStar Hospitality Operating Partnership,
L.P. ....................................... 2.6x 2.4x 1.9x 1.8x 0.7x 1.4x 0.7x
</Table>
- ---------------
(1) We and MeriStar Hospitality Corporation were created on August 3, 1998, when
American General Hospitality Corporation, a corporation operating as a REIT,
and its associated entities merged with CapStar Hotel Company and its
associated entities. In connection with the merger between CapStar and
American General, MeriStar Hotels & Resorts, a separate publicly traded
company, was created to be the lessee and manager of nearly all our hotels.
Prior to August 3, 1998, the operating results of CapStar included the
revenues and expenses of these hotels.
(2) In 2001, we and MeriStar Hospitality Corporation had a $46.6 million and a
$48.7 million deficiency, respectively, in earnings to cover fixed charges.
We and MeriStar Hospitality Corporation had the following non-recurring
charges, which caused this deficiency in earnings:
- $9.3 million payment to terminate $300 million on interest rate swaps in
conjunction with the sale of $500 million of senior unsecured notes and
the repayment of related term loans;
- $6.7 million charge to recognize the effect of interest rate swaps that
were converted to non-hedging derivatives upon the repayment of portions
of our senior secured credit facility in December 2001 in conjunction
with the sale of $250 million of senior unsecured notes;
- $43.6 million loss on asset impairment related to the write-down of
certain hotel assets. These write-downs resulted from the negative impact
of changes in the economic climate on the value of our assets;
- $2.1 million charge to write-off our investment in STS Hotel Net;
- $5.8 million in costs related to our terminated merger with FelCor
Lodging Trust;
- $1.3 million in costs to terminate leases with Prime Hospitality
Corporation; and
- $1.1 million charge due to a restructuring at corporate headquarters.
These charges are non-recurring charges which are included in income from
continuing operations for the year ended December 31, 2001.
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations plus fixed charges,
excluding capitalized interest, and fixed charges consist of interest, whether
expended or capitalized, amortization of loan costs and estimated interest
within rental expense.
As of the date of this prospectus, we do not have any preferred stock
outstanding.
(3) For the three months ended March 31, 2002, we and MeriStar Hospitality
Corporation had a $11.1 million and $10.1 million deficiency, respectively,
in earnings to cover fixed charges.
22
CAPITALIZATION
The following table shows our capitalization as of March 31, 2002.
<Table>
<Caption>
MARCH 31, 2002
-----------------
(IN THOUSANDS)
Mortgage-backed secured facility............................ $ 318,536
Mortgage debt and other..................................... 51,687
Credit facility:
Revolving loans........................................ 43,000
Senior notes:
9% due 2008............................................ 299,225
9 1/8% due 2011........................................ 395,637
10 1/2% due 2009....................................... 248,479
Notes payable to MeriStar Hospitality Corporation........... 357,214
----------
Total debt........................................ 1,713,778
----------
Redeemable OP units at redemption value..................... 82,117
Common units................................................ 1,027,510
----------
Total capitalization................................... $2,823,405
==========
</Table>
23
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Our registration rights agreement requires us to file not later than May
18, 2002, which is 150 days following the date of original issuance of the
initial notes, the registration statement of which this prospectus is a part for
a registered exchange offer with respect to an issue of new notes in exchange
for the initial notes. These exchange notes will be substantially identical in
all material respects to the initial notes except that the exchange notes will
be registered under the Securities Act, will not bear legends restricting their
transfer and will not be entitled to registration rights under our registration
rights agreement. This summary of the terms of the registration rights agreement
does not contain all the information that you should consider and we refer you
to the provisions of the registration rights agreement, which has been filed as
an exhibit to the registration statement of which this prospectus is a part and
copies of which are available as indicated under the heading "Available
Information."
We are required to:
- use our best efforts to cause the registration statement to be declared
effective no later than July 17, 2002, which is 210 days after the date
of issuance of the outstanding notes;
- keep the exchange offer effective for not less than 20 business days, or
longer if required by applicable law, after the date that notice of the
exchange offer is mailed to holders of the outstanding notes; and
- use our best efforts to consummate the exchange offer no later than 30
business days after the date the registration statement is declared
effective unless the exchange offer would not be permitted by applicable
law or Securities and Exchange Commission policy.
The exchange offer being made here, if commenced and completed within the
time periods described above, will satisfy those requirements under the
registration rights agreement.
This prospectus, together with the letter of transmittal, is being sent to
all record holders of initial notes as of June 19.
Based on interpretations by the staff of the Securities and Exchange
Commission in no-action letters issued to third parties, we believe that the
exchange notes issued under the exchange offer may be offered for resale, resold
or otherwise transferred by each holder of exchange notes other than, (a) a
broker-dealer who acquires the initial notes directly from the issuers for
resale under Rule 144A under the Securities Act or any other available exemption
under the Securities Act or (b) any holder that directly or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with the issuers, without compliance with the registration and
prospectus delivery provisions of the Securities Act, so long as this holder:
- is acquiring the exchange notes in the ordinary course of its business;
and
- is not participating in, and does not intend to participate in, a
distribution of the exchange notes within the meaning of the Securities
Act and has no arrangement or understanding with any person to
participate in a distribution of the exchange notes within the meaning of
the Securities Act.
By tendering the initial notes in exchange for exchange notes, each holder,
other than a broker-dealer, will be required to make representations regarding
the above matters. If a holder of initial notes is participating in or intends
to participate in, a distribution of the exchange notes, or has any arrangement
or understanding with any person to participate in a distribution of the
exchange notes to be acquired in this exchange offer, that holder may be deemed
to have received restricted securities and may not rely on the applicable
interpretations of the staff of the Securities and Exchange Commission. Any
holder so deemed will have to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction.
24
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes may be deemed to be an underwriter within the meaning
of the Securities Act and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
those exchange notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an underwriter within the meaning of the Securities Act. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with offers to resell, resales and other transfers
of exchange notes received in exchange for initial notes which were acquired by
that broker-dealer as a result of market making or other trading activities. We
have agreed that we will make this prospectus available to any broker-dealer for
a period of time not to exceed 180 days after the completion of the exchange
offer for use in connection with any offer to resell, resale or other transfer.
Please refer to the section in this prospectus entitled "Plan of Distribution."
Each broker-dealer who acquired initial notes directly from the issuers for
resale under Rule 144A under the Securities Act or any other available exemption
under the Securities Act, and not through market-making or other trading
activities:
- may not rely on the applicable interpretations of the staff of the
Securities and Exchange Commission; and
- will have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary
resale transaction.
SHELF REGISTRATION STATEMENT
In the event that:
(a) we are not required to file a registration statement as part of the
exchange offer or to complete the exchange offer because it is not permitted by
law or the policies of the Securities and Exchange Commission, in either case
after having sought relief from the Commission; or
(b) selected institutional holders of initial notes notify us at least 20
days before the completion of the exchange offer that (1) the holder is
prohibited by law or policy of the Securities and Exchange Commission from
participating in the exchange offer, or (2) the holder may not resell the
exchange notes acquired by it in the exchange offer to the public without
delivering a prospectus and this prospectus contained in the registration
statement is not appropriate or available for that resale, or (3) the holder is
a broker-dealer and holds notes acquired directly from an issuer, a guarantor or
any of their affiliates (within the meaning of the Securities Act),
then we will instead of, or in the case of clause (b) of this sentence, in
addition to registering the exchange notes:
- use our best efforts, before the earlier of (A) 60 days after we
determine that we are not required to file a registration statement
relating to the exchange offer or (B) 60 days after we receive notice
from a holder as described in clause (b) above, to file with the
Securities and Exchange Commission a shelf registration statement
covering resales of the initial notes;
- use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act within 120 days after the
date we are required to file a shelf registration statement; and
- use our best efforts to keep the shelf registration statement
continuously effective, supplemented and amended as required by the
Securities Act, in order to permit the prospectus which is a part of the
shelf registration statement to be usable by holders until December 19,
2003.
We will, in the event that a shelf registration statement is filed, provide
to each holder of initial notes being registered copies of the prospectus that
is a part of the shelf registration statement. We will also notify each holder
when the shelf registration statement has become effective and take those other
actions
25
that are required to permit unrestricted resales of the initial notes being
registered. A holder that sells initial notes under the shelf registration
statement will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with those sales and will be bound by the provisions of the registration rights
agreement that are applicable to that holder, including certain indemnification
rights and obligations.
LIQUIDATED DAMAGES
In the event that:
(a) we do not file the registration statement or the shelf registration
statement, as the case may be, with the Securities and Exchange Commission on or
before the dates specified above for those filings,
(b) the registration statement or the shelf registration statement, as the
case may be, is not declared effective on or before the dates specified above
for that effectiveness,
(c) the exchange offer is not completed within 30 business days of the date
specified above for the effectiveness of the applicable registration statement,
or
(d) the registration statement or the shelf registration statement, as the
case may be, is filed and declared effective but after the filing and
declaration ceases to be effective or usable in connection with its intended
purpose, each event referred to in clauses (a) through (d), being called a
registration default,
then we will be obligated to pay to each holder of transfer restricted
securities liquidated damages. The notes remain restricted until:
(a) the date on which the initial notes have been exchanged by a person
other than a broker-dealer for exchange notes in a registered exchange offer;
(b) following the exchange by a broker-dealer in a registered exchange
offer of initial notes for exchange notes, the date on which the exchange notes
are sold to a purchaser who receives from the broker-dealer on or before the
date of the sale a copy of a prospectus contained in an exchange offer
registration statement;
(c) the date on which the initial notes have been effectively registered
under the Securities Act and disposed of in accordance with a shelf registration
statement; or
(d) the date on which the initial notes are eligible to be distributed to
the public under Rule 144 under the Securities Act.
The registration statement was not declared effective on or before the date
specified for effectiveness.
Liquidated damages will accrue and be payable semi-annually on the notes,
in addition to the stated interest on the notes, in an amount equal to $0.05 per
week per $1,000 principal amount of notes during the first 90-day period, which
will increase by $0.05 per week per $1,000 principal amount of notes for each
subsequent 90-day period. In no event will the rate exceed $0.50 per week per
$1,000 principal amount of notes, regardless of the number of registration
defaults. Liquidated damages will accrue from the date a registration default
occurs until the date on which:
- the registration statement is filed;
- the registration statement or shelf registration statement is declared
effective and the exchange offer is completed;
- the shelf registration statement is declared effective; or
- the shelf registration statement again becomes effective or made usable,
as the case may be.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
26
Upon completion of the exchange offer, holders of initial notes who do not
exchange their initial notes for exchange notes in the exchange offer will
generally no longer be entitled to registration rights and will not be able to
offer or sell their initial notes, unless those initial notes are subsequently
registered under the Securities Act, which, with limited exception, the issuers
will have no obligation to do, or under an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. Please
refer to the section in this prospectus entitled "-- Your failure to participate
in the exchange offer will have adverse consequences."
TERMS OF THE EXCHANGE OFFER
The Expiration Date; Extensions; Amendments; Termination
This exchange offer will expire at 5:00 p.m., New York City time, on July
19, 2002, unless the issuers extend it in their reasonable discretion. The
expiration date of this exchange offer will be at least 20 business days after
the commencement of the exchange offer in accordance with Rule 14e-1(a) under
the Securities Exchange Act of 1934 and the registration rights agreement.
The issuers expressly reserve the right to delay acceptance of any initial
notes, extend or terminate this exchange offer and not accept any initial notes
that they have not previously accepted if any of the conditions described below
under "-- Conditions to the Exchange Offer" have not been satisfied or waived by
them. The issuers will notify the exchange agent of any extension by oral notice
promptly confirmed in writing or by written notice. The issuers will also notify
the holders of the initial notes by mailing an announcement or by a press
release or other public announcement communicated before 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date unless applicable laws require them to do otherwise.
The issuers also expressly reserve the right to amend the terms of this
exchange offer in any manner. If the issuers make any material change, they will
promptly disclose this change in a manner reasonably calculated to inform the
holders of initial notes of the change including providing public announcement
or giving oral or written notice to these holders. A material change in the
terms of this exchange offer could include a change in the timing of the
exchange offer, a change in the exchange agent and other similar changes in the
terms of this exchange offer. If the issuers make any material change to this
exchange offer, they will disclose this change by means of a post-effective
amendment to the registration statement which includes this prospectus and will
distribute an amended or supplemented prospectus to each registered holder of
initial notes. In addition, the issuers will extend this exchange offer for an
additional five to ten business days as required by the Exchange Act, depending
on the significance of the amendment, if the exchange offer would otherwise
expire during that period. The issuers will promptly notify the exchange agent
by oral notice, promptly confirmed in writing, or written notice of any delay in
acceptance, extension, termination or amendment of this exchange offer.
Procedures for Tendering Initial Notes
Proper Execution and Delivery of Letters of Transmittal
To tender your initial notes in this exchange offer, you must use one of
the three alternative procedures described below:
- Regular delivery procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of
transmittal or the facsimile together with the certificates representing
the initial notes being tendered and any other required documents to the
exchange agent on or before 5:00 p.m., New York City time, on the
expiration date.
- Book-entry delivery procedure: Send a timely confirmation of a
book-entry transfer of your initial notes, if this procedure is
available, into the exchange agent's account at The Depository Trust
Company in accordance with the procedures for book-entry transfer
described under "-- Book-Entry Delivery Procedure" below, on or before
5:00 p.m., New York City time, on the expiration date.
27
- Guaranteed delivery procedure: If time will not permit you to complete
your tender by using the procedures described above before the expiration
date, comply with the guaranteed delivery procedures described under
"-- Guaranteed Delivery Procedure" below.
The method of delivery of the initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your broker, dealer, commercial
bank, trust company or nominee to tender your initial notes on your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. A holder is any person in whose name initial notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your notes, you must contact that registered holder promptly
and instruct that registered holder to tender your notes on your behalf. If you
wish to tender your initial notes on your own behalf, you must, before
completing and executing the letter of transmittal and delivering your initial
notes, either make appropriate arrangements to register the ownership of these
notes in your name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by any of the following, each of which is referred to as
an eligible institution:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
- a commercial bank or trust company having an office or correspondent in
the United States, or
- an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Exchange Act,
unless the initial notes are tendered:
- by a registered holder, or by a participant in The Depository Trust
Company in the case of book-entry transfers, whose name appears on a
security position listing as the owner, who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal and only if the exchange notes
are being issued directly to this registered holder or deposited into
this participant's account at The Depository Trust Company, or
- for the account of an eligible institution.
If the letter of transmittal or any bond powers are signed by:
(1) The recordholder(s) of the initial notes tendered: The signature
must correspond with the name(s) written on the face of the initial notes
without alteration, enlargement or any change whatsoever.
(2) A participant in The Depository Trust Company: The signature must
correspond with the name as it appears on the security position listing as
the holder of the initial notes.
(3) A person other than the registered holder of any initial
notes: These initial notes must be endorsed or accompanied by bond powers
and a proxy that authorize this person to tender the initial notes on
behalf of the registered holder, in satisfactory form to the issuers as
determined in our sole discretion, in each case, as the name of the
registered holder or holders appears on the initial notes.
28
(4) Trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity: These persons should so indicate when signing. Unless waived by
us, evidence satisfactory to the issuers of their authority to so act must
also be submitted with the letter of transmittal.
Book-Entry Delivery Procedure
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry deliveries of initial notes by causing The
Depository Trust Company to transfer these initial notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer. To effectively tender notes
through The Depository Trust Company, the financial institution that is a
participant in The Depository Trust Company will electronically transmit its
acceptance through the Automatic Tender Offer Program. The Depository Trust
Company will then edit and verify the acceptance and send an agent's message to
the exchange agent for its acceptance. An agent's message is a message
transmitted by The Depository Trust Company to the exchange agent stating that
The Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the notes that this
participation has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce this agreement against this participant.
The exchange agent will make a request to establish an account for the initial
notes at The Depository Trust Company for purposes of the exchange offer within
two business days after the date of this prospectus.
A delivery of initial notes through a book-entry transfer into the exchange
agent's account at The Depository Trust Company will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under "-- Exchange Agent" on or before the expiration date
unless the guaranteed delivery procedures described below are complied with.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
Guaranteed Delivery Procedure
If you are a registered holder of initial notes and desire to tender your
notes, and (a) these notes are not immediately available, (b) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date or (c) the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, you may still
tender in this exchange offer if:
- you tender through an eligible institution,
- on or before the expiration date, the exchange agent receives a properly
completed and duly executed letter of transmittal or facsimile of the
letter of transmittal, and a notice of guaranteed delivery, substantially
in the form provided by the issuers, with your name and address as holder
of the initial notes and the amount of notes tendered, stating that the
tender is being made by that letter and notice and guaranteeing that
within three New York Stock Exchange Trading days after the expiration
date the certificates for all the initial notes tendered, in proper form
for transfer, or a book-entry confirmation with an agent's message, as
the case may be, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent, and
- the certificates for all your tendered initial notes in proper form for
transfer or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
29
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Your tender of initial notes will constitute an agreement between you and
the issuers governed by the terms and conditions provided in this prospectus and
in the related letter of transmittal.
The issuers will be deemed to have received your tender as of the date when
your duly signed letter of transmittal accompanied by your initial notes
tendered, or a timely confirmation of a book-entry transfer of these notes into
the exchange agent's account at The Depository Trust Company with an agent's
message, or a notice of guaranteed delivery from an eligible institution is
received by the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by the issuers
in their sole discretion. The issuers' determination will be final and binding.
The issuers reserve the absolute right to reject any and all initial notes
not properly tendered or any initial notes which, if accepted, would, in their
opinion or their counsel's opinion, be unlawful. The issuers also reserve the
absolute right to waive any conditions of this exchange offer or irregularities
or defects in tender as to particular notes. The issuers' interpretation of the
terms and conditions of this exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of initial notes must
be cured within such time as the issuers shall determine. Neither the issuers,
the exchange agent nor any other person will be under any duty to give
notification of defects or irregularities with respect to tenders of initial
notes. Neither the issuers, the exchange agent nor any other person will incur
any liability for any failure to give notification of these defects or
irregularities. Tenders of initial notes will not be deemed to have been made
until such irregularities have been cured or waived. The exchange agent will
return without cost to their holders any initial notes that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, the issuers will accept all initial notes properly tendered and
will issue the exchange notes promptly thereafter. Please refer to the section
of this prospectus entitled "-- Conditions to the Exchange Offer" below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if the issuers give oral
or written notice of acceptance to the exchange agent.
The issuers will issue the exchange notes in exchange for the initial notes
tendered pursuant to a notice of guaranteed delivery by an eligible institution
only against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at The Depository Trust Company with an
agent's message, in each case, in form satisfactory to the issuers and the
exchange agent.
If any tendered initial notes are not accepted for any reason provided by
the terms and conditions of this exchange offer or if initial notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged initial notes will be returned without expense
to the tendering holder, or, in the case of initial notes tendered by book-entry
transfer procedures described above, will be credited to an account maintained
with the book-entry transfer facility, as promptly as practicable after
withdrawal, rejection of tender or the expiration or termination of the exchange
offer.
In addition, the issuers reserve the right in their sole discretion, as
limited by the provisions of the indenture for the initial notes, to:
- purchase or make offers for any initial notes that remain outstanding
after the expiration date, or, as described under "-- Expiration Date;
Extensions; Amendments; Terminations," to terminate the exchange offer as
provided in the terms of their registration rights agreement; and
- to the extent permitted by applicable law, purchase initial notes in the
open market, in privately negotiated transactions or otherwise. The terms
of any purchases or offers could differ from the terms of the exchange
offer.
30
By tendering into this exchange offer, you will irrevocably appoint the
issuers' designees as your attorney-in-fact and proxy with full power of
substitution and resubstitution to the full extent of your rights on the initial
notes tendered. This proxy will be considered coupled with an interest in the
tendered notes. This appointment will be effective only when, and to the extent
that the issuers accept your notes in this exchange offer. All prior proxies on
these notes will then be revoked and you will not be entitled to give any
subsequent proxy. Any proxy that you may give subsequently will not be deemed
effective. The issuers' designees will be empowered to exercise all voting and
other rights of the holders as they may deem proper at any meeting of note
holders or otherwise. The initial notes will be validly tendered only if the
issuers are able to exercise full voting rights on the notes, including voting
at any meeting of the note holders, and full rights to consent to any action
taken by the note holders.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"-- Exchange Agent" and before acceptance of your tendered notes for exchange by
the issuers.
Any notice of withdrawal must:
- specify the name of the person having tendered the initial notes to be
withdrawn,
- identify the initial notes to be withdrawn, including, if applicable, the
registration number or numbers and total principal amount of these notes,
- be signed by the person having tendered the initial notes to be withdrawn
in the same manner as the original signature on the letter of transmittal
by which these initial notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee for the initial notes to register the
transfer of these notes into the name of the person having made the
original tender and withdrawing the tender,
- specify the name in which any of these initial notes are to be
registered, if this name is different from that of the person having
tendered the initial notes to be withdrawn, and
- if applicable because the initial notes have been tendered though the
book-entry procedure, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different than
that of the person having tendered the initial notes to be withdrawn.
The issuers will determine all questions as to the validity, form and
eligibility, including time of receipt, of all notices of withdrawal and their
determination will be final and binding on all parties. Initial notes that are
withdrawn will be deemed not to have been validly tendered for exchange in this
exchange offer.
The exchange agent will return without cost to their holders all initial
notes that have been tendered for exchange and are not exchanged for any reason,
as promptly as practicable after withdrawal, rejection of tender or expiration
or termination of this exchange offer. In the case of outstanding initial notes
tendered by book-entry transfer into the exchange agent's account at The
Depository Trust Company under the book-entry transfer procedures described
above, the initial notes tendered for exchanged but not exchanged will be
credited to an account maintained with The Depository Trust Company.
You may retender properly withdrawn initial notes in this exchange offer by
following one of the procedures described under "-- Procedures for Tendering
Initial Notes" above at any time on or before the expiration date.
31
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer unless the exchange offer is not be
permissible under applicable law or Securities and Exchange Commission policy.
This condition is for our sole benefit. We may assert this condition
regardless of the circumstances giving rise to it and may also waive it, in
whole or in part, at any time and from time to time, if we determine in our
reasonable discretion that it has not been satisfied, subject to applicable law.
We will not be deemed to have waived our rights to assert or waive this
condition if we fail at any time to exercise it. Each of these rights will be
deemed an ongoing right which we may assert at any time and from time to time.
If we determine that we may terminate this exchange offer because the above
condition is not satisfied, we may:
- refuse to accept and return to their holders any initial notes that have
been tendered,
- extend the exchange offer and retain all notes tendered before the
expiration date, subject to the rights of the holders of these notes to
withdraw their tenders, or
- waive the condition that has not been satisfied and accept all properly
tendered notes that have not been withdrawn or otherwise amend the terms
of this exchange offer in any respect as provided under the section in
this prospectus entitled "-- Expiration Date; Extensions; Amendments;
Termination."
The exchange offer is not conditioned upon any minimum principal amount of
initial notes being tendered for exchange.
The issuers have no obligation to, and will not knowingly, accept tenders
of initial notes
- from their affiliates, within the meaning of Rule 405 under the
Securities Act,
- from any other holder or holders who are not eligible to participate in
the exchange offer under applicable law or interpretations of the
Securities Act by the Securities and Exchange Commission, or
- if the exchange notes to be received by the holder or holders of initial
notes in the exchange offer, upon receipt, will not be tradable by these
holders without restriction under the Securities Act and the Securities
Exchange Act of 1934 and without material restrictions under the blue sky
or securities laws of substantially all of the states of the United
States.
ACCOUNTING TREATMENT
The issuers will record the exchange notes at the same carrying value as
the initial notes as reflected in their accounting records on the date of the
exchange. Accordingly, the issuers will not recognize any gain or loss for
accounting purposes. The issuers will amortize the costs of the exchange offer
and the unamortized expenses related to the issuance of the exchange notes over
the term of the exchange notes.
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EXCHANGE AGENT
The issuers have appointed U.S. Bank Trust National Association as exchange
agent for this exchange offer. You should direct all questions and requests for
assistance on the procedures for tendering and all requests for additional
copies of this prospectus or the letter of transmittal to the exchange agent as
follows:
By Registered or Certified Mail:
U.S. Bank Trust National Association
180 East Fifth Street
St. Paul, MN 55101
Attn: Specialized Finance
By Facsimile:
(for Eligible Institutions only)
(651) 244-1537
Confirm by Telephone:
(651) 244-1197
By Overnight Courier or Hand:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, MN 55101
Attn: Specialized Finance
FEES AND EXPENSES
The issuers will bear the expenses of soliciting tenders in this exchange
offer and of all other expenses incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses. The principal solicitation for
tenders under the exchange offer is being made by mail; however, the issuers'
officers and other employees may make additional solicitation by telegraph,
telephone, telecopy or in person.
The issuers will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, the issuers will pay the
exchange agent reasonable and customary fees for its services and will reimburse
the exchange agent for its reasonable out-of-pocket expenses in connection with
this exchange offer. The issuers will also pay brokerage houses and other
custodians, nominees and fiduciaries their reasonable out-of-pocket expenses for
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the initial notes and for handling or
forwarding tenders for exchange to their customers.
The issuers will pay all transfer taxes, if any, applicable to the exchange
of initial notes in accordance with this exchange offer. However, tendering
holders will pay the amount of any transfer taxes, whether imposed on the
registered holder or any other persons, if:
- certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the notes tendered,
- tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal, or
- a transfer tax is payable for any reason other than the exchange of the
initial notes in this exchange offer.
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If satisfactory evidence of payment of any of these taxes or of any
exemption from this payment is not submitted with the letter of transmittal, the
amount of the transfer taxes will be billed directly to the tendering holder.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
If you do not exchange your initial notes for exchange notes in the
exchange offer or if you do not properly tender your initial notes in the
exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the initial notes unless they are registered under the Securities Act
or unless you resell them, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction not under,
the Securities Act. In addition, you will no longer be able to obligate the
issuers to register the initial notes under the Securities Act except in the
limited circumstances provided under our registration rights agreement. The
restrictions on transfer of your initial notes arise because the issuers issued
the initial notes under exemptions from, or in transactions outside the
registration requirements of the Securities Act and applicable state securities
law. In addition, if you want to exchange your initial notes in the exchange
offer for the purpose of participating in a distribution of the exchange notes,
you may be deemed to have received restricted securities, and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. To the extent the
initial notes are tendered and accepted in the exchange offer, the trading
market, if any, for the initial notes would be adversely affected. Please refer
to the section in this prospectus entitled "Risk Factors -- Your Failure to
participate in the exchange offer will have adverse consequences."
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The form and terms of the exchange notes are the same as the form and terms
of the initial notes, except that the exchange notes have been registered under
the Securities Act, will not bear legends restricting the transfer of the notes
and will not be entitled to registration rights under our registration rights
agreement. The issuers issued the initial notes, and will issue the exchange
notes, under the indenture, dated as of December 19, 2001, among MeriStar
Hospitality Operating Partnership, L.P., MeriStar Hospitality Corporation,
MeriStar Hospitality Finance Corp. II, our subsidiary guarantors and U.S. Bank
Trust National Association, as trustee. The terms of the exchange notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939. The exchange notes are subject to all those
terms, and we refer you to the indenture and the Trust Indenture Act for a
statement of the terms.
Except as otherwise indicated, the following description relates both to
the initial notes and the exchange notes and is a summary of the material
provisions of the indenture. It does not restate the indenture in its entirety.
We urge you to read the indenture because it, and not this description, defines
your rights as holder of the exchange notes. We have filed a copy of the
indenture as an exhibit to the registration statement which includes this
prospectus.
The definitions of specific terms used in the following summary are
indicated below under "-- Definitions." For purposes of this summary, the terms
"MeriStar", "we" and "our" refer only to MeriStar Hospitality Operating
Partnership, L.P., without including any of our subsidiaries, references to
MeriStar Hospitality Corporation do not include its subsidiaries and the term
"issuers" refers only to MeriStar Hospitality Operating Partnership, L.P. and
MeriStar Hospitality Finance Corp. II as co-issuers of the notes and does not
include any of their subsidiaries.
The exchange notes will be unsecured, senior obligations of MeriStar and
MeriStar Hospitality Finance Corp. II, ranking equal in right of payment to all
of our unsecured senior debt and senior in right of payment to all of our
subordinated debt. The exchange notes will be effectively subordinated to all of
our and our subsidiaries' secured Indebtedness and to all other Indebtedness of
our non-guarantor subsidiaries. As of March 31, 2002, we, MeriStar Hospitality
Corporation and our respective subsidiaries on a consolidated basis had
approximately $1.7 billion of indebtedness outstanding, including $1.4 billion
of senior debt. The $1.4 billion of senior debt includes $369.6 million of
non-recourse indebtedness of our non-guarantor subsidiaries to which the
exchange notes would be effectively subordinated, which indebtedness is secured
by all of the assets of such subsidiaries. As of March 31, 2002, our
non-guarantor subsidiaries had total assets of $1.5 billion. The indenture
permits the incurrence of additional senior debt, including secured debt, in the
future.
For purposes of the indenture, our subsidiaries are divided into two
categories -- Restricted Subsidiaries, which generally are subject to the
restrictive covenants set forth in the indenture, and Unrestricted Subsidiaries,
which generally are not. On the date of the indenture, none of our subsidiaries
were designated as Unrestricted Subsidiaries.
The initial notes were co-issued, and the exchange notes will be co-issued,
by MeriStar Hospitality Finance Corp. II, a wholly-owned, special purpose
corporation, that was formed by us. MeriStar Hospitality Finance Corp. II owns
no assets other than nominal equity capital and was formed for the sole purpose
of co-issuing the notes. Some of the covenants in the indenture that apply to us
also apply to MeriStar Hospitality Finance Corp. II. In addition, the indenture
provides that MeriStar Hospitality Finance Corp. II may not incur any
Indebtedness other than the initial notes, the exchange notes and guarantees of
certain existing Indebtedness. The indenture also provides that MeriStar
Hospitality Finance Corp. II may not engage in any business other than
co-issuing the initial notes and the exchange notes and guaranteeing existing
Indebtedness.
35
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be limited in aggregate principal amount to
$250,000,000. The exchange notes will mature on June 15, 2009. Interest on the
exchange notes will accrue from December 19, 2001 and will be payable
semi-annually in arrears in cash on June 15 and December 15 of each year,
commencing June 15, 2002, at the rate of 10 1/2% per annum to holders of
exchange notes of record on the immediately preceding June 1 and December 1.
Interest on the exchange notes will accrue from the most recent date to which
interest has been paid on the exchange notes or the initial notes or, if no
interest has been paid, from December 19, 2001. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Principal of and premium and interest on the exchange notes will be payable
at the office or agency maintained for that purpose or, at our option, payment
of interest on the exchange notes may be made by check mailed to the holders of
the exchange notes at their respective addresses as set forth in the register of
holders of exchange notes. However, all payments to noteholders who have given
us wire transfer instructions will be required to be made by wire transfer of
immediately available funds to the accounts specified by those noteholders.
Until we otherwise designate, our office or agency will be the office of the
trustee maintained for this purpose. The exchange notes will be issued, in
denominations of $1,000 and integral multiples of $1,000.
GUARANTEES
As of the date of issuance of the exchange notes, all of the issuers'
Obligations under the exchange notes will be guaranteed on an unsecured senior
basis by MeriStar Hospitality Corporation and all of our subsidiaries that
guarantee our Credit Agreement. In addition, the indenture provides that, before
guaranteeing any of our other Indebtedness or Indebtedness of MeriStar
Hospitality Corporation, a Restricted Subsidiary of ours or of MeriStar
Hospitality Corporation that is also a Significant Subsidiary must execute and
deliver to the trustee a supplemental indenture under which the Restricted
Subsidiary shall guarantee, on an unsecured senior basis, all of the issuers'
Obligations with respect to the exchange notes together with an opinion of
counsel (which counsel may be one of our employees) to the effect that the
supplemental indenture has been duly executed and delivered by the Restricted
Subsidiary and is in compliance in all material respects with the terms of the
indenture. The guarantees will rank equally with all of the Guarantors' existing
and future senior debt and senior to all of the Guarantors' subordinated debt.
The obligations of the Guarantors under any guarantees will be effectively
subordinated to all secured debt of the Guarantors and to all indebtedness of
their subsidiaries.
The Credit Agreement generally may, from time to time, prohibit the
incurrence of these future guarantees unless and until a time when the
indebtedness under the credit facility is repaid in full.
The indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
person) another corporation, person or entity, whether or not affiliated with
such Subsidiary Guarantor (other than us, MeriStar Hospitality Corporation or
another Subsidiary Guarantor), unless:
(a) except as limited by the provisions of the following paragraph,
the person formed by or surviving the consolidation or merger (if other
than the Subsidiary Guarantor) assumes all the obligations of the
Subsidiary Guarantor under a supplemental indenture in form and substance
reasonably satisfactory to the trustee pursuant to the indenture;
(b) immediately after giving effect to the transaction, no default or
event of default exists; and
(c) the Subsidiary Guarantor, or any person formed by or surviving the
consolidation or merger, would be permitted by virtue of the tests
described in the first paragraph of the covenant described above under the
caption "-- Covenants -- Incurrence of Indebtedness and Issuance of Certain
Capital Stock" to incur, immediately after giving effect to the
transaction, at least $1.00 of additional Indebtedness under those tests.
36
The indenture provides that in the event of (1) a sale or other disposition
of all or substantially all of the assets of any Subsidiary Guarantor, which
sale or other disposition is otherwise in compliance with the terms of the
indenture, by way of merger, consolidation or otherwise, or (2) a sale or other
disposition of all of the capital stock of any Subsidiary Guarantor, then the
Subsidiary Guarantor (in the event of a sale or other disposition, by way of a
merger, consolidation or otherwise, of all of the capital stock of the
Subsidiary Guarantor) or the corporation acquiring the property (in the event of
a sale or other disposition of all or substantially all of the assets of the
Subsidiary Guarantor) will be automatically and unconditionally released and
relieved of any obligations under its guarantee.
For purposes of a guarantee with respect to the exchange notes, each
Subsidiary Guarantor's liability will be that amount from time to time equal to
the aggregate liability of the Subsidiary Guarantor under the guarantee, but
shall be limited to the lesser of (a) the aggregate amount of our obligations
under the exchange notes and the indenture or (b) the amount, if any, which
would not have (1) rendered the Subsidiary Guarantor "insolvent" (as the term is
defined in the Federal Bankruptcy Code and in the Debtor and Creditor Law of the
State of New York) or (2) left it with unreasonably small capital at the time
its guarantee with respect to the exchange notes was entered into, after giving
effect to the incurrence of existing Indebtedness immediately before such time.
However, it shall be a presumption in any lawsuit or proceeding in which a
Subsidiary Guarantor is a party that the amount guaranteed pursuant to the
guarantee with respect to the exchange notes is the amount described in clause
(a) above unless any creditor, or representative of creditors of the Subsidiary
Guarantor, or debtor in possession or trustee in bankruptcy of the Subsidiary
Guarantor, otherwise proves in a lawsuit that the aggregate liability of the
Subsidiary Guarantor is limited to the amount described in clause (b). The
indenture provides that, in making any determination as to the solvency or
sufficiency of capital of a Subsidiary Guarantor in accordance with the previous
sentence, the right of the Subsidiary Guarantor to contribution from other
Subsidiary Guarantors and any other rights the Subsidiary Guarantor may have,
contractual or otherwise, shall be taken into account.
OPTIONAL REDEMPTION
Before December 15, 2004, the issuers may redeem, on any one or more
occasions, with the net cash proceeds of one or more public offerings of our
common equity (within 60 days of the consummation of any public equity
offering), up to 35% of the aggregate principal amount of the notes at a
redemption price equal to 110.500% of the principal amount of the notes plus
accrued and unpaid interest and liquidated damages thereon, if any, to the
redemption date. However, in order to redeem the notes with the net cash
proceeds of an equity offering, at least 65% of the aggregate principal amount
of the notes originally issued must remain outstanding immediately after each
redemption. The Credit Agreement may, from time to time, prohibit the purchase
of the notes with the net cash proceeds of a public equity offering, unless and
until the indebtedness under the Credit Agreement is repaid in full.
Except pursuant to the preceding paragraph, the exchange notes will not be
redeemable at the issuers' option before December 15, 2005. On or after December
15, 2005, the issuers may redeem all or a part of the exchange notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
12-month period beginning on December 15 of the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2005........................................................ 105.250%
2006........................................................ 102.625%
2007 and thereafter......................................... 100.000%
</Table>
If the optional redemption date is on or after an interest record date and
on or before the related interest payment date, the accrued and unpaid interest,
if any, will be paid to the person in whose name the exchange note is registered
at the close of business on that record date, and no additional interest will be
payable to holders whose exchange notes will be subject to redemption by the
issuers.
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MANDATORY REDEMPTION
The issuers are not required to make mandatory redemption or sinking fund
payments with respect to the exchange notes.
RANKING
The exchange notes will be the issuers' general unsecured obligations that
rank equally in right of payment with all of our other unsecured senior
Indebtedness and will rank senior in right of payment to all of our existing and
future Indebtedness that is expressly subordinated in right of payment to the
exchange notes. The exchange notes are effectively subordinated to all of our
and our subsidiaries' secured Indebtedness and to all other indebtedness of our
non-guarantor subsidiaries. In the event of bankruptcy, liquidation,
reorganization or other winding up of MeriStar or upon a default in payment with
respect to, or the acceleration of, any Indebtedness under the Credit Agreement
or our other secured debt, our assets that secure the Credit Agreement or our
other secured debt will be available to pay obligations on the exchange notes
only after all Indebtedness under the Credit Agreement or our other secured debt
has been repaid in full from such assets. We advise you that there may not be
sufficient assets remaining to pay amounts due on any or all the exchange notes
then outstanding.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
The indenture provides that upon the occurrence of a Change of Control,
each holder will have the right to require that we purchase all or a portion of
the holder's exchange notes pursuant to the offer described below, at a purchase
price equal to 101% of the principal amount of the exchange notes plus accrued
and unpaid interest and liquidated damages, if any, to the date of purchase.
Within 10 days following the date upon which the Change of Control occurs,
we must send, by first class mail, a notice to each holder, with a copy to the
trustee, which notice shall govern the terms of the Change of Control offer. The
notice shall state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 60 days from the date the notice is mailed,
other than as may be required by law. Holders electing to have an exchange note
purchased pursuant to a Change of Control offer will be required to surrender
their exchange note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the exchange note completed, to the trustee or paying agent,
if any, at the address specified in the notice before the close of business on
the third business day before the Change of Control payment date.
If a Change of Control offer is made, we cannot assure you that we will
have available funds sufficient to pay the Change of Control purchase price for
any or all the exchange notes that might be delivered by holders seeking to
accept that Change of Control offer. The Credit Agreement prohibits the purchase
of exchange notes by us in the event of a Change of Control, unless and until
the time the Indebtedness under the Credit Agreement is repaid in full. Any
future credit agreements or other agreements relating to senior debt to which we
become a party may contain similar restrictions and provisions.
In the event a Change of Control occurs at a time when we are prohibited
from purchasing exchange notes, we could seek the consent of our lenders to
purchase exchange notes or could attempt to refinance the borrowings that
contain that prohibition. If we do not obtain that consent or repay those
borrowings, we will remain prohibited from purchasing exchange notes. In that
case, our failure to purchase tendered exchange notes would constitute an event
of default under the indenture which would, in turn, constitute a default under
our Credit Agreement.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the exchange notes to require that we
repurchase or redeem the exchange notes in the event of a takeover,
recapitalization or similar transaction.
38
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of our assets. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of exchange
notes to require us to repurchase the exchange notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of our assets
to another person may be uncertain.
We will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934 and any other securities laws and regulations under the
Securities Exchange Act to the extent those laws and regulations are applicable
in connection with the repurchase of exchange notes under a Change of Control
offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the indenture, we shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached our obligations under the "Change of Control" provisions
of the indenture by virtue of that compliance.
We will not be required to make a Change of Control offer upon a Change of
Control if a third party makes the Change of Control offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control offer made by us and purchases all
exchange notes validly tendered and not withdrawn under the Change of Control
offer.
Asset Sales
The indenture provides that neither we nor MeriStar Hospitality Corporation
will, and neither we nor MeriStar Hospitality Corporation will permit any of our
respective Restricted Subsidiaries to, conduct an Asset Sale, unless:
(a) we, MeriStar Hospitality Corporation or such Restricted
Subsidiary, as the case may be, receive consideration at the time of the
Asset Sale at least equal to the fair market value of the assets sold or
otherwise disposed of, to be evidenced by a resolution of MeriStar
Hospitality Corporation's board of directors described in an officer's
certificate delivered to the trustee; and
(b) at least 75% of the consideration therefor received by us,
MeriStar Hospitality Corporation or such Restricted Subsidiary, as the case
may be, is in the form of cash or Cash Equivalents; provided, however,
that, with respect to the sale of one or more hotel properties, up to 75%
of the consideration may consist of indebtedness of the purchaser of those
hotel properties if that indebtedness is secured by a first priority Lien
on the properties sold. However, the principal amount of the following
shall be deemed to be cash for purposes of this provision:
(1) any of our liabilities or those of MeriStar Hospitality
Corporation or such Restricted Subsidiaries, as shown on our, MeriStar
Hospitality Corporation's or such Restricted Subsidiary's most recent
balance sheet or in the related notes thereto (other than liabilities
that by their terms rank junior in right of payment to the notes or any
guarantee of the notes) that are assumed by the transferee of those
assets; and
(2) any notes or other obligations received by us, MeriStar
Hospitality Corporation or any such Restricted Subsidiary from a
transferee that are converted by us or the Restricted Subsidiary into
cash within 90 days after the closing of the Asset Sale (to the extent
of the cash received).
Notwithstanding the foregoing, the restriction in clause (b) above will not
apply with respect to mortgages, other notes receivable or other securities
received by us, MeriStar Hospitality Corporation or any Restricted Subsidiary
from a transferee of any assets to the extent those mortgages, other notes
receivable or other securities are Investments permitted to be made by us,
MeriStar Hospitality Corporation or the Restricted Subsidiary under the covenant
described below entitled "Restricted Payments."
39
In the event and to the extent that the Net Proceeds received by us,
MeriStar Hospitality Corporation and our respective Restricted Subsidiaries
collectively from one or more Asset Sales occurring on or after the date of
issuance of the exchange notes in any period of 12 consecutive months exceed 10%
of Adjusted Consolidated Net Tangible Assets (determined as of the date closest
to the commencement of such 12-month period for which a consolidated balance
sheet of us, MeriStar Hospitality Corporation and our respective Restricted
Subsidiaries has been filed with the Securities and Exchange Commission or
otherwise provided to the trustee), then we or MeriStar Hospitality Corporation
shall, or shall cause the relevant Restricted Subsidiary to, within 365 days
after the date the Net Proceeds so received exceed 10% of Adjusted Consolidated
Net Tangible Assets:
(a) apply the Net Proceeds from the Asset Sale to prepay any
Indebtedness under any Credit Facility, in order to effect a permanent
reduction in the amount of Indebtedness that may be incurred under clause
(b) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Certain Capital Stock"; or
(b) invest the Net Proceeds from the Asset Sale in property or assets
used in a Hospitality-Related Business, provided that we, MeriStar
Hospitality Corporation or such Restricted Subsidiary will have complied
with this clause (b) if, within 365 days after the Asset Sale, we, MeriStar
Hospitality Corporation or such Restricted Subsidiary, as applicable, shall
have commenced and not completed or abandoned an Investment in compliance
with this clause (b) and shall have segregated the Net Proceeds from our
general funds and our subsidiaries for that purpose and the Investment is
substantially completed within 180 days after the first anniversary of the
Asset Sale.
Any Net Proceeds from an Asset Sale that are not applied or invested as
provided above will be deemed to constitute "excess proceeds." When the
aggregate amount of excess proceeds exceeds $10.0 million, we shall make an
offer, to all holders of exchange notes and other Indebtedness that ranks by its
terms equally in right of payment with the exchange notes and the terms of which
contain substantially similar requirements with respect to the application of
Net Proceeds from Asset Sales as are contained in the indenture to purchase on a
proportional basis the maximum principal amount of exchange notes, that is an
integral multiple of $1,000, that may be purchased out of the excess proceeds,
at an offer price in cash in an amount equal to 100% of the principal amount of
the exchange notes plus accrued and unpaid interest and liquidated damages
thereon, if any, to the date of purchase, in accordance with the procedures set
forth in the indenture. To the extent that the aggregate amount of exchange
notes and other such Indebtedness tendered under an Asset Sale offer is less
than the excess proceeds, we may use any remaining excess proceeds for general
corporate purposes. If the aggregate principal amount of exchange notes
surrendered by holders of those exchange notes exceeds the amount of excess
proceeds available for purchase of those exchange notes, the trustee shall
select the exchange notes to be purchased in the manner described under the
caption "-- Selection And Notice" below. When the offer to purchase is
completed, the amount of excess proceeds shall be reset at zero. Pending the
final application of any Net Proceeds from an Asset Sale under this paragraph,
we or any Restricted Subsidiary may temporarily reduce our Indebtedness or that
of a Restricted Subsidiary that ranks by its terms senior to the exchange notes
or otherwise invest the Net Proceeds in Cash Equivalents. The Credit Agreement
generally prohibits the purchase of exchange notes by us in the circumstances
described above unless and until the time as the Indebtedness under the credit
facility is repaid in full.
We will comply, to the extent applicable, with the requirements of Rule
14e-1 under the Securities Exchange Act and other securities laws and
regulations under the Securities Exchange Act to the extent those laws and
regulations are applicable in connection with any offer to purchase and the
purchase of exchange notes as described above. To the extent that the provisions
of any securities laws or regulations conflict with the "Asset Sale" provisions
of the indenture, we shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached our obligations under the
"Asset Sale" provisions of the indenture by virtue of compliance.
40
SELECTION AND NOTICE
If less than all of the exchange notes are to be purchased in an Asset Sale
offer or redeemed at any time, selection of exchange notes for purchase or
redemption will be made by the trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the exchange notes
are listed, or, if the exchange notes are not so listed, on a proportional
basis, by lot or by any method as the trustee shall deem fair and appropriate.
However, no exchange notes of a principal amount of $1,000 or less shall be
redeemed in part, and, if a partial redemption of exchange notes is made with
the proceeds of a public offering of our common equity securities, selection of
the exchange notes or portions of the exchange notes for redemption shall be
made by the trustee only on a proportional basis or on as nearly a proportional
basis as is practicable (except as required by the procedures of The Depository
Trust Company), unless that method is otherwise prohibited.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the purchase or redemption date to each holder of
exchange notes to be purchased or redeemed at its registered address. If any
exchange note is to be purchased or redeemed in part only, the notice of
redemption that relates to that exchange note shall state the portion of the
principal amount of that exchange note to be purchased or redeemed.
A new exchange note in principal amount equal to the unpurchased or
unredeemed portion of any exchange note purchased or redeemed in part will be
issued in the name of the holder of the exchange note upon cancellation of the
original exchange note. On and after the purchase or redemption date, interest
ceases to accrue on notes or portions of the exchange note called for purchase
or redemption as long as the issuers have deposited with the trustee funds in
satisfaction of the applicable redemption price under the indenture.
COVENANTS
The indenture contains, among others, the following covenants:
Restricted Payments. The indenture provides that neither we nor MeriStar
Hospitality Corporation will, and neither we nor MeriStar Hospitality
Corporation will permit any of our respective Restricted Subsidiaries to,
directly or indirectly:
(a) declare or pay any dividend or make any distribution on account of
our, MeriStar Hospitality Corporation's or any of our respective Restricted
Subsidiaries' Equity Interests, other than: (1) dividends or distributions
payable in our Equity Interests or Equity Interests of MeriStar Hospitality
Corporation (other than Disqualified Stock); (2) dividends or distributions
by one of our or MeriStar Hospitality Corporation's Restricted
Subsidiaries, except that to the extent that a portion of that dividend or
distribution is paid to a holder of Equity Interests of a Restricted
Subsidiary other than us, MeriStar Hospitality Corporation or a Restricted
Subsidiary, the portion of that dividend or distribution is not greater
than that holder's proportional aggregate common equity interest in that
Restricted Subsidiary; and (3) dividends or distributions payable on
Existing Preferred OP Units and Preferred OP Units issued in compliance
with the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Certain Capital Stock";
(b) purchase, redeem or otherwise acquire or retire for value any of
our Equity Interests or those of MeriStar Hospitality Corporation or any of
our respective Restricted Subsidiaries or other Affiliate of ours or
MeriStar Hospitality Corporation's, other than (1) any Equity Interests
owned by us, MeriStar Hospitality Corporation or any of our respective
Restricted Subsidiaries; (2) any Existing Preferred OP Units; and (3) any
Preferred OP Units issued in compliance with the covenant described below
under the caption "-- Incurrence of Indebtedness and Issuance of Certain
Capital Stock";
(c) purchase, redeem or otherwise acquire or retire for value any of
our Indebtedness or any Indebtedness of MeriStar Hospitality Corporation or
any of our respective Restricted Subsidiaries that is subordinated or
junior in right of payment, by its terms, to the notes or any guarantee of
the notes
41
before the scheduled final maturity or sinking fund payment dates for
payment of principal and interest in accordance with the original
documentation for the subordinated or junior Indebtedness; or
(d) make any Investment
(all the payments and other actions described in clauses (a) through (d)
above being collectively referred to as "Restricted Payments"), unless,
at the time of the Restricted Payment:
(1) no default or event of default shall have occurred and be
continuing or would occur as a consequence of the Restricted Payment;
(2) we and MeriStar Hospitality Corporation would, at the time of
the Restricted Payment and after giving pro forma effect thereto as if
the Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness under the tests described in the first paragraph
of the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Certain Capital Stock"; and
(3) the Restricted Payment, together with the aggregate of all
other Restricted Payments made by us, MeriStar Hospitality Corporation
and our respective Restricted Subsidiaries after the date of the
indenture, excluding Restricted Payments permitted by clauses (b), (c),
(d), (e) and (g)(1) of the second next succeeding paragraph, is less
than the sum, without duplication, of
(A) 95% of the aggregate amount of the Funds From Operations
(or, if the Funds From Operations is a loss, minus 100% of the amount
of such loss) (determined by excluding income resulting from
transfers of assets by us, MeriStar Hospitality Corporation or any of
our respective Restricted Subsidiaries to an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the fiscal quarter
immediately following January 26, 2001 to the end of our most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment, plus
(B) 100% of the aggregate net proceeds (including the fair
market value of non-cash proceeds as determined in good faith by the
board of directors of MeriStar Hospitality Corporation) received by
us or MeriStar Hospitality Corporation from the issue or sale, in
either case, since January 26, 2001 of either (a) our or MeriStar
Hospitality Corporation's Equity Interests or of (b) our or MeriStar
Hospitality Corporation's debt securities that have been converted or
exchanged into those Equity Interests (other than Equity Interests
(or convertible or exchangeable debt securities) sold to one of our
or MeriStar Hospitality Corporation's Restricted Subsidiaries and
other than Disqualified Stock or debt securities that have been
converted or exchanged into Disqualified Stock), plus
(C) in case, after January 26, 2001, any Unrestricted Subsidiary
has been redesignated a Restricted Subsidiary under the terms of the
indenture or has been merged, consolidated or amalgamated with or
into, or transfers or conveys assets to, or is liquidated into us,
MeriStar Hospitality Corporation or a Restricted Subsidiary of ours
or MeriStar Hospitality Corporation and, only if no default or event
of default shall have occurred and be continuing or would occur as a
consequence of the Restricted Payment, the lesser of (a) the book
value (determined in accordance with GAAP) at the date of the
redesignation, combination or transfer of the aggregate Investments
made by us, MeriStar Hospitality Corporation and our respective
Restricted Subsidiaries in the Unrestricted Subsidiary (or of the
assets transferred or conveyed, as applicable) and (b) the fair
market value of the Investment in the Unrestricted Subsidiary at the
time of the redesignation, combination or transfer (or of the assets
transferred or conveyed, as applicable), in each case as determined
in good faith by the board of directors of MeriStar Hospitality
Corporation, whose determination shall be conclusive and evidenced by
a resolution of the board and, in each case, after deducting any
Indebtedness associated with the Unrestricted Subsidiary so
designated or combined or with the assets so transferred or conveyed,
plus
42
(D) 100% of any dividends, distributions or interest actually
received in cash by us, MeriStar Hospitality Corporation or a
Restricted Subsidiary of ours or MeriStar Hospitality Corporation
after January 26, 2001 from (a) a Restricted Subsidiary the Net
Income of which has been excluded from the computation of Funds From
Operations, (b) an Unrestricted Subsidiary, (c) a person that is not
a subsidiary or (d) a person that is accounted for on the equity
method (except in the case of each of clauses (b), (c) and (d), to
the extent any such amounts are included in the calculation of Funds
From Operations).
Notwithstanding the foregoing, we or MeriStar Hospitality Corporation may
declare or pay any dividend or make any distribution that is necessary to
maintain MeriStar Hospitality Corporation's status as a REIT under the Internal
Revenue Code if:
(a) the aggregate principal amount of all of our outstanding
Indebtedness and that of MeriStar Hospitality Corporation and our
respective Restricted Subsidiaries on a consolidated basis at such time is
less than 80% of MeriStar Hospitality Corporation's Adjusted Total Assets;
and
(b) no default or event of default shall have occurred and be
continuing.
The foregoing provisions will not prohibit the following:
(a) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the payment
would have complied with the provisions of the indenture;
(b) (1) the redemption, purchase, retirement or other acquisition of
any OP Unit in exchange for Equity Interests of MeriStar Hospitality
Corporation (other than Disqualified Stock) and (2) the redemption,
purchase, retirement or other acquisition of any Equity Interests of us,
MeriStar Hospitality Corporation or a Restricted Subsidiary (other than OP
Units or Preferred OP Units) in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted Subsidiary of
ours or of MeriStar Hospitality Corporation) of other Equity Interests of
us or MeriStar Hospitality Corporation (other than any Disqualified Stock).
However, in the case of (1) and (2) the amount of any proceeds that is
utilized for the redemption, repurchase, retirement or other acquisition
shall be excluded from clause (3)(B) of the preceding paragraph;
(c) the defeasance, redemption, repayment or purchase of our
Indebtedness or that of MeriStar Hospitality Corporation or any Restricted
Subsidiary that is subordinate or junior in right of payment, by its terms,
to the notes and any guarantee of the notes in a Permitted Refinancing;
(d) the defeasance, redemption, repayment or purchase of our
Indebtedness or that of MeriStar Hospitality Corporation or any Restricted
Subsidiary that is subordinate or junior in right of payment, by its terms,
to the notes and any guarantee of the notes with the proceeds of a
substantially concurrent sale (other than to one of our subsidiaries) of
Equity Interests (other than Disqualified Stock) of us or MeriStar
Hospitality Corporation. However, the amount of any proceeds that is
utilized for the defeasance, redemption, repayment or purchase shall be
excluded from clause (3)(B) of the preceding paragraph;
(e) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of us or MeriStar Hospitality Corporation
under any management equity subscription agreement, stock option agreement
or stock award. However, the aggregate price paid for all the purchased,
redeemed, acquired or retired Equity Interests shall not exceed $3,000,000
in any 12 month period;
(f) payments or distributions to dissenting stockholders pursuant to
applicable law pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the indenture
applicable to mergers, consolidations and transfers of all or substantially
all of our property or assets;
(g) (1) the making of any Permitted Investment described in clauses
(a), (b), (c), (d), (f) or (g) of the definition of Permitted Investments
and (2) the making of any Permitted Investment described in clause (e) of
the definition of Permitted Investments; and
43
(h) payments that would otherwise be Restricted Payments, in an
aggregate amount not to exceed $35 million collectively, provided that at
the time of, and after giving effect to, the proposed payment, we and
MeriStar Hospitality Corporation could have incurred at least $1.00 of
additional Indebtedness under the first paragraph of the covenant described
under the heading "Incurrence of Indebtedness and Issuance of Certain
Capital Stock";
provided, however, in the case of clauses (b)(2), (c), (d), (e), (f), (g)(2) and
(h), no default or event of default shall have occurred and be continuing or
would occur as a consequence of the Permitted Investments.
In determining whether any Restricted Payment is permitted by the foregoing
covenant, we or MeriStar Hospitality Corporation may allocate or reallocate all
or any portion of the Restricted Payment among the clauses (a) through (h) of
the preceding paragraph or among the clauses and the first paragraph of this
covenant including clauses (1), (2) and (3). However, at the time of the
allocation or reallocation, all the Restricted Payments, or allocated portions
of the Restricted Payments, must be permitted under the various provisions of
the foregoing covenant.
The amount of all Restricted Payments (other than cash) shall be the fair
market value, evidenced by a resolution of the board of directors of MeriStar
Hospitality Corporation described in an officer's certificate delivered to the
trustee, on the date of the Restricted Payment of the asset(s) proposed to be
transferred by us, MeriStar Hospitality Corporation or the Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than (a) the end of any calendar quarter in which any Restricted Payment is made
or (b) the making of a Restricted Payment which, when added to the sum of all
previous Restricted Payments made in a calendar quarter, would cause the
aggregate of all Restricted Payments made in the quarter to exceed $5.0 million,
we shall deliver to the trustee an officer's certificate stating that the
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon our latest available financial statements.
The board of directors of MeriStar Hospitality Corporation may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary if the designation
would not cause a default or event of default. For purposes of making the
determination as to whether the designation would cause a default or event of
default, all outstanding Investments by us, MeriStar Hospitality Corporation and
our Restricted Subsidiaries (except to the extent repaid in cash) in the
subsidiary so designated will be deemed to be Restricted Payments at the time of
the designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All the outstanding Investments will
be deemed to constitute Investments in an amount equal to the greatest of (a)
the net book value of the Investments at the time of the designation, (b) the
fair market value of the Investments at the time of the designation and (c) the
original fair market value of the Investments at the time they were made. The
designation will only be permitted if the Restricted Payment would be permitted
at the time and if the Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
Any designation of a Restricted Subsidiary to be an Unrestricted Subsidiary
by MeriStar Hospitality Corporation's board of directors shall be evidenced to
the trustee by filing with the trustee a certified copy of the resolution of
MeriStar Hospitality Corporation's board of directors giving effect to the
designation and an officer's certificate certifying that the designation
complied with the foregoing conditions.
Incurrence of Indebtedness and Issuance of Certain Capital Stock. The
indenture provides that (1) neither we nor MeriStar Hospitality Corporation
will, and neither we nor MeriStar Hospitality Corporation will permit any of our
respective Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" or an "incurrence" of) any Indebtedness
(including Assumed Indebtedness), (2) neither we nor MeriStar Hospitality
Corporation will issue, and neither we nor MeriStar Hospitality Corporation will
permit any of our respective Restricted Subsidiaries to issue, any shares of
Disqualified Stock and (3) neither we nor MeriStar Hospitality Corporation will
permit any of our respective Restricted
44
Subsidiaries to issue any Preferred Stock. However, we or any Guarantor may
incur Indebtedness or issue shares of Disqualified Stock if:
(1) the aggregate principal amount of all outstanding Indebtedness and
Disqualified Stock of us, MeriStar Hospitality Corporation and our
respective Restricted Subsidiaries (including amounts of Refinancing
Indebtedness outstanding pursuant to clause (e) of the next paragraph or
otherwise) determined on a consolidated basis is less than or equal to 65%
of MeriStar Hospitality Corporation's Adjusted Total Assets, after giving
effect to, on a pro forma basis, such incurrence or issuance and the
receipt and application of the proceeds thereof; and
(2) the Fixed Charge Coverage Ratio of MeriStar Hospitality
Corporation for our most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which the additional Indebtedness is incurred or the Disqualified Stock
is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as
if the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of that four-quarter
period;
provided that we, MeriStar Hospitality Corporation or any of our respective
Restricted Subsidiaries may not incur any Subsidiary Debt or any Secured
Indebtedness if immediately after giving effect to, on a pro forma basis, such
incurrence of such additional Subsidiary Debt or Secured Indebtedness and the
application of the proceeds thereof, the aggregate principal amount of all
outstanding Subsidiary Debt or Secured Indebtedness of us, MeriStar Hospitality
Corporation and our respective Restricted Subsidiaries (including amounts of
Refinancing Indebtedness outstanding pursuant to clause (e) of the next
paragraph or otherwise) on a consolidated basis is greater that 45% of MeriStar
Hospitality Corporation's Adjusted Total Assets.
The foregoing provisions do not apply to:
(a) the incurrence by our or MeriStar Hospitality Corporation's
Unrestricted Subsidiaries of Non-Recourse Indebtedness; however, if any of
such Indebtedness ceases to be Non-Recourse Indebtedness of an Unrestricted
Subsidiary, that event shall be deemed to constitute an incurrence of
Indebtedness by one of our or MeriStar Hospitality Corporation's Restricted
Subsidiaries;
(b) the incurrence by us, MeriStar Hospitality Corporation or our
respective Restricted Subsidiaries of Indebtedness under the Credit
Facilities in an aggregate principal amount not to exceed $700 million at
any one time outstanding minus any Net Proceeds that have been applied to
permanently reduce the outstanding amount of the Indebtedness under clause
(a) of the third paragraph of the covenant described under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(c) the incurrence by us, MeriStar Hospitality Corporation and our
respective Restricted Subsidiaries of Existing Indebtedness;
(d) the incurrence by us, MeriStar Hospitality Corporation or our
respective Restricted Subsidiaries of Indebtedness under Hedging
Obligations that do not increase our Indebtedness or that of MeriStar
Hospitality Corporation or the Restricted Subsidiary, as the case may be,
other than as a result of fluctuations in interest or foreign currency
exchange rates. However, the Hedging Obligations must be incurred for the
purpose of providing interest rate protection with respect to Indebtedness
permitted under the indenture or to provide currency exchange protection in
connection with revenues generated in currencies other than U.S. dollars;
(e) the incurrence or the issuance by us or MeriStar Hospitality
Corporation of Refinancing Indebtedness or Refinancing Disqualified Stock
or the incurrence or issuance by a Restricted Subsidiary of Refinancing
Indebtedness or Refinancing Disqualified Stock. However, the Refinancing
Indebtedness or Refinancing Disqualified Stock must be a Permitted
Refinancing;
(f) the incurrence by us, MeriStar Hospitality Corporation or any of
our respective Restricted Subsidiaries of intercompany Indebtedness between
or among us, MeriStar Hospitality Corporation
45
and/or any of our respective Restricted Subsidiaries. However, (1) any
subsequent issuance or transfer of Equity Interests that results in any of
the Indebtedness being held by a person other than a Restricted Subsidiary
and (2) any sale or other transfer of any of the Indebtedness to a person
that is not either us, MeriStar Hospitality Corporation or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
the Indebtedness by us, MeriStar Hospitality Corporation or a Restricted
Subsidiary, as the case may be;
(g) the incurrence of Indebtedness represented by the notes and any
guarantee of the notes;
(h) the incurrence by us, MeriStar Hospitality Corporation or any of
our respective Restricted Subsidiaries, in the ordinary course of business
and consistent with past practice, of surety, performance or appeal bonds;
(i) the incurrence by us, MeriStar Hospitality Corporation or any of
our respective Restricted Subsidiaries of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount at any time outstanding not to exceed $50.0
million collectively;
(j) the incurrence by us, MeriStar Hospitality Corporation or any of
our respective Restricted Subsidiaries of Assumed Indebtedness, except
that, after giving effect to the incurrence of Assumed Indebtedness, we,
MeriStar Hospitality Corporation and our respective Restricted Subsidiaries
must be able to incur at least $1.00 of additional Indebtedness under the
tests described in the preceding paragraph;
(k) the issuance of Preferred OP Units by us or any of our Restricted
Subsidiaries as full or partial consideration for the acquisition of
lodging facilities and related assets, except that, after giving effect to
the issuance of the Preferred OP Units, we, MeriStar Hospitality
Corporation and our respective Restricted Subsidiaries must be able to
incur at least $1.00 of additional Indebtedness under the tests described
in the preceding paragraph; and
(j) the incurrence of Indebtedness by us, MeriStar Hospitality
Corporation or any of our respective Restricted Subsidiaries arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any of our obligations or those of MeriStar
Hospitality Corporation or any of our respective Restricted Subsidiaries
pursuant to such agreements, in any case incurred in connection with the
disposition of any business, assets or Restricted Subsidiary (other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition), in a principal amount not to exceed the
gross proceeds actually received by us, MeriStar Hospitality Corporation
and our respective Restricted Subsidiaries on a consolidated basis in
connection with such disposition.
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The indenture provides that neither we nor MeriStar Hospitality
Corporation will, and neither we nor MeriStar Hospitality Corporation will
permit any of our respective Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to:
(a) (1) pay dividends or make any other distributions to us, MeriStar
Hospitality Corporation or any of our respective Restricted Subsidiaries
(A) on its Capital Stock or (B) with respect to any other interest or
participation in, or measured by, its profits, or (2) pay any Indebtedness
owed to us, MeriStar Hospitality Corporation or any of our respective
Restricted Subsidiaries;
(b) make loans or advances or capital contributions to us, MeriStar
Hospitality Corporation or any of our respective Restricted Subsidiaries;
or
(c) sell, lease or transfer any of its properties or assets to us,
MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries,
46
except for those encumbrances or restrictions existing under or by reasons
of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) any Credit Facility, except that the encumbrances or restrictions
contained in that facility, as amended, modified, supplemented,
restructured, renewed, restated, refunded, replaced or refinanced or
extended from time to time on one or more occasions, must be no more
restrictive than those contained in the Credit Agreement as in effect on
the date of the indenture;
(3) the indenture and the notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a person
we, MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries acquire or of any person that becomes a Restricted Subsidiary
as in effect at the time of the acquisition or the person becoming a
Restricted Subsidiary (except to the extent the Indebtedness was incurred
in connection with or in contemplation of the acquisition or that person
becoming a Restricted Subsidiary), which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other
than the person, or the property or assets of the person, so acquired;
provided that the Consolidated Cash Flow of that person is not taken into
account (to the extent of the restriction) in determining whether the
acquisition was permitted by the terms of the indenture;
(6) restrictions of the nature described in clause (c) above by reason
of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practice;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (c) above on the property so acquired;
(8) Permitted Refinancings, except that the encumbrance or
restrictions contained in the agreements governing the Permitted
Refinancings must be no more restrictive than those contained in the
agreements governing the Indebtedness or Disqualified Stock being
refinanced; or
(9) customary restrictions in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent the
restrictions restrict the transfer of the property subject to such security
agreements and mortgages.
Liens. The indenture provides that neither we nor MeriStar Hospitality
Corporation will, and neither we nor MeriStar Hospitality Corporation will
permit any of our respective Restricted Subsidiaries to, secure any Indebtedness
under any Credit Agreement or any other Indebtedness incurred pursuant to clause
(b) of the second paragraph under "-- Incurrence of Indebtedness and Issuance of
Certain Capital Stock" by a Lien (other than a Stock Pledge) unless
contemporaneously therewith effective provision is made to secure the notes
equally and ratably with the Indebtedness under such Credit Agreement or any
such other Indebtedness incurred pursuant to clause (b) of the second paragraph
under "-- Incurrence of Indebtedness and Issuance of Certain Capital Stock" (and
any other senior Indebtedness outstanding with similar provisions requiring us
to equally and ratably secure such Indebtedness) for so long as the Indebtedness
under any such Credit Agreement or any other such Indebtedness incurred pursuant
to clause (b) of the second paragraph under "-- Incurrence of Indebtedness and
Issuance of Certain Capital Stock" is secured by such Lien; provided that we,
MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries may secure with one or more Liens up to $300 million aggregate
principal amount of Indebtedness described in clause (a) of the definition of
"Non-Recourse Indebtedness" and/or Indebtedness commonly known as
"collateralized mortgage-backed securities," without making provision to equally
and ratably secure the notes.
Maintenance of Total Unencumbered Assets. We, MeriStar Hospitality
Corporation and our respective Restricted Subsidiaries will maintain Total
Unencumbered Assets of not less than 150% of the aggregate outstanding principal
amount of our, MeriStar Hospitality Corporation's and our Restricted
47
Subsidiaries' senior Unsecured Indebtedness (including amounts of Refinancing
Indebtedness outstanding pursuant to clause (e) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Certain Capital
Stock" above or otherwise); provided, however, that this covenant shall not
prohibit the incurrence of Secured Indebtedness under the Credit Agreement; and
provided further, however, that, to the extent that the notes are secured by any
assets equally and ratably with any other Indebtedness pursuant to the covenant
described under "Liens" above, the related Lien or Liens on such assets securing
the notes and such other Indebtedness shall be ignored when determining the
amount of Total Unencumbered Assets and senior Unsecured Indebtedness for
purposes of this covenant.
Merger, Consolidation or Sale of Assets. The indenture provides that
neither of the issuers nor MeriStar Hospitality Corporation may consolidate or
merge with or into (whether or not such issuer or MeriStar Hospitality
Corporation, as the case may be, is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
respective properties or assets in one or more related transactions, to another
corporation, person or entity unless:
(a) such issuer or MeriStar Hospitality Corporation, as the case may
be, is the surviving corporation or the person formed by or surviving the
consolidation or merger (if other than such issuer or MeriStar Hospitality
Corporation, as the case may be) or to which the sale, transfer or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state of the United States or the
District of Columbia;
(b) the person formed by or surviving any such consolidation or merger
(if other than such issuer or MeriStar Hospitality Corporation, as the case
may be) or the person to which the sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all of such
issuer's or MeriStar Hospitality Corporation's respective obligations, as
the case may be, pursuant to a supplemental indenture under the notes or
the guarantee, as the case may be, and the indenture;
(c) immediately after the transaction no default or event of default
exists; and
(d) such issuer or MeriStar Hospitality Corporation, as the case may
be, or any person formed by or surviving any such consolidation or merger,
or to which the sale, assignment, transfer, lease, conveyance or other
disposition shall have been made will, at the time of the transaction and
after giving pro forma effect thereto as if the transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness under the tests as set forth in
the first paragraph of the covenant described under the caption
"-- Incurrence of Indebtedness and Issuance of Certain Capital Stock."
Upon any consolidation, merger, lease, conveyance or transfer in accordance
with the foregoing, the successor person formed by the consolidation or into
which such issuer or MeriStar Hospitality Corporation, as the case may be, are
merged or to which the lease, conveyance or transfer is made shall succeed to,
and be substituted for such issuer or MeriStar Hospitality Corporation, as the
case may be, and may exercise all of our respective rights and powers under the
indenture with the same effect as if the successor had been named as such issuer
or MeriStar Hospitality Corporation, as the case may be, therein and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants under the indenture and the notes.
Transactions with Affiliates. The indenture provides that neither we nor
MeriStar Hospitality Corporation will, and neither we nor MeriStar Hospitality
Corporation will permit any of our respective Restricted Subsidiaries to, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(a) the Affiliate Transaction is on terms that are no less favorable
to us, MeriStar Hospitality Corporation or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by us, MeriStar Hospitality Corporation or the Restricted
Subsidiary on an arm's-length basis with an unrelated person;
48
(b) we deliver to the trustee:
(1) with respect to any Affiliate Transaction involving aggregate
payments in excess of $5.0 million, an officer's certificate certifying
that the Affiliate Transaction complies with clause (a) above and the
Affiliate Transaction is approved by a majority of the disinterested
members of MeriStar Hospitality Corporation's board of directors; and
(2) with respect to any Affiliate Transaction involving aggregate
payments in excess of $10.0 million, other than an Affiliate Transaction
involving the acquisition or disposition of a lodging facility by us,
MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries, an opinion as to the fairness to us, MeriStar Hospitality
Corporation or the Restricted Subsidiary from a financial point of view
issued, at our option, by an investment banking firm of national
standing or a qualified appraiser; and
(c) we deliver to the trustee in the case of an Affiliate Transaction
involving the acquisition or disposition of a lodging facility by us,
MeriStar Hospitality Corporation or our respective Restricted Subsidiaries,
and
(1) involving aggregate payments of more than $5.0 million and less
than $25.0 million, an appraisal by a qualified appraiser to the effect
that the transaction is being undertaken at fair market value, or
(2) involving aggregate payments of $25.0 million or more, an
opinion as to the fairness of the transaction to us, MeriStar
Hospitality Corporation or the Restricted Subsidiary from a financial
point of view issued by an investment banking firm of national standing.
However, the following shall not be deemed Affiliate Transactions:
(A) any employment, deferred compensation, stock option,
noncompetition, consulting or similar agreement we, MeriStar Hospitality
Corporation or any of our respective Restricted Subsidiaries enter into in
the ordinary course of business and consistent with our past practice or
that of MeriStar Hospitality Corporation or the Restricted Subsidiary;
(B) transactions between or among us or MeriStar Hospitality
Corporation and/or our respective Restricted Subsidiaries;
(C) the incurrence of fees in connection with the provision of hotel
management services, except that the fees must be paid in the ordinary
course of business and are consistent with past practice; and
(D) Restricted Payments permitted by the provisions of the indenture
described above under the covenant described under the caption
"-- Restricted Payments."
Line of Business. The indenture provides that for so long as any notes are
outstanding, neither we nor MeriStar Hospitality Corporation will, and neither
we nor MeriStar Hospitality Corporation will permit any of our respective
Restricted Subsidiaries to, engage in any business or activity other than a
Hospitality-Related Business.
Payments for Consent. The indenture provides that neither we nor MeriStar
Hospitality Corporation nor any of our respective subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless the consideration is offered to be paid or agreed
to be paid to all holders of the notes that consent, waive or agree to amend in
the time frame described in the solicitation documents relating to the consent,
waiver or agreement.
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COVENANTS UPON ATTAINMENT AND MAINTENANCE OF AN INVESTMENT GRADE RATING
The covenants described above under "Covenants -- Liens,"
"Covenants -- Restricted Payments," "Covenants -- Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries," and "Covenants -- Transactions
with Affiliates" will not be applicable in the event, and only for so long as,
the notes are rated Investment Grade and no default or event of default has
occurred and is continuing.
REPORTS
Whether or not required by the rules and regulations of the Securities and
Exchange Commission, as long as any notes are outstanding, we and MeriStar
Hospitality Corporation will furnish to the holders of notes all quarterly and
annual financial information that would be required to be contained in a filing
with the Securities and Exchange Commission on Forms 10-Q and 10-K if we or
MeriStar Hospitality Corporation were required to file the forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our certified independent accountants. In addition, whether or not required
by the rules and regulations of the Securities and Exchange Commission, we and
MeriStar Hospitality Corporation will submit a copy of all the information with
the Securities and Exchange Commission for public availability (unless the
Securities and Exchange Commission will not accept such a submission) and file
the information with the trustee and make the information available to investors
and securities analysts who request it in writing. In addition, for as long as
the notes are outstanding, we and MeriStar Hospitality Corporation will continue
to provide to holders and to prospective purchasers of notes the information
required by Rule 144A(d)(4).
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event of
default with respect to the notes:
(a) default for 30 days in the payment when due of interest or
liquidated damages, if any, on the notes;
(b) default in payment when due of the principal of or premium, if
any, on the notes at maturity, upon redemption or otherwise, including the
failure to make a payment to purchase notes tendered pursuant to a Change
of Control offer or an Asset Sale offer);
(c) failure by us, MeriStar Hospitality Corporation or any Restricted
Subsidiary to comply with the covenant described under the caption
"-- Covenants -- Merger, Consolidation or Sales of Assets";
(d) failure by us, MeriStar Hospitality Corporation or any Restricted
Subsidiary for 30 days in the performance of any other covenant, warranty
or agreement in the indenture or the notes after written notice shall have
been given to us by the trustee or to us and the trustee from holders of at
least 25% in principal amount of the notes then outstanding;
(e) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions to the grace periods) the
principal amount of Non-Recourse Indebtedness of us, MeriStar Hospitality
Corporation or any of our respective Restricted Subsidiaries with an
aggregate principal amount in excess of the lesser of (1) 10% of the total
assets of us, MeriStar Hospitality Corporation and our respective
Restricted Subsidiaries measured as of the end of our most recent fiscal
quarter for which internal financial statements are available immediately
before the date on which the default occurred, determined on a pro forma
basis, and (2) $50 million, and the failure continues for a period of 10
days or more, or the acceleration of the final stated maturity of any such
Non-Recourse Indebtedness (which acceleration is not rescinded, annulled or
otherwise cured within 10 days of receipt by us, MeriStar Hospitality
Corporation or the Restricted Subsidiary of notice of the acceleration);
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(f) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions to the grace periods) the
principal amount of any Indebtedness (other than Non-Recourse Indebtedness)
of us, MeriStar Hospitality Corporation or any Restricted Subsidiary, or
the acceleration of the final stated maturity of any such Indebtedness if
the aggregate principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, in each case
with respect to which the 10-day period described above has passed,
aggregates $10.0 million or more at any time;
(g) failure by us, MeriStar Hospitality Corporation or any Restricted
Subsidiary to pay final judgments rendered against them (other than
judgment liens without recourse to any of our, MeriStar Hospitality
Corporation's or our respective Restricted Subsidiaries' assets or property
other than assets or property securing Non-Recourse Indebtedness)
aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days, except for judgments as to
which a reputable insurance company has accepted full liability;
(h) except as permitted by the indenture, any guarantee with respect
to the notes shall be held in a judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor (or its successors and assigns), or any person acting on behalf
of such Guarantor (or its successors and assigns), shall deny or disaffirm
its obligations or shall fail to comply with any obligations under its
guarantee; and
(i) specific events of bankruptcy or insolvency with respect to us,
MeriStar Hospitality Corporation, or any of our respective subsidiaries
that would constitute a Significant Subsidiary or any group of our
respective subsidiaries that, taken together, would constitute a
Significant Subsidiary.
If any event of default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an event of default arising from specific events of
bankruptcy or insolvency, with respect to (1) us, (2) any of our or MeriStar
Hospitality Corporation's subsidiaries that would constitute a Significant
Subsidiary, (3) any group of our or MeriStar Hospitality Corporation's
subsidiaries that, taken together, would constitute a Significant Subsidiary or
(4) MeriStar Hospitality Corporation, all outstanding notes will become due and
payable without further action or notice. Under specific circumstances, the
holders of a majority in principal amount of the outstanding notes may rescind
any acceleration with respect to the notes and its consequences. Holders of the
notes may not enforce the indenture or the notes except as provided in the
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then-outstanding notes may direct the trustee in its exercise of
any trust or power. The trustee may withhold from holders of the notes notice of
any continuing default or event of default, except a default or event of default
relating to the payment of principal or interest on the notes, if it determines
that withholding notice is in their interest.
The indenture provides that no holder of a note may pursue a remedy under
the indenture unless:
(a) the holder gives to the trustee written notice of a continuing
event of default or the trustee receives the notice from us or MeriStar
Hospitality Corporation;
(b) the holders of at least 25% in principal amount of the
then-outstanding notes make a written request to the trustee to pursue a
remedy;
(c) the holder of a note or holders of notes offer and, if requested,
provide to the trustee indemnity satisfactory to the trustee against any
loss, liability or expense;
(d) the trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during the 60-day period the holders of a majority in principal
amount of the then-outstanding notes do not give the trustee a direction
inconsistent with the request.
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However, this provision does not affect the right of a holder of a note to sue
for enforcement of any overdue payment on the notes.
We and MeriStar Hospitality Corporation are required to deliver to the
trustee annually a statement regarding compliance with the indenture, including
with respect to any Restricted Payments made during that year and the basis upon
which the calculations required by the covenants described under the caption
"-- Covenants -- Restricted Payments" were computed (which calculations may be
based on our latest available financial statements). We and MeriStar Hospitality
Corporation are also required upon becoming aware of any default or event of
default, to deliver to the trustee a statement specifying the default or event
of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
None of the directors, officers, employees, incorporators or stockholders,
past, present or future, of us, any successor person or any Guarantor, as such,
shall have any liability for any of our obligations under the notes, any
guarantee of the notes or the indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of notes by
accepting a note waives and releases all those liabilities. The waiver and
release are part of the consideration for issuance of the notes. The waiver and
release may not be effective to waive or release liabilities under the federal
securities laws and it is the view of the Securities and Exchange Commission
that such a waiver or release is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The issuers may, at their option and at any time, elect to have all of the
issuers' obligations and the obligations of any Guarantor discharged with
respect to the outstanding notes ("legal defeasance"), except for:
(a) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on the notes
when the payments are due;
(b) the issuers' obligations and those of the Guarantors with respect
to the notes concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance of an office
or agency for payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of the trustee,
and the issuers' obligations and those of the Guarantors in connection with
the trustee; and
(d) the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have the
issuers' obligations and those of any Guarantor released with respect to
specific covenants that are described in the indenture ("covenant defeasance").
After this release, any omission to comply with those obligations would not
constitute a default or event of default with respect to the notes. In the event
covenant defeasance occurs, some events, but not non-payment, bankruptcy,
receivership, rehabilitation and insolvency events, described above under
"-- Events of Default and Remedies" would no longer constitute an event of
default with respect to the notes.
In order to exercise either legal defeasance or covenant defeasance,
(a) the issuers must irrevocably deposit with the trustee, for the
benefit of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts that will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding notes on the stated maturity or on the applicable redemption
date, as the case may be, of such principal or installment of principal of,
premium, if any, or interest on the outstanding notes;
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(b) in the case of legal defeasance, we shall have delivered to the
trustee an opinion of counsel (which counsel may be one of our employees or
an employee of one of our subsidiaries) reasonably acceptable to the
trustee confirming that (1) we have received from, or there has been
published by, the Internal Revenue Service a ruling or (2) since the date
of issuance of the notes, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon the
opinion of counsel shall confirm that, the holders of the outstanding notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such legal defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if the legal defeasance had not occurred;
(c) in the case of covenant defeasance, we shall have delivered to the
trustee an opinion of counsel (which counsel may be one of our employees or
an employee of one of our subsidiaries) reasonably acceptable to the
trustee confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if the covenant defeasance had not occurred;
(d) no default or event of default shall have occurred and be
continuing with respect to the notes on the date of the deposit, other than
a default or event of default resulting from the borrowing of funds applied
to the deposit, or insofar as events of default from bankruptcy or
insolvency events are concerned, at anytime in the period ending on the
123rd day after the date of deposit (or greater period of time in which any
such deposit of trust funds may remain subject to bankruptcy or insolvency
laws insofar as those apply to the deposit by the issuers);
(e) such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument, other than the indenture, to which we, MeriStar
Hospitality Corporation or any of our respective subsidiaries is a party or
by which we, MeriStar Hospitality Corporation or any of our respective
subsidiaries is bound;
(f) we shall have delivered to the trustee an opinion of counsel to
the effect that, as of the date of the opinion, (1) the trust funds will
not be subject to any rights of holders of Indebtedness other than the
notes and (2) assuming no intervening bankruptcy of the issuers or MeriStar
Hospitality Corporation between the date of deposit and the 123rd day
following the deposit and assuming no holder of notes is one of the
issuers' or MeriStar Hospitality Corporation's insiders, after the 123rd
day following the deposit, the trust funds will not fall under the effects
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors rights generally under any applicable United States or
state law;
(g) we shall have delivered to the trustee an officer's certificate
stating that the deposit was not made by us with the intent of preferring
the holders of the notes over our other creditors with the intent of
defeating, hindering, delaying or defrauding our creditors or others; and
(h) we shall have delivered to the trustee an officer's certificate
and an opinion of counsel (which counsel may be one of our employees), each
stating that all conditions precedent provided for relating to such legal
defeasance or such covenant defeasance have been complied with.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of notes
as to all outstanding notes when either:
(a) all the notes previously authenticated and delivered, except lost,
stolen or destroyed notes that have been replaced or paid and notes for
whose payment money has previously been deposited in trust or segregated
and held in trust by the issuers and later repaid to the issuers or
discharged from the trust, have been delivered to the trustee for
cancellation; or
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(b) (1) all the notes not previously delivered to the trustee for
cancellation have become due and payable by their terms or shall have been
called for redemption and the issuers have irrevocably deposited or caused
to be deposited with the trustee as trust funds in trust for such purpose
an amount of money sufficient to pay and discharge the entire indebtedness
on the notes not previously delivered to the trustee for cancellation or
redemption, for the principal amount, premium and liquidated damages, if
any, and accrued interest to the date of the deposit; (2) the issuers have
paid all other sums payable by the issuers with respect to the notes under
the indenture; and (3) the issuers have delivered irrevocable instructions
to the trustee to apply the deposited money toward the payment of the notes
at maturity or on the redemption date, as the case may be.
In addition, we must deliver an officer's certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge of
the indenture with respect to the notes have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes as provided in the indenture. The
registrar (who will initially be the trustee) and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents. The issuers may also require a holder to pay any taxes and fees
required by law or permitted by the indenture. The issuers are not required to
transfer or exchange any note selected for redemption. Also, the issuers are not
required to transfer or exchange any note for a period of 15 days before a
selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs of this
subsection, the indenture or the notes may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of the then
outstanding notes, including consents obtained in connection with a tender offer
or exchange offer for notes. In addition, any existing default or compliance
with any provision of the indenture or the notes may be waived with the consent
of the holders of a majority in principal amount of the then-outstanding notes,
including consent obtained in connection with a tender offer or exchange offer
for notes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder of notes:
(a) reduce the principal amount of notes of any series whose holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any notes
or alter the provisions with respect to the redemption of the notes;
(c) reduce the rate of or change the time for payment of interest on
any note;
(d) waive a default or event of default in the payment of principal of
or premium, if any, or interest on any notes, except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from the acceleration;
(e) make any note payable in money other than that stated in the
notes;
(f) make any change in the provisions of the indenture relating to
waivers of past defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(g) waive a redemption payment with respect to any note;
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(h) make any change in the above amendment and waiver provisions;
(i) modify or change any provision of the indenture or the related
definitions affecting the ranking of the notes or any guarantee of the
notes in a manner which adversely affects the holders in any material
respect;
(j) voluntarily release a Guarantor of the notes except as otherwise
provided in the indenture; or
(k) make any change to the covenants described above under the caption
"-- Repurchase at the Option of Holders."
Notwithstanding the foregoing, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes (a) to
cure any ambiguity, defect or inconsistency, (b) to provide for uncertificated
notes in addition to or in place of certificated notes, (c) to provide for the
assumption of an issuer's or MeriStar Hospitality Corporation's obligations to
holders of the notes in the case of a merger, consolidation or sale of assets,
(d) to release a Guarantor as provided in the indenture, (e) to make any change
that would provide any additional rights or benefits to the holders of the
notes, including providing for guarantees with respect to the notes under the
covenant described under the caption "-- Guarantees," or that does not adversely
affect the legal rights under the indenture of any such holder, or (f) to comply
with requirements of the Securities and Exchange Commission in order to effect
or maintain the qualification of the indenture under the Trust Indenture Act of
1939.
CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should it
become a creditor of an issuer, to obtain payment of claims in specific cases or
to realize on specific property received in respect of any claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate the conflict
within 90 days, apply to the Securities and Exchange Commission for permission
to continue or resign. The holders of a majority in principal amount of the
then-outstanding notes will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the trustee,
with some exceptions. The indenture provides that if an event of default occurs,
and is not cured, the trustee will be required, in the exercise of its powers,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to these provisions, the trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request of any holder of
notes, unless the holder shall have offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
DEFINITIONS
We have provided below selected defined terms as used in the indenture.
Please refer to the indenture for a full description of all those terms, as well
as any other capitalized terms used in this description of the notes for which
no definition is provided.
"Adjusted Consolidated Net Tangible Assets" means the total amount of the
assets of MeriStar Hospitality Corporation, us and our respective Restricted
Subsidiaries on a consolidated basis (less applicable depreciation, amortization
and other valuation reserves), except to the extent resulting from write-ups of
capital assets (excluding write-ups in connection with accounting for
acquisitions in conformity with GAAP), after deducting from the total amount of
assets:
(1) all of the current liabilities of MeriStar Hospitality
Corporation, us and our respective Restricted Subsidiaries on a
consolidated basis, excluding intercompany items, and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles,
all as set forth on the most recent quarterly or annual consolidated balance
sheet of MeriStar Hospitality Corporation, us and our respective Restricted
Subsidiaries, prepared in conformity with GAAP and filed with the Securities and
Exchange Commission or otherwise provided to the trustee.
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"Adjusted Total Assets" means, for any person, the Total Assets for such
person and its Restricted Subsidiaries as of any Transaction Date, as adjusted
to reflect the application of the proceeds of the incurrence of Indebtedness and
issuance of Disqualified Stock on the Transaction Date.
"Affiliate" of any specified person means any other person directly or
indirectly controlling, controlled by or under direct or indirect common control
with the specified person. For purposes of this definition, "control,"
including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with," as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the person, whether through the
ownership of voting securities, by agreement or otherwise. However, the
beneficial ownership of 10% or more of the voting securities of a person shall
be deemed to be control.
"Asset Sale" means:
(a) the sale, lease (other than operating leases in respect of
facilities which are ancillary to the operation of our, MeriStar
Hospitality Corporation's or a Restricted Subsidiary's Hospitality-Related
Business properties or assets), conveyance or other disposition of any of
our property or assets or that of MeriStar Hospitality Corporation or any
Restricted Subsidiary, including by way of a sale and leaseback
transaction;
(b) the issuance or sale of Equity Interests of any of our or MeriStar
Hospitality Corporation's Restricted Subsidiaries; or
(c) any Event of Loss,
other than, with respect to clauses (a), (b) and (c) above, the following:
(1) the sale or disposition of personal property held for sale in the
ordinary course of business;
(2) the sale or disposal of damaged, worn out or other obsolete
property in the ordinary course of business as long as the property is no
longer necessary for the proper conduct of our business or the business of
MeriStar Hospitality Corporation or such Restricted Subsidiary, as
applicable;
(3) the transfer of assets by us or MeriStar Hospitality Corporation
to one of our respective Restricted Subsidiaries or by one of our or
MeriStar Hospitality Corporation's Restricted Subsidiaries to us or
MeriStar Hospitality Corporation or to another one of our or MeriStar
Hospitality Corporation's Restricted Subsidiaries;
(4) (A) the exchange of one or more lodging facilities and related
assets held by us, MeriStar Hospitality Corporation or one of our
respective Restricted Subsidiaries for one or more lodging facilities and
related assets of any person or entity; however, if any other assets are
received by us, MeriStar Hospitality Corporation or the Restricted
Subsidiary in that exchange, the other consideration must be in cash or
Cash Equivalents and the cash or Cash Equivalent consideration shall be
deemed to be cash proceeds of an Asset Sale for the purposes of calculating
"Net Proceeds" and applying Net Proceeds, if any, as described in the
covenant "Asset Sales," or (B) the issuance of OP Units or Preferred OP
Units as full or partial consideration for the acquisition of lodging
facilities and related assets; however, MeriStar Hospitality Corporation's
board of directors must have determined that the terms of any exchange or
acquisition are fair and reasonable and that the fair market value of the
assets received by us or MeriStar Hospitality Corporation, as described in
an opinion of a qualified appraiser, are equal to or greater than the fair
market value of the assets exchanged, sold or issued by us, MeriStar
Hospitality Corporation or one of our respective Restricted Subsidiaries;
(5) any Restricted Payment, permitted under the covenant described
under the caption "-- Covenants -- Restricted Payments" above;
(6) the sale, lease, conveyance or other disposition of all or
substantially all of our or MeriStar Hospitality Corporation's assets in
compliance with the provisions of the indenture described above
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under the captions "-- Repurchase at the Option of Holders -- Change of
Control" and "-- Covenants -- Merger, Consolidation or Sale of Assets";
(7) the conversion of or foreclosure on any mortgage or note, but only
if we, MeriStar Hospitality Corporation or one of our respective Restricted
Subsidiaries receives the real property underlying the mortgage or note; or
(8) any transaction or series of related transactions that would
otherwise be an Asset Sale where the fair market value of the assets, sold,
leased, conveyed or otherwise disposed of was less than $5.0 million or an
Event of Loss or related series of Events of Loss under which the aggregate
value of property or assets involved in such Event of Loss or Events of
Loss is less than $5.0 million.
"Assumed Indebtedness" means, with respect to any specified person:
(a) Indebtedness of any other person existing at the time the other
person merged with or into or became a subsidiary of the specified person;
and
(b) Indebtedness encumbering any asset acquired by the specified
person, in each case excluding Indebtedness incurred in connection with, or
in contemplation of that other person merging with or into or becoming a
subsidiary of, the specified person.
"Capital Lease Obligation" means, at the time any determination of the
obligation is to be made, the amount of the liability in respect of a capital
lease that would at the time be so required to be capitalized on the balance
sheet in accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, with respect to partnerships, partnership interests, whether general
or limited, and any other interest or participation that confers on a person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.
"Cash Equivalents" means:
(a) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the U.S.
government having maturities of not more than six months from the date of
acquisition;
(b) (1) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, (2) bankers
acceptances with maturities not exceeding six months from the date of
acquisition and (3) overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500 million;
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and (b) entered
into with any financial institution meeting the qualifications specified in
clause (b) above;
(d) commercial paper or commercial paper master notes having a rating
of at least P-2 or the equivalent of that rating by Moody's Investors
Service, Inc. or at least A-2 or the equivalent of that rating by Standard
& Poor's Corporation and in each case maturing within six months after the
date of acquisition;
(e) money market mutual funds that provide daily purchase and
redemption features; and
(f) corporate debt with maturities of not greater than six months and
with a rating of at least A or the equivalent of that rating by Standard &
Poor's Corporation and a rating of at least A2 or the equivalent of that
rating by Moody's Investors Service, Inc.
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"Change of Control" means the occurrence of any of the following:
(a) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of our or MeriStar Hospitality
Corporation's assets to any person or group, as that term is used in
Section 13(d)(3) of the Securities Exchange Act;
(b) the adoption of a plan relating to our or MeriStar Hospitality
Corporation's liquidation or dissolution;
(c) the acquisition by any person or group, as that term is used in
Section 13(d)(3) of the Securities Exchange Act, of a direct or indirect
interest in more than 50% of the ownership of MeriStar Hospitality
Corporation or, other than by MeriStar Hospitality Corporation, of us or
the voting power of MeriStar Hospitality Corporation's voting stock or,
other than by MeriStar Hospitality Corporation, of our general partner
interest by way of purchase, merger or consolidation or otherwise, other
than a creation of a holding company that does not involve a change in our
or MeriStar Hospitality Corporation's beneficial ownership as a result of
the transaction;
(d) our or MeriStar Hospitality Corporation's merger or consolidation
with or into another corporation or merger of another corporation into us
or MeriStar Hospitality Corporation with the effect that immediately after
that transaction our or MeriStar Hospitality Corporation's existing
stockholders immediately before the transaction hold, directly or
indirectly, less than 50% of the total voting power of all securities
generally entitled to vote in the election of directors, managers or
trustees of the person surviving the merger or consolidation; or
(e) the first day on which a majority of the members of MeriStar
Hospitality Corporation's board of directors are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of that person for the period plus:
(a) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent the losses were
deducted in computing Consolidated Net Income; plus
(b) provisions for taxes based on the income or profits of the person
for the period, to the extent the provision for taxes was included in
computing Consolidated Net Income; plus
(c) Consolidated Interest Expense of the person for the period to the
extent the expense was deducted in computing Consolidated Net Income; plus
(d) Consolidated Depreciation and Amortization Expense of the person
for the period, to the extent deducted in computing Consolidated Net
Income; less
(e) noncash items increasing the Consolidated Net Income for the
period in each case, on a consolidated basis for the person and its
Restricted Subsidiaries, and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, the depreciation and amortization of and the interest expense of, a
Restricted Subsidiary of the referent person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow (a) only to the extent, and in the same
proportion, that the Net Income of the Restricted Subsidiary was included in
calculating the Consolidated Net Income of that person, (b) only if a
corresponding amount would be permitted at the date of determination to be
dividended to that person by the Restricted Subsidiary without prior
governmental approval (that has not been obtained), and (c) without direct or
indirect restriction under the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders. Any
calculation of the Consolidated Cash Flow of an individual hotel property shall
be calculated in a manner consistent with the foregoing.
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"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of MeriStar Hospitality Corporation, us and
our respective Restricted Subsidiaries, determined on a consolidated basis,
which may properly be classified as current liabilities, including taxes payable
as accrued, on a consolidated basis, after eliminating:
(A) all intercompany items between us, MeriStar Hospitality
Corporation and any of our respective Restricted Subsidiaries; and
(B) all current maturities of long-term Indebtedness,
all as determined in accordance with GAAP consistently applied.
"Consolidated Depreciation and Amortization Expense" means, with respect to
any person for any period, the total amount of depreciation and amortization
expense, including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period, and the
total amount of non-cash charges, other than non-cash charges that represent an
accrual or reserve for cash charges in future periods or which involved a cash
expenditure in a prior period, of such person and its Restricted Subsidiaries
for the period on a consolidated basis as determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (a) interest expense, whether paid or
accrued, to the extent the expense was deducted in computing Consolidated Net
Income, including amortization of original issue discount, non-cash interest
payments, the interest component of Capital Lease Obligations, and net payments
(if any) pursuant to Hedging Obligations, but excluding amortization of deferred
financing fees, (b) commissions, discounts and other fees and charges paid or
accrued with respect to letters of credit and bankers acceptance financing and
(c) interest for which such person or its Restricted Subsidiary is liable,
whether or not actually paid, pursuant to Indebtedness or under a guarantee of
Indebtedness of any other person, in each case, calculated for such Person and
its Restricted Subsidiaries for the period on a consolidated basis as determined
in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Restricted Subsidiaries
for the period, on a consolidated basis, determined in accordance with GAAP (it
being understood that the net income of Restricted Subsidiaries shall be
consolidated with that of a person only to the extent of the proportionate
interest of such person in such Restricted Subsidiaries), except that the
following shall be excluded:
(a) the Net Income of any person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting shall be
excluded, whether or not distributed to us or one of our Restricted
Subsidiaries;
(b) the Net Income of any person that is a Restricted Subsidiary and
that is restricted from declaring or paying dividends or other
distributions, directly or indirectly, by operation of the terms of its
charter, any applicable agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation or otherwise shall be included
only to the extent of the amount of dividends or distributions paid to the
referent person or a Restricted Subsidiary;
(c) the Net Income of any person acquired in a pooling-of-interests
transaction for any period before the date of the acquisition shall be
excluded; and
(d) the cumulative effect of changes in accounting principles shall be
excluded.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets, less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other similar
items properly deducted in determining net assets, which would appear on a
consolidated balance sheet of MeriStar Hospitality Corporation, our company and
our respective Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to
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purchase accounting and after deducting therefrom Consolidated Current
Liabilities and, to the extent otherwise included, the amounts of:
(a) minority interests in consolidated subsidiaries held by persons
other than us, MeriStar Hospitality Corporation or one of our respective
subsidiaries;
(b) excess of cost over fair value of assets of businesses acquired,
as determined in good faith by MeriStar Hospitality Corporation's board of
directors;
(c) any revaluation or other write-up in book value of assets after
the date of the indenture as a result of a change in the method of
valuation in accordance with GAAP consistently applied;
(d) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, licenses, organization or developmental expenses and
other intangible items;
(e) treasury stock; and
(f) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of Capital
Stock to the extent the obligation is not reflected in Consolidated Current
Liabilities.
"Continuing Directors" means, as of any date of determination, any member
of MeriStar Hospitality Corporation's board of directors who:
(a) was a member of MeriStar Hospitality Corporation's board of
directors on the date of the indenture; or
(b) was nominated for election or elected to the board of directors
with the affirmative vote of at least a majority of the Continuing
Directors who were members of MeriStar Hospitality Corporation's board of
directors at the time of the nomination or election.
"Credit Agreement" means the Second Amended and Restated Credit Agreement,
dated as of August 3, 1998 and subsequently amended, entered into between and
among us and the lenders party thereto, and any other senior debt facilities or
commercial paper facilities with banks or other institutional lenders providing
for borrowings, receivables financings (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case as
amended, modified, supplemented, restructured, renewed, restated, or extended,
from time to time on one or more occasions; provided that the term "Credit
Agreement" shall not include Indebtedness described in clause (a) of the
definition of "Non-Recourse Indebtedness" and/or Indebtedness commonly known as
"collateralized mortgage-backed securities."
"Credit Facilities" means, with respect to us or MeriStar Hospitality
Corporation, one or more Credit Agreements, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced (including without
limitation with Indebtedness described in clause (a) of the definition of
"Non-Recourse Indebtedness" and/or Indebtedness commonly known as
"collateralized mortgage-backed securities") in whole or in part from time to
time.
"default" with respect to the notes means any event that is or with the
passage of time or the giving of notice or both would be an event of default
with respect to the notes.
"Disqualified Stock" means any Capital Stock, other than OP Units and
Preferred OP Units, which by its terms, or by the terms of any security into
which it is convertible or for which it is exchangeable, or upon the happening
of any event, matures or is mandatorily redeemable, under a sinking fund
obligation or otherwise, or redeemable at the option of the holder of the stock,
in whole or in part, on or before the first anniversary of the date on which the
notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for Capital Stock.
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"Event Of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following: (a) any loss, destruction
or damage of the property or asset or (b) any actual condemnation, seizure or
taking by the power of eminent domain or otherwise of the property or asset, or
confiscation of the property or asset or the requisition of the use of the
property or asset.
"Existing Indebtedness" means our Indebtedness and that of MeriStar
Hospitality Corporation and our respective Restricted Subsidiaries in existence
on the date of the indenture after giving effect to the use of proceeds of this
offering of the notes and excluding, for this purpose, amounts outstanding under
the Credit Agreement and other Indebtedness outstanding pursuant to clause (b)
of the second paragraph under "Covenants -- Incurrence of Indebtedness and
Issuance of Certain Capital Stock" as in effect on the date of the indenture.
"Existing Preferred OP Units" means Preferred OP Units issued and
outstanding on the date of the indenture.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of that person for the period to
the Fixed Charges of such person for the period. If we, MeriStar Hospitality
Corporation or any of our respective Restricted Subsidiaries incurs, assumes,
guarantees or redeems any Indebtedness, other than revolving credit borrowings
that provide working capital in the ordinary course of business, or issues or
redeems Preferred Stock after the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but before the date on which the event
for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or the issuance or redemption of Preferred Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above, acquisitions,
dispositions and discontinued operations, as determined in accordance with GAAP,
that have been made by us, MeriStar Hospitality Corporation or any of our
respective Restricted Subsidiaries, including all mergers, consolidations and
dispositions, during the four-quarter reference period or after the reference
period and on or before the Calculation Date, shall be calculated on a pro forma
basis assuming that all the acquisitions, dispositions, discontinued operations,
mergers, consolidations, and the reduction of any associated fixed charge
obligations resulting therefrom, had occurred on the first day of the
four-quarter reference period.
"Fixed Charges" means, with respect to any person for any period, the sum
of:
(a) Consolidated Interest Expense of that person and its Restricted
Subsidiaries for the period, whether paid or accrued, to the extent the
expense was deducted in computing Consolidated Net Income; and
(b) the product of:
(1) all cash dividend or distribution payments on any series of
Preferred Stock of that person or its Restricted Subsidiaries, other
than Preferred Stock owned by that person or its Restricted
Subsidiaries; multiplied by
(2) a fraction, the numerator of which is one and the denominator
of which is one minus the then-current combined federal, state and local
statutory tax rate of that person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP; however, if the
cash dividend or distribution on the Preferred Stock is deductible for
federal tax purposes, then the fraction shall be equal to one.
"Funds From Operations" for any period means the Consolidated Net Income of
MeriStar Hospitality Corporation for such period excluding gains or losses from
debt restructurings and sales of depreciable operating property, plus
depreciation on real estate assets and amortization related to real estate
assets and other non-cash charges related to real estate assets, after
adjustments for unconsolidated partnerships and joint ventures plus minority
interests, if applicable (it being understood that the accounts of such person's
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Restricted Subsidiaries shall be consolidated only to the extent of such
person's proportionate interest therein).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by another
entity as have been approved by a significant segment of the accounting
profession, which were in effect as of January 26, 2001.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States of America is
pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) or otherwise
incurring, assuming or becoming liable for the payment of any principal, premium
or interest, direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness or other obligation of another person (including
agreements to keep-well and to purchase assets, goods, securities or services).
"Guarantor" means (a) MeriStar Hospitality Corporation and (b) any
Subsidiary Guarantor, and in each case its successor, if any.
"Hedging Obligations" means, with respect to any person, the obligations of
that person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect that person against fluctuations in interest
rates or currency exchange rates.
"Hospitality-Related Business" means the lodging business and other
businesses necessary for, incident to, in support of, connected with,
complementary to or arising out of the lodging business, including, without
limitation:
(a) developing, managing, operating, improving or acquiring lodging
facilities, restaurants and other food-service facilities and convention or
meeting facilities, and marketing services related to these facilities;
(b) acquiring, developing, operating, managing or improving any real
estate taken in foreclosure, or similar settlement, by us, MeriStar
Hospitality Corporation or any of our respective Restricted Subsidiaries,
or any real estate ancillary or connected to any lodging owned, managed or
operated by us, MeriStar Hospitality Corporation or any of our respective
Restricted Subsidiaries;
(c) owning and managing mortgages in, or other Indebtedness secured by
Liens on, lodging and real estate related or ancillary to lodging; or
(d) other activities related thereto.
"Indebtedness" means, with respect to any person, any indebtedness of that
person, whether or not contingent, (a) in respect of borrowed money, (b)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit, or reimbursement agreements in respect of the above, (c) representing
Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any property or (d) representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness, other than letters of credit and
Hedging Obligations, would appear as a liability upon a balance sheet of that
person prepared in accordance with GAAP. Indebtedness also includes, to the
extent not otherwise included, the guarantee of any Indebtedness of such person
or any other person.
"Investment Grade" means a rating of the notes by both S&P and Moody's,
each such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e., currently BBB- (or the
equivalent) or higher by S&P and Baa3 (or the equivalent) or higher by Moody's);
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provided in each case such ratings are publicly available; provided, further,
that in the event Moody's or S&P is no longer in existence for purposes of
determining whether the notes are rated "Investment Grade," such organization
may be replaced by a nationally recognized statistical rating organization (as
defined in rule 436 under the Securities Act) designated by us, notice of which
shall be given to the trustee.
"Investments" means, with respect to any person, all investments by that
person in other persons, including Affiliates, in the forms of loans (including
guarantees), advances or capital contributions, excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business, purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If we, MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any of our
respective direct or indirect Restricted Subsidiaries with the result that,
after giving effect to any sale or disposition, we or MeriStar Hospitality
Corporation, as the case may be, no longer own, directly or indirectly, greater
than 50% of the outstanding common stock of the Restricted Subsidiary, we or
MeriStar Hospitality Corporation, as the case may be, shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the fair
market value of the investments in such Restricted Subsidiary not sold or
disposed of.
"Lien" means, with respect to any asset, or income or profits therefrom,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of the asset, whether or not filed, recorded or otherwise perfected
under applicable law, including any conditional sale or other title retention
agreement, any lease in the nature of a conditional sale or title retention
agreement, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any person, the net income (loss) of
that person, determined as provided by GAAP and before any reduction in respect
of Preferred Stock dividends, but excluding, any gain (but not loss), together
with any related provision for taxes on the gain (but not loss) realized in
connection with any Asset Sale, and also excluding any extraordinary gain (but
not loss), together with any related provision for taxes on the extraordinary
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by us, MeriStar
Hospitality Corporation or any of our respective Restricted Subsidiaries in
respect of any Asset Sale, net of the direct costs relating to the Asset Sale,
including, without limitation, legal, accounting and investment banking fees and
sales commissions; and any relocation expenses incurred as a result of the sale,
taxes paid or payable as a result of the sale, after taking into account any
available tax credits or deductions and any tax sharing arrangements; amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets the subject of the Asset Sale and any reserve for adjustment in
respect of the sale price of the asset or assets.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which none of us,
MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries (1) provides credit support, other than in the form of a Lien on an
asset serving as security for Non-Recourse Indebtedness of ours or MeriStar
Hospitality Corporation or of any of our respective Restricted Subsidiaries,
under any undertaking, agreement or instrument that would constitute
Indebtedness, (2) is directly or indirectly liable, other than in the form of a
Lien on an asset serving as security for Non-Recourse Indebtedness of ours or
MeriStar Hospitality Corporation or of any of our respective Restricted
Subsidiaries, or (3) constitutes the lender and (b) no default with respect to
which, including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary, would permit (upon
notice, lapse of time or both) any holder of any of our other Indebtedness or
that of MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries to declare a default on the other Indebtedness or cause the payment
of the Indebtedness to be accelerated or payable before its stated maturity.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OP Units" means limited partnership interests in us or any successor
operating partnership that require the issuer of the interests to pay dividends
or distributions which are tied to dividends paid on the common stock of
MeriStar Hospitality Corporation and which by their terms may be converted into,
or exercised or redeemed for, cash or MeriStar Hospitality Corporation common
stock.
"Permitted Investments" means any (a) Investments in us or MeriStar
Hospitality Corporation, (b) Investments in any Restricted Subsidiary of ours or
of MeriStar Hospitality Corporation, (c) such Investments in Cash Equivalents,
(d) Investments by us, MeriStar Hospitality Corporation or any of our respective
Restricted Subsidiaries in a person, if as a result of such Investment (1) the
person becomes one of our or MeriStar Hospitality Corporation's Restricted
Subsidiaries, or (2) the person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, us, MeriStar Hospitality Corporation or one of our respective
Restricted Subsidiaries, (e) Investments in Unrestricted Subsidiaries or
Permitted Joint Ventures, but only if the Investments are in entities solely or
principally engaged in Hospitality-Related Businesses and the aggregate of the
Investments does not exceed the greater of (1) $50.0 million or (2) 5% of
Consolidated Net Tangible Assets collectively, (f) Investments in MeriStar
Investment Partners, L.P. in an aggregate amount not to exceed $10.0 million
collectively and (g) loans to MeriStar Hotels & Resorts, Inc. in an aggregate
amount not to exceed $25.0 million collectively.
"Permitted Joint Venture" means any corporation, partnership, limited
liability company or partnership or other similar entity formed to hold lodging
properties in which we or MeriStar Hospitality Corporation, directly or
indirectly, own less than a 50.1% interest.
"Permitted Refinancing" means Refinancing Indebtedness or Refinancing
Disqualified Stock, as the case may be, to the extent:
(a) the principal amount of Refinancing Indebtedness or the
liquidation preference amount of Refinancing Disqualified Stock, as the
case may be, does not exceed the principal amount of Indebtedness or the
liquidation preference amount of Disqualified Stock, as the case may be, so
extended, refinanced, renewed, replaced, defeased or refunded, plus the
amount of premiums and reasonable expenses incurred in connection with the
Refinancing;
(b) the Refinancing Indebtedness or Refinancing Disqualified Stock, as
the case may be, is scheduled to mature or is redeemable at the option of
the holder, as the case may be, no earlier than the Indebtedness or
Disqualified Stock, as the case may be, being refinanced;
(c) in the case of Refinancing Indebtedness, the Refinancing
Indebtedness has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded;
(d) in the case of Refinancing Disqualified Stock, the Disqualified
Stock has a Weighted Average Life to Mandatory Redemption equal to or
greater than the Weighted Average Life to Mandatory Redemption of the
Disqualified Stock being extended, refinanced, renewed, replaced, defeased
or refunded;
(e) if the Indebtedness or the Disqualified Stock, as the case may be,
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated or junior in right of payment to the notes, the Refinancing
Indebtedness or Refinancing Disqualified Stock, as the case may be, is
subordinated or junior in right of payment to the notes on terms at least
as favorable to the holders of notes as those contained in the
documentation governing the Indebtedness or the Disqualified Stock, as the
case may be, being extended, refinanced, renewed, replaced, defeased or
refunded; and
(f) the Refinancing Indebtedness or Refinancing Disqualified Stock is
incurred or issued either by us or by a Restricted Subsidiary who is the
obligor on the Indebtedness or Disqualified Stock being extended,
refinanced, renewed, replaced, defeased or refunded.
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"Preferred OP Units" means limited partnership interests in us or any
successor operating partnership that require the issuer of the units to pay
regularly scheduled fixed distributions on the units, which are not related to
dividends on MeriStar Hospitality Corporation's common stock, and which by their
terms may be converted into, or exercised or redeemed for, cash or MeriStar
Hospitality Corporation's common stock.
"Preferred Stock" means (a) any Equity Interest with preferential right in
the payment of dividends or distributions or upon liquidation, and (b) any
Disqualified Stock.
"Refinancing Disqualified Stock" means Disqualified Stock issued in
exchange for, or the proceeds of which are used, to extend, refinance, renew,
replace, defease or refund, Disqualified Stock or Indebtedness permitted to be
issued under the tests described in the first paragraph of the covenant
described under the caption "-- Covenants -- Incurrence of Indebtedness and
Issuance of Certain Capital Stock" or Indebtedness referred to in clauses (c),
(e), (g), (i) and (j) of the second paragraph of that covenant.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the proceeds of which are used to extend, refinance renew, replace, defease or
refund, Indebtedness permitted to be incurred under the tests described in the
first paragraph of the covenant described under the caption "-- Covenants --
Incurrence of Indebtedness and Issuance of Certain Capital Stock" or
Indebtedness referred to in clauses (c), (e), (g), (i) and (j) of the second
paragraph of that covenant described under the caption
"-- Covenants -- Incurrence of Indebtedness and Issuance of Certain Capital
Stock."
"Restricted Investments" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a person means any subsidiary of the referent
person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Secured Indebtedness" means any Indebtedness or Disqualified Stock secured
by a Lien upon our property or the property of MeriStar Hospitality Corporation
or any of our respective Restricted Subsidiaries, other than Indebtedness under
a Credit Facility secured only by a Stock Pledge.
"Significant Subsidiary" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act of 1933, as such Regulation is in effect on the date of
the indenture.
"Stock Pledge" means a first priority security interest in the equity
interests of subsidiaries of ours or subsidiaries of MeriStar Hospitality
Corporation.
"Subsidiary Debt" means, without duplication, all Unsecured Indebtedness
(including guarantees other than guarantees by Restricted Subsidiaries of
Secured Indebtedness) of which a Restricted Subsidiary other than a Guarantor is
the obligor. A release of the guarantee of a Guarantor which remains a
Restricted Subsidiary shall be deemed to be an incurrence of Subsidiary Debt in
an amount equal to our proportionate interest in the Unsecured Indebtedness of
such Guarantor.
"subsidiary" means, with respect to any person:
(1) any corporation, association or other business entity of which
more than 50% of the voting power of the outstanding voting stock is owned,
directly or indirectly, by such person, by such person and one or more
subsidiaries of such person or by one or more subsidiaries of such person,
or the accounts of which would be consolidated with those of such person in
its consolidated financial statements in accordance with GAAP, if such
statements were prepared as of such date; and
(2) any partnership;
(a) in which such person or one or more subsidiaries of such person
is, at the time, a general partner and owns alone or together with us a
majority of the partnership interest; or
(b) in which such person or one or more subsidiaries of such person
is, at the time, a general partner and which is controlled by such
person in a manner sufficient to permit its
65
financial statements to be consolidated with the financial statements of
such person in conformity with GAAP and the financial statements of
which are so consolidated.
"Subsidiary Guarantor" means (a) each of our subsidiaries that guarantees
our Credit Agreement on the date of the indenture and (b) any Restricted
Subsidiary that becomes a guarantor of the notes under the terms of the
indenture, and its successor, if any.
"Total Assets" means the sum of:
(a) Undepreciated Real Estate Assets; and
(b) all other assets (excluding intangibles) of us, MeriStar
Hospitality Corporation and our respective Restricted Subsidiaries
determined on a consolidated basis.
"Total Unencumbered Assets" as of any date means the sum of:
(a) those Undepreciated Real Estate Assets not securing any portion of
Secured Indebtedness; and
(b) all other assets (but excluding intangibles) of us, MeriStar
Hospitality Corporation and our respective Restricted Subsidiaries not
securing any portion of Secured Indebtedness determined on a consolidated
basis in accordance with GAAP.
"Transaction Date" means, with respect to the incurrence of any
Indebtedness or issuance of Disqualified Stock by us, MeriStar Hospitality
Corporation or any our respective Restricted Subsidiaries, the date such
Indebtedness is to be incurred or such Disqualified Stock is to be issued and,
with respect to any Restricted Payment, the date such Restricted Payment is to
be made.
"Undepreciated Real Estate Assets" means, as of any date, the cost (being
the original cost to the us or MeriStar Hospitality Corporation or any our
respective Restricted Subsidiaries plus capital improvements) of real estate
assets of ours, MeriStar Hospitality Corporation and our respective Restricted
Subsidiaries on such date, before depreciation and amortization of such real
estate assets, determined on a consolidated basis.
"Unrestricted Subsidiary" means any subsidiary that is, or has been,
designated by MeriStar Hospitality Corporation's board of directors as an
Unrestricted Subsidiary under a board resolution, but only to the extent that
the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement, contract, arrangement or
understanding with us, MeriStar Hospitality Corporation or any of our
respective Restricted Subsidiaries unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to us,
MeriStar Hospitality Corporation or the Restricted Subsidiary than those
that might be obtained at the same time from persons who are not our
affiliates;
(3) is a person with respect to which neither we nor MeriStar
Hospitality Corporation nor any of our respective Restricted Subsidiaries
has any direct or indirect obligation (A) to subscribe for additional
Equity Interests or (B) to maintain or preserve that person's financial
condition or to cause that person to achieve any specified levels of
operating results, other than under agreements relating to the management
of hotels entered into between Restricted Subsidiaries and Unrestricted
Subsidiaries in the ordinary course of the subsidiaries' business,
consistent with past practice; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any of our Indebtedness or that of MeriStar Hospitality
Corporation or any of our respective Restricted Subsidiaries.
Any designation by MeriStar Hospitality Corporation's board of directors
made after the date of issuance of the notes shall be evidenced to the trustee
by filing with the trustee a certified copy of the board resolution giving
effect to that designation and an officer's certificate certifying that the
designation
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complied with the foregoing conditions and was permitted by the covenant
described above under the caption "-- Covenants -- Restricted Payments." If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of
that subsidiary shall be deemed to be incurred by one of our or MeriStar
Hospitality Corporation's Restricted Subsidiaries as of that date, and, if the
Indebtedness is not permitted to be incurred as of that date under the covenant
described under the caption "-- Covenants -- Incurrence of Indebtedness and
Issuance of Certain Capital Stock," we and MeriStar Hospitality Corporation
shall be in default of the covenant.
MeriStar Hospitality Corporation's board of directors may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary, but the
designation will be deemed to be an incurrence of Indebtedness by one of our or
MeriStar Hospitality Corporation's Restricted Subsidiaries of any outstanding
Indebtedness of the Unrestricted Subsidiary, and the designation shall only be
permitted if (a) the Indebtedness is permitted under the covenant described
under the caption "-- Covenants -- Incurrence of Indebtedness and Issuance of
Certain Capital Stock," and (b) no default or event of default would be in
existence following the designation.
MeriStar Hospitality Finance Corp. may not under any circumstances be
designated as an Unrestricted Subsidiary.
"Unsecured Indebtedness" means any Indebtedness or Disqualified Stock of
us, MeriStar Hospitality Corporation or any of our respective Restricted
Subsidiaries that is not Secured Indebtedness.
"Weighted Average Life to Mandatory Redemption" means, when applied to any
Disqualified Stock at any date, the number of years obtained by dividing (a) the
sum of the products obtained by multiplying (1) the amount of each
then-remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect of the
amount by (2) the number of years, calculated to the nearest one-twelfth, that
will elapse between that date and the making of the payment, by (b) the
then-outstanding liquidation preference amount of the Disqualified Stock.
"Weighted Average Life To Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (1) the amount of each then-remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect of the amount, by (2)
the number of years, calculated to the nearest one twelfth, that will elapse
between that date and the making of the payment, by (b) the then outstanding
principal amount of the Indebtedness.
BOOK-ENTRY, DELIVERY AND FORM
We will initially issue the exchange notes in the form of one or more
registered notes in global form without coupons. We will deposit each global
note on the date of the closing of this exchange offer with the trustee as
custodian for The Depository Trust Company in New York, New York, and register
the exchange notes in the name of The Depository Trust Company or its nominee,
in each case for credit to an account of a direct or indirect participant as
described below.
Except as set forth below, the global notes may be transferred, in whole
and not in part, only to another nominee of The Depository Trust Company or to a
successor of The Depository Trust Company or its nominee. Beneficial interests
in the global notes may not be exchanged for notes in certificated form except
in the limited circumstances described below. See "-- Depositary
Procedures -- Exchange of Book-Entry Notes for Certificated Notes."
The notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
We are providing you with a description of the operations and procedures of
The Depository Trust Company. The operations and procedures of The Depository
Trust Company are solely within the control
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of its settlement system and are subject to change from time to time. We are not
responsible for these operations and procedures and urge you to contact The
Depository Trust Company or its participants directly to discuss these matters.
The Depository Trust Company has advised us that it is a limited purpose
trust company created to hold securities for its participating organizations and
to facilitate the clearance and settlement of transactions in those securities
between its participants through electronic book entry changes in the accounts
of these participants. These direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Access to The Depository Trust Company's system is also indirectly available to
other entities that clear through or maintain a direct or indirect, custodial
relationship with a direct participant. The Depository Trust Company may hold
securities beneficially owned by other persons only through its participants and
the ownership interests and transfers of ownership interests of these other
persons will be recorded only on the records of the participants and not on the
records of The Depository Trust Company.
The Depository Trust Company has also advised us that, in accordance with
its procedures, (1) upon deposit of the global notes, it will credit the
accounts of the direct participants with an interest in the global notes, and
(2) it will maintain records of the ownership interests of these direct
participants in the global notes and the transfer of ownership interests by and
between direct participants. The Depository Trust Company will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, indirect participants or other owners of beneficial interests in
the global notes. Both direct and indirect participants must maintain their own
records of ownership interests of, and the transfer of ownership interests by
and between, indirect participants and other owners of beneficial interests in
the global notes.
Investors in the global notes may hold their interests in the notes
directly through The Depository Trust Company if they are direct participants in
The Depository Trust Company or indirectly through organizations that are direct
participants in The Depository Trust Company. All interests in a global note may
be subject to the procedures and requirements of The Depository Trust Company.
The laws of some states require that some persons take physical delivery in
definitive certificated form of the securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global note to these
persons. Because The Depository Trust Company can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and others,
the ability of a person having a beneficial interest in a global note to pledge
its interest to persons or entities that are not direct participants in The
Depository Trust Company or to otherwise take actions in respect of its
interest, may be affected by the lack of physical certificates evidencing the
interests. For certain other restrictions on the transferability of the exchange
notes please refer to "-- Exchange of Book-Entry Notes for Certificated Notes"
below.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS OF THESE NOTES UNDER THE INDENTURE FOR ANY PURPOSE.
Payments with respect to the principal of and interest on any notes
represented by a global note registered in the name of The Depository Trust
Company or its nominee on the applicable record date will be payable by the
trustee to or at the direction of The Depository Trust Company or its nominee in
its capacity as the registered holder of the global note representing these
notes under the indenture. Under the terms of the indenture, we and the trustee
will treat the person in whose names the notes are registered, including notes
represented by global notes, as the owners of the notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal and interest on global notes registered in the name of
The Depository Trust Company or its nominee will be payable by the trustee to
The Depository Trust Company or its nominee as the registered holder under the
indenture. Consequently, none of the issuers, the trustee or any of our agents,
or the trustee's agents has or will have any responsibility or liability for (1)
any aspect of The Depository Trust Company's records or any direct or indirect
participant's records relating to, or payments made on account of, beneficial
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ownership interests in the global notes or for maintaining, supervising or
reviewing any of The Depository Trust Company's records or any direct or
indirect participant's records relating to the beneficial ownership interests in
any global note or (2) any other matter relating to the actions and practices of
The Depository Trust Company or any of its direct or indirect participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the exchange notes,
including principal and interest, is to credit the accounts of the relevant
participants with the payment on the payment date, in amounts proportionate to
their respective holdings in the principal amount of beneficial interest in the
security as shown on its records, unless it has reasons to believe that it will
not receive payment on the payment date. Payments by the direct and indirect
participants to the beneficial owners of interests in the global note will be
governed by standing instructions and customary practice and will be the
responsibility of the direct or indirect participants and will not be the
responsibility of The Depository Trust Company, the trustee, MeriStar
Hospitality Corporation or the issuers.
None of the issuers, MeriStar Hospitality Corporation or the trustee will
be liable for any delay by The Depository Trust Company or any direct or
indirect participant in identifying the beneficial owners of the notes and the
issuers, MeriStar Hospitality Corporation and the trustee may conclusively rely
on, and will be protected in relying on, instructions from The Depository Trust
Company or its nominee as the registered owner of the exchange notes.
Subject to compliance with the transfer restrictions applicable to the
exchange notes described herein, cross-market transfers between the participants
in The Depository Trust Company, on the one hand, and Euroclear or Clearstream
participants, on the other hand, will be effected through The Depository Trust
Company in accordance with The Depository Trust Company's rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective depositary.
However, these cross market transactions will require delivery of instructions
to Euroclear or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within the established
deadlines, Brussels time, of such system. Euroclear or Clearstream, as the case
may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
global note in The Depository Trust Company and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
The Depository Trust Company. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of exchange notes only at the direction of one
or more participants to whose account The Depository Trust Company has credited
the interests in the global notes and only in respect of the portion of the
aggregate principal amount of the exchange notes as to which the participant or
participants has or have given that direction. However, if there is an event of
default with respect to the notes, The Depository Trust Company reserves the
right to exchange the global notes for legended notes in certificated form and
to distribute them to its participants.
Although The Depository Trust Company has agreed to these procedures to
facilitate transfers of interests in the global notes among participants in The
Depository Trust Company, it is under no obligation to perform or to continue to
perform these procedures and may discontinue them at any time. None of the
issuers, MeriStar Hospitality Corporation, the trustee or any of our or the
trustee's respective agents will have any responsibility for the performance by
The Depository Trust Company or its participants of their respective obligations
under the rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A global note will be exchangeable for definitive notes in registered
certificated form if:
- The Depository Trust Company notifies us that it is unwilling or unable
to continue as depository for the global notes and we fail to appoint a
successor depository within 90 days,
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- The Depository Trust Company ceases to be a clearing agency registered
under the Exchange Act,
- we elect to cause the issuance of the certificated notes upon a notice of
the trustee, or
- a default or event of default under the indenture for the notes has
occurred and is continuing.
In all cases, certificated notes delivered in exchange for any global note
or beneficial interests in a global note will be registered in the name, and
issued in any approved denominations, requested by or on behalf of The
Depository Trust Company, in accordance with its customary procedures.
Exchange of Certificated Notes for Book-Entry Notes
Exchange notes issued in certificated form may not be exchanged for
beneficial interests in any global note unless the transferor first delivers to
the trustee a written certificate, in the form provided in the indenture, to the
effect that the transfer will comply with the appropriate transfer restrictions
applicable to the notes.
Same Day Settlement and Payment
The indenture requires that payments in respect of the exchange notes
represented by the global notes, including principal, premium, if any, and
interest, be made by wire transfer of immediately available funds to the
accounts specified by the holder of the global notes. With respect to exchange
notes in certificated form, the issuers will make all payments of principal,
premium, if any, and interest on the exchange notes at their office or agency
maintained for such purpose within the city and state of New York, initially the
office of the paying agent maintained for such purpose, or, at their option, by
check mailed to the holders thereof at their respective addresses set forth in
the register of holders of notes. However, the issuers are required to make all
payments of principal, premium, if any, and interest on notes in certificated
form the holders of which have given the issuers wire transfer instructions, by
wire transfer of immediately available funds to the accounts specified by the
holders thereof.
The exchange notes represented by the global notes are expected to be
eligible to trade in The Depository Trust Company's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes will,
therefore, be required by The Depository Trust Company to be settled in
immediately available funds. The issuers expect that secondary trading in any
certificated notes will also be settled in immediately available funds.
Transfers between participants in The Depository Trust Company will be effected
in accordance with The Depository Trust Company's procedures, and will be
settled in same day funds, and transfers between participants in Euroclear and
Clearstream will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a direct or
indirect participant in The Depository Trust Company will be credited, and any
such crediting will be reported to the relevant Euroclear or Clearstream
participant, during the securities settlement processing day, which must be a
business day for Euroclear and Clearstream, immediately following the settlement
date of The Depository Trust Company. The Depository Trust Company has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a global note by or through a Euroclear or Clearstream participant
to a participant in The Depository Trust Company will be received with value on
the settlement date of The Depository Trust Company but will be available in the
relevant Euroclear or Clearstream cash account only as of the business day for
Euroclear or Clearstream following The Depository Trust Company's settlement
date.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion summarizes specified United States federal income
and estate tax considerations that may be relevant to the exchange of initial
notes for exchange notes pursuant to the exchange offer and to the ownership and
disposition of exchange notes by U.S. and non-U.S. holders, each as defined
below, who acquire the exchange notes in the exchange offer. The following
discussion does not purport to be a full description of all United States
federal income and estate tax considerations that may be relevant to the
exchange offer or to the holding or disposition of the exchange notes and does
not address any other taxes that might be applicable to a holder of the exchange
notes, such as tax consequences arising under the tax laws of any state,
locality or foreign jurisdiction. In the opinion of Paul, Weiss, Rifkind,
Wharton & Garrison, our special United States tax counsel, the discussion
accurately reflects the material United States federal income tax consequences
to U.S. and non-U.S. holders who acquire the exchange notes in the exchange
offer of the consummation of the exchange offer and the ownership and
disposition of the exchange notes. The United States Internal Revenue Service
may not take a similar view of these consequences. Further, this discussion does
not address all aspects of federal income and estate taxation that may be
relevant to particular holders in light of their personal circumstances and does
not deal with persons that are subject to special tax rules, such as dealers in
securities or currencies, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, financial
institutions, insurance companies, tax-exempt entities, persons holding the
notes as part of a hedging or conversion transaction, a straddle or a
constructive sale and persons whose functional currency is not the United States
dollar. The discussion below assumes that the notes are held as capital assets
within the meaning of section 1221 of the Internal Revenue Code.
If an entity that is treated as a partnership for federal income tax
purposes holds exchange notes, the tax treatment of its partners or members will
generally depend upon the status of the partner or member and the activities of
the entity. If you are a partner of a partnership or a member of a limited
liability company or other entity classified as a partnership for federal income
tax purposes and that entity is holding the exchange notes, you should consult
your tax advisor.
The discussion of the United States federal income and estate tax
considerations below is based on currently existing provisions of the Internal
Revenue Code, the applicable Treasury regulations promulgated and proposed under
the Internal Revenue Code, judicial decisions and administrative
interpretations, all of which are subject to change, possibly on a retroactive
basis. Because individual circumstances may differ, you are strongly urged to
consult your tax advisor with respect to your particular tax situation and the
particular tax effects of any state, local, non-United States or other tax laws
and possible changes in the tax laws.
As used in this prospectus, a U.S. holder means a beneficial owner of an
exchange note who is, for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or of any of its political subdivisions;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if either a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the authority to control all substantial
decisions of the trust or the trust has a valid election in effect under
applicable Treasury regulations to be treated as a United States person.
As used in this prospectus, a non-U.S. holder means a beneficial owner of
an exchange note who is not a U.S. holder.
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EXCHANGE OFFER
The exchange of the initial notes for the exchange notes pursuant to the
exchange offer will not be treated as a taxable event to holders. Consequently,
no gain or loss will be realized by a holder upon receipt of an exchange note,
the holding period of the exchange note will include the holding period of the
initial note exchanged for such exchange note and the adjusted tax basis of the
exchange note will be the same as the adjusted tax basis, immediately before the
exchange, of the initial note exchanged for the exchange note.
TAX CONSIDERATIONS FOR U.S. HOLDERS
Stated Interest and Original Issue Discount
A U.S. holder generally will be required to include in gross income as
ordinary interest income the stated interest on an exchange note at the time
that the interest accrues or is received, in accordance with the U.S. holder's
regular method of accounting for United States federal income tax purposes.
The initial notes were issued at a discount from their face amount. If the
de minimis exception described below had not applied, each exchange note would
be treated as having been issued with original issue discount in an amount equal
to the excess of the stated redemption price at maturity of the exchange note
over the issue price of the exchange note, a U.S. holder of an exchange note
received in exchange for an initial note acquired by such holder at initial
issuance would be required to include that amount of original issue discount in
income and a U.S. holder of an exchange note received in exchange for an initial
note acquired by the holder after initial issuance also might be required to
include an amount of original issue discount in income depending upon and
computed by reference to the holder's tax basis in the initial note immediately
after its acquisition, in each case under the constant yield method of accrual,
prior to the receipt of payments attributable to such income and regardless of
the holder's method of accounting for federal income tax purposes. For purposes
of the foregoing, the stated redemption price at maturity of an exchange note is
equal to its stated principal amount, and the issue price of an exchange note is
the first price at which a substantial amount of the initial notes were sold.
For purposes of determining issue price, sales to a bond house, broker or
similar person or organization acting in the capacity of an underwriter,
placement agent or wholesaler to the public were ignored. Because the amount of
the original issue discount on the initial notes was less than a statutorily
defined de minimis amount, the amount of original issue discount on the exchange
notes is treated as zero, absent any election by the holder of exchange notes to
treat such amount as original issue discount.
Market Discount
If a U.S. holder purchased an initial note at initial issuance for an
amount that was less than its issue price or purchased an initial note after
initial issuance but prior to this exchange offer for an amount that was less
than the stated principal amount of the note and in either case a de minimis
exception did not apply, the difference is treated as market discount. Unless
the U.S. holder makes an election to include market discount in income as it
accrues, any partial principal payment on the exchange note, gain realized on
the sale, exchange or retirement of the exchange note and unrealized
appreciation on some nontaxable dispositions of the exchange note will be
treated as ordinary income to the extent of the market discount that has not
been previously included in income and that is treated as having accrued on the
exchange note prior to the payment or disposition. A U.S. holder also might be
required to defer all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the note, unless the U.S. holder has
made an election to include the market discount in income as it accrues. Unless
the U.S. holder elects to treat market discount as accruing on a constant yield
method, market discount will be treated as accruing on a straight-line basis
over the term of the note. An election made to include market discount in income
as it accrues will apply to all debt instruments acquired by the U.S. holder on
or after the first day of the taxable year to which the election applies and may
be revoked only with the consent of the Internal Revenue Service.
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Bond Premium
If a U.S. holder purchased an initial note prior to this exchange offer for
an amount that is in excess of all amounts payable on the note after the
purchase date, other than payments of stated interest, the excess is treated as
bond premium. In general, a U.S. holder may elect to amortize bond premium over
the remaining term of the note on a constant yield method. The amount of bond
premium allocable to any accrual period is first offset against the stated
interest allocable to the accrual period and any excess may be deducted, subject
to specified limitations. An election to amortize bond premium applies to all
taxable debt instruments held at the beginning of the first taxable year to
which the election applies and thereafter acquired by the U.S. holder and may be
revoked only with the consent of the Internal Revenue Service.
Sale, Exchange or Retirement of the Exchange Notes
A U.S. holder's tax basis in an exchange note generally will be the U.S.
holders' cost for the initial note, increased by any accrued market discount
included in income and decreased by any amortized bond premium and any payments
that are not payments of stated interest. A U.S. holder generally will recognize
gain or loss on the sale, exchange, retirement or other taxable disposition of
an exchange note in an amount equal to the difference between the amount of cash
plus the fair market value of any property received, other than any amount
received in respect of accrued interest, which will be taxable as ordinary
interest income if not previously included in income, and the U.S. holder's tax
basis in the exchange note. Subject to the discussion of market discount above,
gain or loss recognized on the sale, exchange, retirement or other taxable
disposition of an exchange note, including amounts attributable to de minimis
original issue discount in the case of a holder of notes acquired at initial
issuance, generally will be capital gain or loss. In the case of a noncorporate
U.S. holder, the federal income tax rate applicable to capital gains will depend
upon the holder's holding period for the exchange notes, with a preferential
rate available for exchange notes held for more than one year, and upon the
holder's marginal tax rate for ordinary income. The deductibility of capital
losses is subject to limitations.
TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
Generally, payments of principal or interest on the exchange notes by us or
our paying agent to a non-U.S. holder will not be subject to U.S. federal income
or income withholding tax, if, in the case of interest:
- the non-U.S. holder does not actually own, and is not deemed to own under
any applicable Treasury regulations, 10% or more of the capital or
profits interests in MeriStar LP;
- the non-U.S. holder is not, for United States federal income tax
purposes, a controlled foreign corporation related to us either through
actual ownership or deemed to be related to us through ownership under
applicable Internal Revenue Code rules;
- the non-U.S. holder is not a bank whose receipt of interest is described
in section 881(c)(3)(A) of the Internal Revenue Code; and
- either (A) the non-U.S. holder provides us or our agent with an Internal
Revenue Service Form W-8 BEN, or a suitable substitute form, signed under
penalties of perjury, that includes its name and address and certifies as
to its non-United States status in compliance with applicable law and
Treasury regulations or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the
ordinary course of its trade or business holds the exchange note on
behalf of the beneficial owner and provides a statement to us or our
agent signed under penalties of perjury in which the organization, bank
or financial institution certifies that the form or suitable substitute
has been received by it from the non-U.S. holder or from another
financial institution acting on behalf of the non-U.S. holder and
furnishes us or our agent with a copy.
In the case of exchange notes held by a foreign partnership, the
certification described above normally is provided by the partners as well as by
the foreign partnership and the partnership provides other
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specified information. Other methods might be available to satisfy the
certification requirements described above, depending upon the circumstances
applicable to the non-U.S. holder.
If these requirements cannot be met and the requirements applicable to
treatment of the interest as effectively connected with the conduct of a United
States trade or business described below are not met, a non-U.S. holder will be
subject to United States federal income withholding tax at a rate of 30% with
respect to payments of interest on the exchange notes, unless the non-US holder
provides us with a properly executed Internal Revenue Service Form W-8BEN (or
successor form) claiming an exemption from or reduction in withholding under an
applicable tax treaty.
A non-U.S. holder generally will not be subject to United States federal
income or income withholding tax on gain realized on the sale, exchange,
redemption, retirement or other disposition of an exchange note, unless the
non-U.S. holder is an individual who is present in the United States for 183
days or more in the taxable year of the disposition, and other applicable
conditions are met, or the gain is effectively connected with the conduct by the
non-U.S. holder of a trade or business in the United States.
Notwithstanding the above, if a non-U.S. holder is engaged in a trade or
business in the United States and if interest on the exchange note or gain
realized on the disposition of the exchange note is effectively connected with
the conduct of the trade or business, the non-U.S. holder usually will be
subject to regular United States federal income tax on the interest or gain in
the same manner as if it were a U.S. holder, unless an applicable treaty
provides otherwise. In addition, if the non-U.S. holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30%, or a lower
rate provided by an applicable treaty, of its effectively connected earnings and
profits for the taxable year, with specified adjustments. For this purpose,
interest on an exchange note will be included in the foreign corporation's
earnings and profits. Even though the effectively connected income is subject to
income tax, and may be subject to the branch profits tax, it generally is not
subject to income withholding if the non-U.S. holder delivers a properly
executed Internal Revenue Service Form W-8 ECI (or successor form) to the payor.
An exchange note held by an individual non-U.S. holder who at the time of
death is not a United States citizen or resident, as defined for United States
federal estate tax purposes, will not be subject to United States federal estate
taxation as a result of the individual's death unless (A) the individual
actually owns, or is deemed to own under any applicable Treasury regulations,
10% or more of the capital or profits interests in MeriStar LP or (B) interest
payments with respect to the exchange note would have been, if received at the
time of the individual's death, effectively connected with the conduct by the
individual of a trade or business in the United States.
TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS AND NON-U.S. HOLDERS
Information Reporting and Backup Withholding
Noncorporate U.S. holders generally will be subject to information
reporting and might be subject to a backup withholding tax with respect to
payments on, and the proceeds of disposition of, an exchange note. Backup
withholding will apply only if the U.S. holder:
- fails to furnish its taxpayer identification number which, for an
individual, would be his Social Security number;
- furnishes an incorrect taxpayer identification number;
- is notified by the Internal Revenue Service that it has failed to
properly report payments of interest or dividends; or
- in some circumstances, fails to certify, under penalties of perjury, that
it has furnished a correct taxpayer identification number and has not
been notified by the Internal Revenue Service that it is subject to
backup withholding for failure to report interest and dividend payments.
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Backup withholding and information reporting generally will not apply to
payments made by us or our paying agent on an exchange note to a non-U.S. holder
if the certification described under "Tax Considerations for Non-U.S. Holders"
is provided or the non-U.S. holder otherwise establishes an exemption, and the
payor does not have actual knowledge that the holder is a U.S. holder or that
the conditions of any other exemption are not, in fact, satisfied. The payments
of proceeds from the disposition of an exchange note to or through a non-United
States office of a broker, as defined in applicable Treasury regulations, that
is (A) a United States person, (B) a controlled foreign corporation for United
States federal income tax purposes, (C) a foreign person 50% or more of whose
gross income from all sources for the 3 prior years is from activities
effectively connected with the conduct of a United States trade or business or
(D) a foreign partnership, if at any time during its tax year, either more than
50% of its income or capital interests are owned by U.S. holders or the
partnership is engaged in the conduct of a United States trade or business, will
be subject to information reporting requirements unless the broker has
documentary evidence in its files of the holder's non-U.S. holder status and has
no actual knowledge to the contrary or the non-U.S. holder otherwise establishes
an exemption. Backup withholding normally will not apply to any payment of the
proceeds from the sale of an exchange note made to or through a foreign office
of a broker; however, backup withholding might apply if the broker has actual
knowledge that the payee is a U.S. holder. Payments of the proceeds from the
sale of an exchange note to or through the United States office of a broker are
subject to information reporting and possible backup withholding unless the
holder certifies, under penalties of perjury, that it is not a U.S. holder and
that other conditions are met or the holder otherwise establishes an exemption,
provided that the broker does not have actual knowledge that the holder is a
U.S. holder or that the conditions of any other exemption are not, in fact,
satisfied.
Holders of exchange notes should consult their tax advisors regarding the
application of backup withholding in their particular situation, the
availability of an exemption from backup withholding and the procedure for
obtaining an exemption, if available.
The amount of any backup withholding will be allowed as a credit against
the holder's United States federal income tax liability and may entitle the
holder to a refund if the required information is furnished to the Internal
Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFER AND OF HOLDING AND DISPOSING OF
THE NOTES INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-
UNITED STATES TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX
LAWS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to Title I of ERISA, which we refer to as "ERISA
plans," and on those persons who are fiduciaries of ERISA plans. Investments by
ERISA plans are subject to ERISA's general fiduciary requirements, including the
requirement of investment prudence and diversification and the requirement that
an ERISA plan's investments be made in accordance with documents governing the
ERISA plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
certain transactions involving the assets of an ERISA plan, as well as those
plans that are not subject to ERISA but that are subject to Section 4975 of the
Internal Revenue Code, such as individual retirement accounts, which together
with ERISA plans, we refer to as the "plans," and specified persons, referred to
as "parties in interest" or "disqualified persons," having specified
relationships to such plans, unless a statutory or administrative exemption is
applicable to the transaction. A party in interest or disqualified person who
engages in a prohibited transaction may be subject to excise taxes and to other
penalties and liabilities under ERISA and the Internal Revenue Code. In
addition, the fiduciary of the plan that engaged in a prohibited transaction may
be subject to penalties and liabilities under ERISA and the Internal Revenue
Code.
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The fiduciary of a plan that proposes to exchange initial notes for
exchange notes should consider, among other things, whether such exchange of
initial notes for exchange notes may involve (1) a direct or indirect extension
of credit to a party in interest or to a disqualified person, (2) the sale or
exchange of any property between a plan and a party in interest or disqualified
person or (3) the transfer to, or use by or for the benefit of, a party in
interest or disqualified person, of any plan assets. Depending upon the identity
of the plan fiduciary making the decision to acquire or hold the notes, or
exchange the notes for exchange notes, on behalf of a plan, Prohibited
Transaction Class Exemption ("PTCE") 91-38 (relating to investments by bank
collective investment funds), PTCE 84-14 (relating to transactions effected by a
"qualified professional asset manager"), PTCE 95-60 (relating to investments by
an insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house professional asset manager) or PTCE 90-1 (relating to
investments by insurance company pooled separate accounts), could provide an
exemption from the prohibited transaction provisions of ERISA and Section 4975
of the Internal Revenue Code, although there can be no assurance that all of the
conditions of such exemptions will be satisfied.
Federal, state, local or non-United States laws governing the investment
and management of the assets of governmental plans and other plans which are not
subject to ERISA or the Internal Revenue Code may contain fiduciary and
prohibited transaction requirements similar to those under Title I of ERISA and
Section 4975 of the Internal Revenue Code, which we refer to as "similar laws."
Accordingly, fiduciaries of such plans, in consultation with their counsel,
should consider the impact of their respective laws on investments in the notes
and the considerations discussed above, to the extent applicable.
Because of the above, the initial notes should not be exchanged for
exchange notes by any person investing "plan assets" of any plan or employee
benefit plan subject to similar laws, unless such exchange of initial notes for
exchange notes will not constitute a non-exempt prohibited transaction under
ERISA and the Internal Revenue Code or similar violation of any applicable
similar laws.
Accordingly, by acceptance of an exchange note, each holder and subsequent
transferee of an exchange note will be deemed to have represented and warranted
that either (1) no portion of the assets used by such purchaser or transferee to
acquire the exchange notes constitutes assets of any employee benefit plan
subject to Title I of ERISA or Section 4975 of the Internal Revenue Code or the
applicable provisions of any similar law or (2) the exchange of the initial
notes for the exchange notes by such purchaser or transferee will not constitute
a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975
of the Internal Revenue Code or similar violation of any applicable similar
laws.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries, or other persons, considering exchanging initial
notes for the exchange notes on behalf of, or with the assets of, any plan or
employee benefit plan subject to similar laws, consult with their counsel
regarding the potential applicability of ERISA, Section 4975 of the Internal
Revenue Code and any similar laws to such investment and whether an exemption
would be applicable to the exchange of the initial notes for exchange notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer in exchange for initial notes acquired by such
broker-dealer as a result of market making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and,
therefore, must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales, offers to resell or other transfers of the
exchange notes received by it in connection with the exchange offer.
Accordingly, each such broker-dealer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange notes. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for initial notes where such
initial notes were acquired as a result of market-making activities or other
trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the completion of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, other than commissions or concessions of any brokers or dealers,
and will indemnify the holders of the notes, including any broker-dealers,
against specific liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Christopher L. Bennett, Esq., Senior Vice President and General Counsel of
MeriStar Hospitality Corporate has passed upon the validity of the exchange
notes. Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, has passed
upon specific tax matters with respect to the exchange offer.
EXPERTS
The consolidated financial statements of MeriStar Hospitality Operating
Partnership, L.P. and subsidiaries as of December 31, 2001 and 2000, and for
each of the years in the three-year period ended December 31, 2001 and the
financial statement schedule of real estate and accumulated depreciation, and
supplementary consolidating information, have been incorporated by reference in
this registration statement in reliance upon the reports of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of MeriStar Hospitality Corporation
and subsidiaries as of December 31, 2001 and 2000, and for each of the years in
the three-year period ended December 31, 2001 and the financial statement
schedule of real estate and accumulated depreciation have been incorporated
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by reference in this registration statement in reliance upon the report of KPMG
LLP, independent certified public accounts, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission covering the exchange notes, and this prospectus is part of
our registration statement. For further information on us and the exchange
notes, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents that
we refer you to. Because the prospectus may not contain all the information that
you may find important, you should review the full text of these documents. We
have included copies of these documents as exhibits to our registration
statement.
We are subject to the information requirements of the Securities Exchange
Act and will be required to file reports and other information with the
Securities and Exchange Commission. You can inspect and copy at prescribed rates
the reports and other information that we file with the Securities and Exchange
Commission at the public reference facilities maintained by the Securities and
Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
public reference facilities by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission also maintains an
Internet web site at http://www.sec.gov that contains reports, proxy and
information statements and other information. You can also obtain copies of
these materials from us upon request.
In addition, the indenture requires that, whether or not we are subject to
the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act, we will provide the trustee and noteholders, and will, if permitted, file
with the Securities and Exchange Commission, all quarterly and annual reports
and other information, documents and reports specified in Sections 13 and 15(d)
of the Securities Exchange Act including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report on it by its certified independent
accountants, for so long as any of the exchange notes are outstanding. We will
also make the information available to investors and securities analysts who
request it in writing. In addition, for so long as any of the initial notes or
the exchange notes remain outstanding, we have agreed to make available to any
prospective purchaser of these notes or owner of these exchange notes in
connection with any sale of the exchange notes the information required by Rule
144A(d)(4) under the Securities Act. Any requests should be directed to MeriStar
Hospitality Corporation at 1010 Wisconsin Avenue, N.W., Washington, D.C. 20007,
Attention Christopher L. Bennett, Senior Vice President and General Counsel;
Telephone: (202) 295-1000.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT OUR COMPANY THAT DIFFERS FROM OR ADDS TO THE INFORMATION IN
THIS PROSPECTUS OR IN OUR DOCUMENTS OR THE DOCUMENTS THAT WE PUBLICLY FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS PROSPECTUS SPEAKS ONLY AS OF ITS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
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INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us and MeriStar Hospitality
Corporation to "incorporate by reference" the information we file with them,
which means that we can disclose important business and financial information
about us to you that is not included in or delivered with this prospectus by
referring you to those documents.
We incorporate by reference the following filings of MeriStar Hospitality
Operating Partnership:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2001,
filed on March 28, 2002, as amended by the Form 10-K/A filed on April 29,
2002 and the Form 10-K/A filed on May 8, 2002;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed
on May 15, 2002; and
- Current Reports on Form 8-K filed on January 31, 2002 and May 7, 2002.
We incorporate by reference the following filings of MeriStar Hospitality
Corporation:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2001,
filed on March 7, 2002, as amended by the Form 10-K/A filed on March 28,
2002 and the Form 10-K/A filed on May 8, 2002;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed
on May 15, 2002; and
- Current Reports on Form 8-K filed on January 31, 2002 and May 7, 2002.
In addition, we incorporate by reference to this prospectus any other
filing we will make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 following the
date of this prospectus and prior to the termination of the exchange offer.
YOU MAY REQUEST A COPY OF THESE FILINGS, AT NO COST, BY WRITING OR
TELEPHONING US AT THE FOLLOWING ADDRESS:
c/o Christopher L. Bennett, Senior Vice President and General Counsel
MeriStar Hospitality Corporation
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Telephone requests may be directed to (202) 295-1000.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P. OR MERISTAR
HOSPITALITY FINANCE CORP. II SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
MERISTAR HOSPITALITY FINANCE CORP. II
OFFER TO EXCHANGE
$250,000,000 OF THEIR 10 1/2% SENIOR NOTES DUE 2009
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PROSPECTUS
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June 19, 2002
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