-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SbtnG2KHkYPEaPXdX14paXCtOLbV+xw6kVBTU5tAvjBnJq51RrnJc0Jw+NVCM/QR qkONjgmaMPYC4dVuFm9Ksg== 0000928385-00-000736.txt : 20000316 0000928385-00-000736.hdr.sgml : 20000316 ACCESSION NUMBER: 0000928385-00-000736 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERISTAR HOSPITALITY CORP CENTRAL INDEX KEY: 0001012967 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752648842 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11903 FILM NUMBER: 570836 BUSINESS ADDRESS: STREET 1: 1010 WISCONSIN AVENUE N W CITY: WASHINGTON STATE: DC ZIP: 20007 BUSINESS PHONE: 9725506800 MAIL ADDRESS: STREET 1: 1010 WISCONSIN AVENUE N W CITY: WASHINGTON STATE: DC ZIP: 20007 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GENERAL HOSPITALITY CORP DATE OF NAME CHANGE: 19960428 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 1-11903 MERISTAR HOSPITALITY CORPORATION (Exact name of issuer as specified in its charter) MARYLAND 75-2648842 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1010 WISCONSIN AVENUE, N.W., 20007 WASHINGTON, D.C. (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (202) 295-1000 Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered: -------------------- ------------------------------------------ Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No - ---------------------------------------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K___. - ------------------------------- Based on the average sale price at March 13, 2000, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $504,763,294. The number of shares of the Registrant's common stock outstanding as of March 13, 2000 was 47,456,455. DOCUMENTS INCORPORATED BY REFERENCE: Part III - Those portions of the Registrant's definitive proxy statement relating to Registrant's 2000 Annual Meeting of Stockholders which are incorporated into Items 10, 11, 12, and 13. PART I ITEM 1. BUSINESS THE COMPANY MeriStar Hospitality Corporation (the "Company") is a comprehensive real estate investment trust ("REIT"), which owns a portfolio of primarily upscale, full-service hotels, diversified by franchise and brand affiliations, in the United States and Canada. As of December 31, 1999, the Company owned 116 hotels that contain 29,348 rooms (the "Hotels"). The Hotels are located in major metropolitan areas or rapidly growing secondary markets and are well located within these markets. 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). All of the Hotels and the Company's other assets are held by, and all of the Company's operations are conducted by, MeriStar Hospitality Operating Partnership, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership and controls its operations. The Company was created on August 3, 1998, when American General Hospitality Corporation ("AGH"), a Maryland corporation operating as a REIT, and its affiliated entities merged with CapStar Hotel Company ("CapStar"), a Delaware corporation, and its affiliated entities pursuant to an Agreement and Plan of Merger, dated as of March 15, 1998 (the "Merger"). At the Merger, through a series of transactions, CapStar transferred or caused to be transferred certain assets and liabilities to MeriStar Hotels & Resorts, Inc. ("OPCO"), a Delaware corporation and a wholly owned subsidiary of CapStar, so that OPCO would own the hotel management and leasing business previously operated by CapStar and its subsidiaries, and CapStar then distributed to its stockholders on a share-for-share basis (the "Spin-Off") all of the outstanding capital stock of OPCO. Immediately following the Merger, OPCO acquired 100% of the partnership interests in AGH Leasing, L.P., the third-party lessee that leased most of the hotels owned by AGH, and substantially all of the assets and certain liabilities of American General Hospitality, Inc., the third- party manager that managed most of the hotels owned by AGH. OPCO is the lessee and manager of 108 of the Hotels as well as properties of other hotel owners. The eight Hotels not leased by OPCO are leased by affiliates of Prime Hospitality Corp. ("Prime"). The Company and OPCO share certain key officers and four board members. An intercompany agreement aligns the Company's interests with the interests of OPCO (the "Intercompany Agreement"), with the objective of benefiting both companies' shareholders. See "The Intercompany Agreement." Each of the Company's leases is a participating lease ("Participating Lease") designed to allow the Company to achieve substantial participation in any future growth of revenues generated at the Hotels. Each Participating Lease has an initial term of twelve years from the inception of the lease, subject to earlier termination upon the occurrence of certain events. Under each Participating Lease, the lessee is obligated to pay the Company the greater of fixed base rent or participating rent based on a percentage of revenues at each of the Hotels. See "The Participating Leases." The Company's business strategy is to opportunistically acquire hotel properties and related businesses with the potential for cash flow growth, and to renovate and reposition each hotel according to the characteristics of the hotel and its market. During the year ended December 31, 1999, the Company spent a total of $160 million on renovations at the Hotels and intends to spend an additional $40 million during 2000 completing its renovation programs. See "Special Note Regarding Forward-Looking Statements." The Company believes that the upscale, full-service segment of the lodging industry is the most attractive segment in which to own hotels. The upscale, full-service segment is attractive for several reasons. First, the development pipeline of upscale, full-service hotels has slowed over the past year compared to limited service hotels, thereby reducing the rate of supply growth in the full-service segment. Second, upscale, full-service hotels appeal to a wide variety of customers, thus reducing the risk of decreasing demand from any particular customer group. Additionally, such hotels have particular appeal to both business executives and upscale leisure travelers, customers who are generally less price sensitive than 2 travelers who use limited-service hotels. BUSINESS The Company seeks to increase shareholder value by maintaining its close relationship with OPCO, a successful hotel operator, to increase the current and future potential economic returns from its hotel assets. The Intercompany Agreement Rights of First Refusal The Intercompany Agreement provides that OPCO has a right of first refusal to become the lessee of any real property acquired by the Company if the Company determines that, consistent with its status as a REIT, the Company is required to enter into a lease; provided that OPCO or an entity controlled by OPCO is qualified to be the lessee based on experience in the industry and financial and legal qualifications. The Intercompany Agreement provides that the Company must provide OPCO with written notice of a lessee opportunity. During the 30 days following such notice, OPCO has a right of first refusal with regard to the offer to become a lessee and the right to negotiate with the Company on an exclusive basis regarding the terms and conditions of the lease. If after 30 days, the Company and OPCO are unable to agree on the terms of a lease or if OPCO indicates that it is not interested in pursuing the opportunity, the Company may offer the opportunity to other hotel operators for a period of one year thereafter, at a price and on terms and conditions that are not more favorable than the price and terms and conditions proposed to OPCO. After this one-year period, if the Company has not leased the property, the Company must again offer the opportunity to OPCO in accordance with the procedures specified above. Each company has established a leasing committee which reviews all hotel leases to be entered into between the companies. Both leasing committees consist of directors that are not directors of the other company. OPCO has agreed not to acquire or make (i) investments in real estate or (ii) any other investments that may be made by a REIT under the federal income tax rules governing REITs unless they have provided written notice to the Company of the material terms and conditions of the acquisition or investment opportunity, and the Company has determined not to pursue such acquisitions or investments either by providing written notice to OPCO rejecting the opportunity within 20 days or by allowing such 20-day period to lapse. OPCO has also agreed to assist the Company in structuring and consummating any acquisition or investment which the Company elects to pursue. The Intercompany Agreement provides the Company and OPCO with a symbiotic relationship so that investors in both companies may enjoy the economic benefit of the entire enterprise. Investors should be aware, however, that because of the independent trading of the shares of the Company and the shares of OPCO, stockholders of each company may develop divergent interests which could lead to conflicts of interest. This divergence of interests could also reduce the anticipated benefits of the relationship between the two companies. Provision of Services OPCO provides the Company with certain services as the Company may reasonably request from time to time, including administrative, renovation supervision, corporate, accounting, financial, insurance, legal, tax, information technology, human resources, acquisition identification and due diligence, and operational services. The Company compensates OPCO for services provided in an amount determined in good faith by OPCO as the amount an unaffiliated third party would charge the Company for comparable services. Equity Offerings If either the Company or OPCO desires to engage in a securities issuance, such issuing party will give 3 notice to such other party as promptly as practicable of its desire to engage in a securities issuance. Any such notice will include the proposed material terms of such issuance, to the extent determined by the issuing party, including whether such issuance is proposed to be pursuant to public or private offering, the amount of securities proposed to be issued and the manner of determining the offering price and other terms thereof. The non-issuing party will cooperate with the issuing party in every way to effect any securities issuance of the issuing party by assisting in the preparation of any registration statement or other document required in connection with such issuance and, in connection therewith, providing the issuing party with such information as may be required to be included in such registration statement or other document. Term The Intercompany Agreement will terminate upon the earlier of (a) August 3, 2008, or (b) a change in ownership or control of OPCO. The Company may lend OPCO up to $75 million for general corporate purposes pursuant to a revolving credit agreement. Amounts outstanding under the facility bear interest at the rate of the 30-day London Interbank Offered Rate ("LIBOR") plus 350 basis points. As of December 31, 1999, OPCO had drawn $57 million on the facility at an interest rate of 9.98%. REIT Modernization Act In order to maintain its tax status as a REIT, the Company has not been permitted to engage in the operations of its hotel properties. To comply with this requirement, the Company has leased all of its real property to third-party lessee/managers - OPCO and Prime Hospitality. In December 1999, the REIT Modernization Act (the "RMA") became law. The RMA now permits the REIT to create a taxable REIT subsidiary (the "TRS"), which will be subject to taxation similar to a C-Corporation. The TRS will be allowed to lease the real property owned by the REIT. The RMA does not permit a REIT to establish a TRS until January 1, 2001. Also, although a TRS can lease real property from a REIT, it will be restricted from being involved in certain activities prohibited by the RMA. First, a TRS will not be permitted to manage the properties itself; it will need to enter into an "arms length" management agreement with an independent third-party manager that is actively involved in the trade or business of hotel management and manages properties on behalf of other owners. Second, the TRS will not be permitted to lease a property that contains gambling operations. Third, the TRS will be restricted from owning a brand or franchise. The Company believes that establishing a TRS to lease its properties will provide a more efficient alignment of and ability to capture the economic interests of property ownership. The Company has established a subcommittee of independent members of the Board of Directors to negotiate the transfer of its existing leases with OPCO to the Company's TRS. Since this process is a significant change from the business structure the Company has maintained as a REIT, it is not currently possible to predict the outcome of these negotiations. The amount of consideration, if any, to be exchanged between the Company and OPCO is subject to completion of these negotiations. The Company is aiming to conclude these negotiations during 2000 and transfer those leases to its TRS effective January 1, 2001. Concurrent with the transfer of the leases to the TRS, the Company expects to enter into management agreements with OPCO to manage its properties in accordance with the RMA rules described above. Acquisition Strategy In order to maintain its qualification as a REIT, the Company must make annual distributions to its stockholders of at least 95% of its taxable income (excluding net capital gains). As a result, in order to complete acquisitions, the Company relies heavily on its ability to raise new capital through debt and equity offerings; that ability is dependent on the then current status of the capital markets. Currently, equity capital is not available at prices that make it beneficial to acquire new assets. 4 Although the Company is not currently pursuing direct acquisition opportunities due to the lack of available capital, it continues to be aware of acquisition opportunities in the upscale, full-service hotel market. During 1999, the Company made a $40 million preferred equity investment in Meristar Investment Partners, a joint venture established to acquire upscale, full- service hotels. The Company continues to explore additional investments in hotels through joint ventures with strategic partners or through equity contributions, sales and leasebacks, or secured loans. The Company focuses its attention on investments in hotels located in markets with economic, demographic and supply dynamics favorable to hotel owners. Through its extensive due diligence process, the Company selects those acquisition targets where it believes selective capital improvements and well selected third-party management will increase the hotel's ability to attract key demand segments, enhance hotel operations and increase long-term value. In order to evaluate the relative merits of each investment opportunity, senior management of the Company together with OPCO create detailed plans covering all areas of renovation and operation. These plans serve as the basis for the Company's acquisition decisions and guide subsequent renovation and operating plans which will be carried out by a third-party hotel operator. Competition The Company competes primarily in the upscale and mid-priced sectors of the full-service segment of the lodging industry. In each geographic market in which the Hotels are located, there are other full- and limited-service hotels that compete with the Hotels. Competition in the U.S. lodging industry is based generally on convenience of location, brand affiliation, price, range of services and guest amenities offered, and quality of customer service and overall product. Employees As of December 31, 1999, the Company employed ten persons. All of the Company's employees work at the corporate headquarters. Franchises The Company employs a flexible branding strategy based on a particular hotel's market environment and the hotel's unique characteristics. Accordingly, the Company uses various national trade names pursuant to licensing arrangements with national franchisors. Governmental Regulation Americans with Disability Act - Under the Americans with Disabilities Act (the "ADA"), all public accommodations are required to meet certain requirements related to access and use by disabled persons. These requirements became effective in 1992. Although significant amounts have been and continue to be invested in ADA required upgrades to the Hotels, a determination that the Company is not in compliance with the ADA could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants. The Company is likely to incur additional costs of complying with the ADA; however, such costs are not expected to have a material adverse effect on the Company's results of operations or financial condition. Environmental Laws - Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to remediate such property properly, may adversely affect the owner's ability to use the property, sell the property or borrow by using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is or ever was owned or operated by such person. The operation and removal of certain underground storage tanks are also regulated by federal and state laws. In connection with the ownership of the Hotels, the Company could be 5 liable for the costs of remedial action with respect to such regulated substances and storage tanks and claims related thereto. Certain environmental laws and common law principles could also be used to impose liability for releases of hazardous materials, including asbestos-containing materials ("ACMs"), into the environment, and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released ACMs or other hazardous materials. Phase I environmental site assessments ("ESA") have been conducted at all of the Hotels, and Phase II ESAs have been conducted at some of the Hotels by qualified independent environmental engineers. The purpose of the ESA is to identify potential sources of contamination for which the Hotels may be responsible and to assess the status of environmental regulatory compliance. The ESAs have not revealed any environmental liability or compliance concerns that the Company believes would have a material adverse effect on the Company's business, assets, results of operations or liquidity, nor is the Company aware of any material environmental liability or concerns. Nevertheless, it is possible that these ESAs did not reveal all environmental liabilities or compliance concerns or that material environmental liabilities or compliance concerns exist of which the Company is currently unaware. In reliance upon the Phase I and Phase II ESAs, the Company believes the Hotels are in material compliance with all federal, state and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. The Company has not been notified by any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental substances in any of the Hotels. 6 THE OPERATING PARTNERSHIPS The following summary information is qualified in its entirety by the provisions of the MeriStar Hospitality Operating Partnership, L.P. limited partnership agreement, a copy of which has been filed as an exhibit to this Form 10-K. Substantially all of the Company's assets are held indirectly by MeriStar Hospitality Operating Partnership, L.P., the Company's subsidiary operating partnership. The Company is the sole general partner of the Operating Partnership, and the Company and approximately 114 independent third parties are limited partners of the Operating Partnership. The partnership agreement of the Operating Partnership gives the general partner full control over the business and affairs of the Operating Partnership. The general partner is also given the right, in connection with the contribution of property to the Operating Partnership or otherwise, to issue additional partnership interests in the Operating Partnership in one or more classes or series, with such designations, preferences and participating or other special rights and powers (including rights and powers senior to those of the existing partners) as the general partner may determine. The Operating Partnership's partnership agreement provides for four classes of partnership interests ("OP Units"): Common OP Units, Class B OP Units, Class C OP Units and Class D OP Units. As of March 13, 2000, the partners of the Operating Partnership own the following aggregate numbers of OP Units: (i) the Company and its wholly-owned subsidiaries own a number of Common OP Units equal to the number of issued and outstanding shares of the Company's common stock, par value $0.01, (the "Common Stock") and (ii) independent third parties own 4,861,474 OP Units (consisting of 3,437,541 Common OP Units, 1,031,776 Class C OP Units and 392,157 Class D OP Units). Common OP Units and Class B OP Units receive quarterly distributions per OP Unit equal to the dividend paid on each of the Company's Common Shares. Class C OP Units receive a non-cumulative, quarterly distribution equal to $0.5575 per Class C OP Unit until such time as the dividend rate on the Company's Common Shares exceeds $0.5575 whereupon the Class C OP Units automatically convert into Common OP Units. Class D OP Units pay a 6.5% cumulative annual preferred return based on an assumed price per Common Share of $22.16, compounded quarterly to the extent not paid on a current basis, and are entitled to a liquidation preference of $22.16 per Class D OP Unit. All net income and capital proceeds earned by the Operating Partnership, after payment of the annual preferred return and, if applicable, the liquidation preference, will be shared by the holders of the Common OP Units in proportion to the number of Common OP Units in the relevant Operating Partnership owned by each such holder. Each OP Unit held by the independent third-parties is redeemable by the holder for one share of Common Stock (or, at the Company's option, for cash in an amount equal to the market value of a share of Common Stock). In addition, the Class D OP Units may be redeemed by the Operating Partnership at a price of $22.16 per Class D OP Unit (or, at the Company's option, for a number of shares of Common Stock having a value equal to such redemption price) at any time after April 1, 2000 or by the holders of the Class D OP Units at a price of $22.16 per Class D OP Unit (in cash or, at the holder's option, for a number of shares of Common Stock having a value equal to the redemption price) at any time after April 1, 2004. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain 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 and Section 21E of the Exchange Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on the operations and future prospects of our Company include, but are not limited to, changes in: economic conditions generally and 7 the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of capital, interest rates, competition, supply and demand for hotel rooms in our current and proposed market areas and general accounting principles, policies and guidelines applicable to real estate investment trusts. These risks and uncertainties should be considered in evaluating any forward- looking statements contained or incorporated by reference herein. ITEM 2. PROPERTIES The Company maintains its corporate headquarters in Washington, D.C. and owns hotel properties throughout the United States and Canada. As of December 31, 1999, the Company owned 116 Hotels. The Company leases land for seven of its Hotels (Hilton Hotel, Washington, DC; Hilton Hotel, San Pedro, California; Doral Palm Springs, Palm Springs, California; Jekyll Inn, Jekyll Island, Georgia; Hilton Hotel, Clearwater, Florida; Courtyard by Marriott, Lake Buena Vista, Florida; and Radisson Hotel, Rochester, New York). The Company also leases part of the land for six of the Hotels (Westin Morristown, Morristown, New Jersey; Courtyard by Marriott Meadowlands, Secaucus, New Jersey; Wyndham Hotel Albuquerque, Albuquerque, New Mexico; Hilton Hotel Toledo, Toledo, Ohio; Wyndham Airport Hotel, San Jose, California; and Westin Resort Key Largo, Key Largo, Florida). No one hotel property is material to the Company's operations. A typical Hotel has meeting and banquet facilities, food and beverage facilities and guest rooms and suites. The Hotels generally feature, or after the Company's renovation programs have been completed will feature, comfortable, modern guest rooms, extensive meeting and convention facilities and full-service restaurant and catering facilities that attract meeting and convention functions from groups and associations, upscale business and vacation travelers as well as banquets and receptions from the local community. The following table sets forth certain information with respect to the Hotels for the year ended December 31, 1999:
Average Guest Daily Average Hotel Location Rooms Rate (2) Occupancy (2) ----- -------- ----- ---- --------- Sheraton Hotel.................... Mesa, AZ 273 $ 86.26 55.4% Crowne Plaza Hotel................ Phoenix, AZ 250 77.71 55.4 Embassy Suites.................... Tucson, AZ 204 82.53 78.2 Courtyard by Marriott............. Century City, CA 134 116.07 79.5 Hilton Hotel...................... Irvine, CA 289 110.61 67.9 Marriott Hotel.................... Los Angeles, CA 469 116.40 75.6 Courtyard by Marriott............. Marina Del Rey, CA 276 96.19 91.9 Hilton Hotel...................... Monterey, CA 204 113.38 76.4 Doral Palm Springs................ Palm Springs, CA 285 104.48 59.1 Hilton Hotel...................... Sacramento, CA 331 102.93 69.4 Holiday Inn Select................ San Diego, CA 317 80.92 84.0 Sheraton Hotel.................... San Francisco, CA 525 154.71 83.6 Crowne Plaza Hotel................ San Jose, CA 239 131.66 75.8 Wyndham Hotel..................... San Jose, CA 355 127.52 72.6 Hilton Hotel...................... San Pedro, CA 226 77.06 83.9 Santa Barbara Inn................. Santa Barbara, CA 71 162.43 78.1 Holiday Inn....................... Colorado Springs, CO 200 70.24 68.0 Sheraton Hotel.................... Colorado Springs, CO 500 75.61 67.6 Embassy Suites.................... Englewood, CO 236 104.81 78.6 Hilton Hotel...................... Hartford, CT 388 108.56 72.6 Ramada Hotel...................... Meriden, CT 150 78.96 71.8
8 Ramada Hotel...................... Shelton, CT 155 110.93 61.7 Doubletree Bradley Airport........ Windsor Locks, CT 200 88.14 79.4 Hilton Hotel...................... Washington, DC 193 131.05 76.3 Georgetown Inn.................... Washington, DC 96 143.96 81.1 The Latham Hotel.................. Washington, DC 143 136.29 77.3 South Seas Resort................. Captiva, FL 579 248.77 63.4 Hilton Hotel...................... Clearwater, FL 426 109.59 76.8 Ramada Hotel...................... Clearwater, FL 289 79.31 75.6 Hilton Hotel...................... Cocoa Beach, FL 296 83.08 75.8 Holiday Inn....................... Ft. Lauderdale, FL 240 83.81 81.9 Howard Johnson Resort............. Key Largo, FL 100 87.13 82.5 Westin Hotel...................... Key Largo, FL 200 133.80 79.8 Courtyard by Marriott............. Lake Buena Vista, FL 314 101.36 88.4 Sheraton Hotel.................... Lake Buena Vista, FL 489 81.38 83.5 Radisson Hotel.................... Marco Island, FL 268 147.00 75.9 Holiday Inn....................... Madeira Beach, FL 149 80.81 76.6 Radisson Hotel.................... Orlando, FL 742 92.61 69.5 Best Western Hotel................ Sanibel Island, FL 46 161.10 80.0 Sanibel Inn....................... Sanibel Island, FL 96 172.78 85.8 Seaside Inn....................... Sanibel Island, FL 32 179.56 79.7 Song of the Sea................... Sanibel Island, FL 30 203.81 87.8 Sundial Beach Resort.............. Sanibel Island, FL 243 219.51 72.9 Doubletree Hotel.................. Tampa, FL 496 62.47 67.7 Doubletree Guest Suites........... Atlanta, GA 155 106.94 65.4 Westin Atlanta Airport............ Atlanta, GA 495 90.71 76.8 Jekyll Inn........................ Jekyll Island, GA 262 69.86 56.0 Wyndham Hotel..................... Marietta, GA 218 75.58 63.4 Radisson Hotel.................... Arlington Heights, IL 201 86.41 68.3 Radisson Hotel & Suites........... Chicago, IL 350 150.24 80.2 Holiday Inn....................... Rosemont, IL 507 107.5 72.3 Radisson Hotel.................... Schaumburg, IL 200 89.27 74.3 Doubletree Guest Suites........... Indianapolis, IN 137 91.92 72.7 Radisson Plaza.................... Lexington, KY 367 84.46 59.5 Hilton Hotel...................... Louisville, KY 321 113.78 65.6 Holiday Inn Select................ Kenner, LA 303 80.62 76.3 Hilton & Towers................... Lafayette, LA 327 75.73 70.6 Maison de Ville................... New Orleans, LA 23 286.79 72.8 Radisson Hotel.................... Annapolis, MD 219 91.98 63.1 Radisson Hotel.................... Baltimore, MD 148 111.75 69.0 Sheraton Hotel.................... Columbia, MD 287 108.51 70.5 Holiday Inn Express............... Hanover, MD 159 84.70 82.4 Hampton Inn....................... Ocean City, MD 168 80.41 56.3 Hilton Hotel...................... Detroit, MI 151 98.70 86.5 Hilton Hotel...................... Grand Rapids, MI 224 79.71 75.0 Holiday Inn Sports Complex........ Kansas City, MO 163 77.40 58.1 Sheraton Airport Plaza............ Charlotte, NC 222 91.59 76.3 Hilton Hotel...................... Durham, NC 194 84.17 62.9 Courtyard by Marriott............. Durham, NC 146 80.45 69.5 Four Points Hotel................. Cherry Hill, NJ 213 81.68 63.3 Ramada Hotel...................... Mahwah, NJ 128 98.98 69.1 Sheraton Hotel.................... Mahwah, NJ 225 131.40 75.4 Westin Hotel...................... Morristown, NJ 199 134.76 68.6 Four Points Hotel................. Mt. Arlington, NJ 124 107.68 71.0 Doral Forrestal................... Princeton, NJ 290 173.87 65.0 Courtyard by Marriott............. Secaucus, NJ 165 119.02 89.8
9 Marriott Hotel.................... Somerset, NJ 440 132.40 75.7 Doubletree Hotel.................. Albuquerque, NM 295 73.46 70.6 Wyndham Hotel..................... Albuquerque, NM 276 69.98 76.2 Crowne Plaza Hotel................ Las Vegas, NV 201 88.16 81.9 St. Tropez Suites................. Las Vegas, NV 149 91.06 72.3 Radisson Hotel.................... Rochester, NY 171 72.57 65.5 Radisson Hotel.................... Middleburg Heights, OH 237 76.76 65.7 Hilton Hotel...................... Toledo, OH 213 72.93 63.5 Westin Hotel...................... Oklahoma City, OK 395 71.64 66.3 Crowne Plaza Hotel................ Lake Oswego, OR 161 102.52 55.7 Sheraton Hotel.................... Frazer, PA 198 111.82 75.1 Embassy Suites.................... Philadelphia, PA 288 135.42 76.5 Holiday Inn Select................ Trevose, PA 215 92.60 72.2 Hilton Hotel...................... Arlington, TX 309 85.78 72.9 Doubletree Hotel.................. Austin, TX 350 92.23 72.8 Hilton & Towers................... Austin, TX 320 78.14 65.4 Holiday Inn Select................ Bedford, TX 243 62.87 81.7 Radisson Hotel.................... Dallas, TX 304 64.37 63.4 Renaissance Hotel................. Dallas, TX 289 95.34 62.8 Sheraton Hotel.................... Dallas, TX 348 75.87 54.8 Hilton Hotel...................... Houston, TX 292 68.79 57.3 Marriott Hotel.................... Houston, TX 302 117.45 72.0 Hilton Hotel...................... Houston, TX 295 106.55 74.5 Sheraton Hotel.................... Houston, TX 382 80.11 60.5 Holiday Inn ...................... Irving, TX 409 72.11 83.8 Hilton Hotel...................... Midland, TX 249 66.63 52.3 Hilton Hotel...................... Salt Lake City, UT 287 78.75 76.1 Holiday Inn....................... Alexandria, VA 178 108.18 80.7 Radisson Hotel.................... Alexandria, VA 253 103.34 63.4 Hilton Hotel...................... Arlington, VA 209 127.79 80.4 Hilton Hotel...................... Arlington, VA 386 109.66 75.9 Hampton Inn....................... Richmond, VA 124 62.38 68.5 Richmond Hotel and Conference Center........................... Richmond, VA 280 57.07 32.3 Hilton Hotel...................... Bellevue, WA 179 119.51 73.5 Crowne Plaza Hotel (1)............ Madison, WI 226 88.44 75.7 Holiday Inn....................... Madison, WI 194 71.67 73.1 Holiday Inn....................... Calgary, Alberta, Canada 170 48.10 82.3 Sheraton Hotel.................... Guildford, B.C., Canada 278 65.95 73.0 Holiday Inn....................... Vancouver, B.C., Canada 100 74.20 85.8 Ramada Hotel...................... Vancouver, B.C., Canada 118 67.81 81.6 ------- ------- ------- Total Weighted Average 29,348 $101.14 71.6% ======= ======= =======
(1) Acquired on January 11, 1999. (2) Average Daily Rate and Average Occupancy include Holiday Inn, St. Louis, Missouri which was sold on November 30, 1999. 10 THE PARTICIPATING LEASES Subsidiaries of OPCO (the "Lessee") lease 108 of the 116 Hotels. Each Participating Lease provides for an initial term of 12 years. Each Participating Lease provides OPCO with three renewal options of five years each (except in the case of properties with ground leases having a remaining term of less than 40 years), provided that (a) the Lessee will not have the right to a renewal if a change in the tax law has occurred that would permit the Company to operate the hotel directly; (b) if the Lessee elects not to renew a Participating Lease for any applicable hotel, then the Company has the right to reject the exercise of a renewal right on a Participating Lease of a comparable hotel; and (c) the rent for each renewal term is adjusted to reflect the then fair market rental value of the hotel. If the Company and the Lessee are unable to agree upon the then fair market rental value of a hotel, the Participating Lease terminates upon the expiration of the then current term and the Lessee then has a right of first refusal to lease the hotel from the Company on such terms as the Company may have agreed upon with a third-party lessee. Base Rent; Participating Rent; Additional Charges Each Participating Lease requires the Lessee to pay (i) fixed monthly base rent (the "Base Rent"), (ii) participating rent ("Participating Rent") which is payable monthly and based on certain percentages of room revenue, food and beverage revenue and telephone and other revenue at each hotel in excess of Base Rent, and (iii) certain other amounts, including interest accrued on any late payments or charges ("Additional Charges"). Base Rent and Participating Rent departmental thresholds (departmental revenue on which the rent percentage is based) are increased annually by a percentage equal to the percentage increase in the Consumer Price Index (CPI percentage increase plus 0.75% in the case of the Participating Rent departmental revenue threshold) compared to the prior year. In addition, under certain circumstances, a reduced percentage rate will apply to the revenues attributable to certain "discounted rates" that the Lessee may offer. Base Rent is payable monthly in arrears. Participating Rent is payable in arrears based on a monthly schedule adjusted to reflect the seasonal variations in the hotel's revenue. Other than real estate and personal property taxes and assessments, rent payable under ground leases, casualty insurance, including loss of income insurance, capital impositions and capital replacements and refurbishments (determined in accordance with generally accepted accounting principles), that are obligations of the Company, the Participating Leases require the Lessee to pay rent, liability insurance, all costs and expenses and all utility and other charges incurred in the operation of the hotels. The Participating Leases also provide for rent reductions and abatements in the event of damage or destruction or a partial taking of any hotel. The Participating Leases also provide for a rental adjustment under certain circumstances in the event of (a) a major renovation of the hotel, or (b) a change in the franchisor of the hotel. Lessee Capitalization The Participating Leases require OPCO, as guarantor of the Participating Leases, to maintain a book net worth of not less than $40 million. Further, as of January 1, 1999, for so long as the tangible net worth of OPCO is less than 17.5% of the aggregate rents payable under the Participating Leases for the prior calendar year, OPCO is prohibited from paying dividends or making distributions other than dividends or distributions made for the purpose of permitting the partners of the Operating Partnership to pay taxes on the taxable income of the Operating Partnership attributable to its partners plus any required preferred distributions existing to partners. Termination The Company has the right to terminate the applicable Participating Lease upon the sale of a hotel to a third party or, upon the Company's determination not to rebuild after a casualty, upon payment to the Lessee of the fair market value of the leasehold estate (except for properties initially identified by the Company and OPCO as properties slated to be sold). The fair market value of the leasehold estate is 11 determined by discounting to present value at a discount rate of 10% per annum the cash flow for each remaining year of the then current lease term, which cash flow will be deemed to be the cash flow realized by the Lessee under the applicable Participating Lease for the 12-month period preceding the termination date. The Company will receive as a credit against any such termination payments an amount equal to any outstanding "New Lease Credits," which means the projected cash flow (determined on the same basis as the termination payment) of any new Participating Leases entered into between the Company and OPCO after the effective date for the initial term of such new Participating Lease amortized on a straight-line basis over the initial term of the new Participating Lease. Performance Standards The Company has the right to terminate the applicable Participating Lease if, in any calendar year, the gross revenues from a hotel are less than 95% of the projected gross revenues for such year as set forth in the applicable budget unless (a) the Lessee can reasonably demonstrate that the gross revenue shortfall was caused by general market conditions beyond the Lessee's control or (b) the Lessee "cures" the shortfall by paying to the Company the difference between the rent that would have been paid to the Company had the property achieved gross revenues of 95% of the budgeted amounts and the rent paid based on actual gross revenues. The Lessee does not have such a cure right for more than two consecutive years. The Participating Leases also require that the Lessee spend in each calendar year at least 95% of the amounts budgeted for marketing expenses and for repair and maintenance expenses. Assignment and Subleasing The Lessees do not have the right to assign a Participating Lease or sublet a hotel without the prior written consent of the Company. For purposes of the Participating Lease, a change in control of OPCO or the Lessees will be deemed an assignment of the Participating Lease and will require the Company's consent, which may be granted or withheld in its sole discretion. REIT Modernization Act In order to maintain its tax status as a REIT, the Company has not been permitted to engage in the operations of its hotel properties. To comply with this requirement, the Company has leased all of its real property to third-party lessee/managers - OPCO and Prime Hospitality. In December 1999, the REIT Modernization Act (the "RMA") became law. The RMA now permits the REIT to create a taxable REIT subsidiary (the "TRS"), which will be subject to taxation similar to a C-Corporation. The TRS will be allowed to lease the real property owned by the REIT. The RMA does not permit a REIT to establish a TRS until January 1, 2001. Also, although a TRS can lease real property from a REIT, it will be restricted from being involved in certain activities prohibited by the RMA. First, a TRS will not be permitted to manage the properties itself; it will need to enter into an "arms length" management agreement with an independent third-party manager that is actively involved in the trade or business of hotel management and manages properties on behalf of other owners. Second, the TRS will not be permitted to lease a property that contains gambling operations. Third, the TRS will be restricted from owning a brand or franchise. The Company believes that establishing a TRS to lease its properties will provide a more efficient alignment of and ability to capture the economic interests of property ownership. The Company has established a subcommittee of independent members of the Board of Directors to negotiate the transfer of its existing leases with OPCO to the Company's TRS. Since this process is a significant change from the business structure the Company has maintained as a REIT, it is not currently possible to predict the outcome of these negotiations. The amount of consideration, if any, to be exchanged between the Company and OPCO is subject to completion of these negotiations. The Company is aiming to conclude these negotiations during 2000 and transfer those leases to its TRS effective January 1, 2001. Concurrent with the transfer of the leases to the TRS, the Company expects to enter into management agreements with OPCO to manage its properties in accordance with the RMA rules described above. 12 ITEM 3. LEGAL PROCEEDINGS In the course of the Company's normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company. Based on currently available facts, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters have been submitted to a vote of security holders during the fourth quarter of 1999. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "MHX." The following table sets forth for the periods indicated the high and low closing sale prices for the Common Stock on the NYSE.
Price ----- High Low ---- --- 2000: First Quarter (through March 13, 2000) $17 1/4 $15 1/16 1999: Fourth Quarter (ended December 31, 1999) 16 3/4 14 3/4 Third Quarter (ended September 30, 1999) 22 5/16 15 1/4 Second Quarter (ended June 30, 1999) 24 1/16 18 7/16 First Quarter (ended March 31, 1999) 19 3/8 16 1/6 1998: Fourth Quarter (ended December 31, 1998) 20 1/4 12 15/16 Third Quarter (from Merger on August 3, 1998 through September 30, 1998) 21 3/8 14 9/16 Third Quarter (from July 1, 1998 through August 2, 1998) (1) 29 7/8 25 1/16 Second Quarter (ended June 30, 1998) (1) 34 7/16 27 1/8 First Quarter (ended March 31, 1998) (1) 36 1/2 31 1/8
_____________ (1) Represents the share prices of CapStar Hotel Company which, pursuant to generally accepted accounting principles, is the predecessor of the Company. The last reported sale price of the Common Stock on the NYSE on March 13, 2000 was $15 1/16. As of March 13, 2000, there were approximately 353 holders of record of the Common Stock. On December 6, 1999, the Company declared a dividend of $0.505 per share relating to the fourth quarter of 1999 that was paid on January 31, 2000 to stockholders of record as of December 31, 1999. The Company intends to make regular quarterly distributions to its stockholders. Future distributions by the Company will be at the discretion of the Board of Directors and will depend on the Company's financial condition, its capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as the Board of Directors deems relevant. There can be no assurance that any such distributions will be made by the Company. In order to maintain its qualification as a REIT, the Company must make annual distributions to its stockholders of at least 95% of its taxable income (excluding net capital gains). Under certain circumstances, the Company may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements. In that event, the Company would seek to borrow the amount to obtain the cash necessary to make distributions to retain its qualification as a REIT for Federal income tax purposes. The distributions made in 1999 represent a 0% return of capital. Recent Sales of Unregistered Securities CapStar Hotel Company Each of CapStar's private issuances of shares of common stock and its operating partnership's private 14 issuances of OP Units has been in reliance on an exemption from registration under Section 4(2) of the Act in the amounts and for the consideration set forth below. On April 1, 1997, CapStar issued 809,523 Common OP Units and 392,157 Class D OP Units to affiliates of Highgate Hotels, Inc. ("Highgate") in connection with CapStar's purchase of a portfolio of six hotels from certain affiliates of Highgate. On November 17, 1997, CapStar issued 674,236 Common OP Units to affiliates of Winston Hospitality, Inc. ("Winston") in connection with CapStar's acquisition of substantially all of the assets of Winston. American General Hospitality Corporation Each of AGH's private issuances of shares of common stock and its operating partnership's private issuances of OP Units has been in reliance on an exemption from registration under Section 4(2) of the Act in the amounts and for the consideration set forth below. On June 27, 1997, AGH privately issued 225,690 Class B OP Units as part of the purchase of the Hilton Hotel Cocoa Beach. On July 16, 1997 the Class B OP Units automatically converted into Common OP Units. On July 14, 1997, as part of the terms of the strategic alliance between Wyndham International and AGH, an affiliate of Wyndham purchased 95,741 shares of restricted common stock. The shares were purchased in connection with the conversion of the LeBaron Airport Hotel to the Wyndham San Jose Airport Hotel. On October 14, 1997, AGH issued under AGH's Non-Employee Directors' Incentive Plan, 1,109 shares of common stock to the Board of Directors for compensation in accordance with their agreement to serve as directors of AGH. On November 30, 1997, AGH privately issued 11,568 Class B OP Units as part of the purchase of the Courtyard by Marriott Durham. On December 31, 1997, these Class B OP Units automatically converted into Common OP Units. On December 31, 1997, AGH privately sold an additional 1,159,546 shares of its common stock to certain investment funds and separate accounts advised by ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Limited Partnership. On January 2, 1998, AGH privately sold an additional 420,106 shares of common stock to certain investment funds and separate accounts advised by ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Limited Partnership. On January 8, 1998, AGH privately issued 439,375 Class B OP Units as part of the purchase price of a portfolio hotels owned by Prime. On April 16, 1998 the Class B OP Units converted into Common OP Units. On January 15, 1998, AGH privately sold the balance of 100,829 shares of its common stock to certain investment funds and separate accounts advised by ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Limited Partnership. On February 3, 1998, AGH privately issued 1,108,874 Class C OP Units as part of the purchase price of the Holiday Inn O'Hare International Hotel. The Class C OP Units bear a preferred annual distribution rate of $2.23 per Class C OP Unit until such time as the dividend distribution rate for the Class C OP Units will equal the distribution rate on the Common Stock. In addition, the holders of the Class C OP Units received an additional 974,588 Class A OP Units due to the fact that the fair market value of the common stock (as reported on the New York Stock Exchange, Inc.) was trading below $35 per share on the first 15 anniversary date of the closing of the acquisition. The Company On August 21, 1998, the Company privately issued 46,628 Class B OP Units as part of the purchase of the land under the Four Points Hotel in Mt. Arlington, New Jersey. On October 14, 1998 the Class B OP Units automatically converted into Common OP Units. On October 1, 1998, the Company privately issued 916,230 Common OP Units as part of the purchase of a portfolio of assets from South Seas Properties Company Limited Partnership and its affiliates. On January 7, 1999, the Company privately issued 65,875 Common OP Units as part of the purchase of the Holiday Inn Madison, Wisconsin. 16 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial information for the Company. The selected operating results and balance sheet data have been extracted from the consolidated financial statements for each of the periods presented. The following information should be read in conjunction with the consolidated financial statements and notes thereto for the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31, ------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- ------------ ----------- ------------ (dollars in thousands, except per share amounts and operating data) Revenue: Hotel operations: Participating lease revenue............................... $ 368,012 $ 135,994 $ - $ - $ - Rooms..................................................... - 275,610 207,736 68,498 14,456 Food, beverage, office rental and other................... 6,892 110,519 103,521 36,949 7,471 Management services and other revenues...................... - 3,174 5,136 4,345 4,436 ---------- ---------- ---------- --------- --------- Total revenues............................................ 374,904 525,297 316,393 109,792 26,363 ---------- ---------- ---------- --------- --------- Operating expenses: Departmental expenses: Rooms....................................................... - 65,048 51,075 17,509 4,190 Food, beverage and other.................................... 1,964 80,327 77,373 27,102 5,437 Undistributed operating expenses: Administrative and general.................................. 5,749 62,350 50,332 20,448 8,078 Property and other operating costs.......................... 47,027 122,963 55,111 17,151 3,934 Depreciation and amortization............................... 103,099 60,703 20,990 8,248 2,097 ---------- ---------- ---------- --------- --------- Total operating expenses.................................. 157,839 391,391 254,881 90,458 23,736 ---------- ---------- ---------- --------- --------- Net operating income......................................... 217,065 133,906 61,512 19,334 2,627 Interest expense, net........................................ 100,398 64,378 21,024 12,346 2,414 Minority interests........................................... 11,069 5,121 1,425 (39) (18) Provision for income taxes (A)............................... 2,102 15,699 14,911 2,674 - ---------- ---------- ---------- --------- --------- Income before extraordinary loss............................. 103,496 48,708 24,152 4,353 231 Extraordinary loss, net of tax (B)........................... (4,532) (4,080) (4,092) (1,956) (888) Cumulative effect of accounting change, net of tax (C)....... - (921) - - - ---------- ---------- ---------- --------- --------- Net income (loss)......................................... $ 98,964 $ 43,707 $ 20,060 $ 2,397 $ (657) ========== ========== ========== ========= ========= Basic earnings per share before extraordinary loss (D)....... $2.19 $1.45 $1.29 $0.31 $ - Diluted earnings per share before extraordinary loss (D)..... $2.11 $1.40 $1.27 $0.31 $ - Dividends per common share (E)............................... $2.02 $0.82 $ - $ - $ - Number of shares of common stock issued and outstanding (F).. 47,257 46,718 24,867 12,754 - Other Financial Data: EBITDA (G)................................................... $ 320,164 $ 194,609 $ 82,502 $ 27,582 $ 4,724 Net cash provided by operating activities.................... 229,193 162,796 59,882 13,373 4,357 Net cash used in investing activities........................ (187,952) (785,505) (586,259) (225,251) (116,573) Net cash (used in) provided by financing activities.......... (42,812) 543,256 588,428 226,830 119,048 Balance Sheet Data: Investments in hotel properties, gross....................... $3,118,723 $2,957,543 $ 950,052 $ 343,092 $ 110,883 Total assets................................................. 3,094,201 2,998,460 1,124,642 379,161 132,650 Long term debt............................................... 1,676,771 1,602,352 492,771 200,361 73,574
17
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating Data: Owned Hotels and Properties: Number of hotels (F)...................................... 116 117 47 19 6 Number of guest rooms (in thousands) (F).................. 29,348 29,351 12,019 5,166 2,101 Total revenues (in thousands)............................. $374,904 $522,123 $311,257 $105,447 $21,927 Average occupancy (H)..................................... 71.6% 71.5% 72.0% 71.6% 72.3% ADR (I)................................................... $ 101.14 $ 95.00 $ 86.87 $ 82.84 $ 71.58 RevPAR (J)................................................ $ 72.44 $ 67.90 $ 62.55 $ 59.31 $ 51.75
__________ (A) No provision for federal income taxes was included prior to the August 1996 initial public offering as the Company's predecessor entities were partnerships and all Federal income tax liabilities were passed through to the individual partners. (B) During 1995, 1996, 1997, 1998 and 1999 certain loan facilities were refinanced and the write-offs of deferred costs associated with the prior facilities were recorded as extraordinary losses in accordance with generally accepted accounting principles. (C) Pursuant to AICPA Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities" which the Company adopted on July 1, 1998, the effect of this accounting change was a pre-tax charge against income for the year ended December 31, 1998 of $1,485 ($921 net of tax effect). (D) Basic and diluted earnings per share before extraordinary item for the year ended December 31, 1996 is based on earnings for the period from August 20, 1996 (date of the Company's initial public offering) through December 31, 1996. (E) No dividends were declared prior to August 3, 1998 (date of the merger). (F) As of December 31 for the periods presented. (G) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. Management believes that EBITDA is a useful measure of operating performance because (i) it is industry practice to evaluate hotel properties based on operating income before interest, depreciation and amortization and minority interests of common and preferred OP Unit holders, which is generally equivalent to EBITDA, and (ii) EBITDA is unaffected by the debt and equity structure of the entity. EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles ("GAAP"), is not necessarily indicative of cash available to fund all cash flow needs, and should not be considered as an alternative to net income under GAAP for purposes of evaluating the Company's results of operations and may not be comparable to other similarly titled measures used by other companies. (H) Represents total number of rooms occupied by hotel guests on a paid basis divided by total available rooms. (I) Represents total room revenues divided by total number of rooms occupied by hotel guests on a paid basis. (J) Represents total room revenues divided by total available rooms. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General MeriStar Hospitality Corporation (the "Company") owns a portfolio of primarily upscale, full-service hotels, diversified by franchise and brand affiliations, in the United States and Canada. Substantially all of the Company's hotels are leased to and operated by MeriStar Hotels & Resorts, Inc. ("OPCO"). As of December 31, 1999, the Company owned 116 hotels (with 29,348 rooms), 108 of which are leased and operated by OPCO. The Company was formed on August 3, 1998, as a result of the merger (the "Merger") of CapStar Hotel Company ("CapStar") with and into American General Hospitality Corporation ("AGH"), a Maryland corporation operating as a real estate investment trust ("REIT"). The Merger was accounted for as a purchase for financial reporting purposes. In accordance with the provisions of Accounting Principles Board Opinion No. 16, "Business Combinations," CapStar was considered the acquiring enterprise for financial reporting purposes. The Company established a new accounting basis for AGH's assets and liabilities based on their fair values. For financial reporting purposes, the results of operations of AGH were included in the Company's statement of operations from August 3, 1998. The Company purchased AGH for approximately $1.3 billion through the issuance of 23.9 million shares of common stock and units of limited partnership interest ("OP Units") in the Company's subsidiary operating partnership, valued at $795 million and assumption of debt and other liabilities of $550 million. The acquisition has been recorded at the fair value of the net assets acquired. Prior to August 3, 1998, the Company's consolidated financial statements included the operating results for its owned and leased hotels as well as management fees from hotels managed for third-party owners. Subsequent to August 3, 1998, the Company owns certain hotels that are leased to hotel operators and no longer manages hotels. Also, the Company has had acquisitions and dispositions of certain properties during the periods presented. Therefore, the financial statements for the periods ended December 31, 1999, 1998, and 1997 reflect differing numbers of owned, leased, and managed hotels throughout the periods. The following table outlines the Company's portfolio of owned, leased and managed hotels as of December 31:
Owned Leased Managed Total ------------------------ ---------------------- ----------------------- ---------------------- Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms ------ ----- ------ ----- ------ ----- ------ ----- 1999 116 29,348 - - - - 116 29,348 1998 117 29,351 - - - - 117 29,351 1997 47 12,019 40 5,687 27 4,631 114 22,337
Financial Condition December 31, 1999 compared with December 31, 1998 Total assets increased by $95.7 million to $3,094.2 million at December 31, 1999 from $2,998.5 million at December 31, 1998. This growth was due mainly to the Company's investment of $40.0 million in MeriStar Investment Partners, LP ("MIP") and net additional investments in hotel properties including renovations to hotel properties. Total liabilities increased by $93.6 million to $1,802.5 million at December 31, 1999 from $1,708.9 million at December 31, 1998 due mainly to an increase in long-term debt. Long-term debt increased by $74.4 million to $1,676.8 million at December 31, 1999 from $1,602.4 million at December 31, 1998 as a result of borrowing $330 million under a new secured credit facility and the issuance of $55 19 million of subordinated notes, offset by net repayments of $307.5 million on the Company's credit facilities. Minority interests decreased $17.4 million to $121.1 million at December 31, 1999 from $138.5 million at December 31, 1998, due to the net redemptions of OP Units into shares of the Company's common stock. The increase in additional paid-in capital resulted primarily from the redemption of OP Units. Results of Operations Year Ended December 31, 1999 compared with the Year Ended December 31, 1998 Substantially all of the Company's hotels are leased to and operated by OPCO. Participating lease revenue represents lease payments to the Company from the lessees pursuant to the Company's participating lease agreements. Total revenue decreased by $150.4 million to $374.9 million in 1999 compared to $525.3 million in 1998. This decrease was primarily attributable to the change in the types of revenues recorded in the Company's financial statements in periods before and after the Merger. On a pro forma basis, which reflects the Merger, Spin-Off and other hotel acquisitions as if they had occurred on January 1, revenue per available room ("RevPAR"), same-store average daily rate ("ADR") and occupancy were as follows: 1999 1998 Change ---------- ---------- ---------- RevPAR $ 74.05 $ 71.80 3.1% ADR $102.39 $100.96 1.4% Occupancy 72.3% 71.1% 1.7% Hotel department operating expenses were $0 in 1999 compared to $145.4 million in 1998. This decrease was the result of the hotel operations being leased to OPCO after August 2, 1998, in conjunction with the Merger and Spin- Off. Undistributed operating expenses decreased significantly in 1999 as a result of the Merger and Spin-Off. Prior to the Spin-Off, the Company was responsible for all hotel operating expenses. Subsequent to August 3, 1998, the Company, as owner, is only responsible for real estate taxes, property insurance and various other undistributed expenses. Depreciation and amortization increased $42.4 million to $103.1 million in 1999 from $60.7 million in 1998 as a result of the assets acquired in the Merger. Net interest expense increased $36.0 million to $100.4 million for the year ended December 31, 1999, from $64.4 million in 1998. This increase was attributable to the borrowings made to finance the acquisition of hotels during 1998 and the renovations of hotels during 1998 and 1999. In addition, the new debt associated with the Merger, higher average interest rates, and 1999 borrowings made to finance real estate ventures increased overall interest expense. Minority interests increased $6.0 million to $11.1 million in 1999 from $5.1 million in 1998 due to the issuance of OP Units in conjunction with the Merger and the acquisition of certain hotels and a higher amount of income before minority interests in 1999 allocated to minority interest holders. Income taxes decreased $13.6 million in 1999 to $2.1 million from $15.7 million in 1998. In 1999, the Company's overall effective tax rate decreased to 2% as a result of the effective elimination of Federal income taxes when the Company became a REIT. Prior to the Merger, the Company's overall effective tax rate was 38.2% in 1998. In 1999, the Company recognized extraordinary losses of $4.5 million (net of a tax benefit of $0.1 million), due to the write-off of unamortized deferred financing fees in conjunction with refinancing certain credit facilities. 20 Earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") grew $125.6 million to $320.2 million in 1999 from $194.6 million in 1998. This growth reflects the Merger, Spin-Off and other hotel acquisitions which occurred during 1998. The White Paper on Funds From Operations ("FFO") approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in October 1999 defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (or losses) from sales of properties, plus real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated partnerships and joint ventures. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. FFO does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. FFO may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. Pro forma information for the Company for 1998 is presented as if the Merger, the Spin-Off, and the acquisition of all hotels of CapStar and AGH had occurred as of the beginning of 1998. The following is a reconciliation between income before extraordinary item and diluted FFO for the year ended December 31, 1999 and between pro forma income before extraordinary item and cumulative effect of accounting change and pro forma diluted FFO for the year ended December 31, 1998 (in thousands):
1999 1998 ------------- ------------------ Income before extraordinary item and cumulative effect $103,496 $ 96,232 of accounting change Minority interest to Common OP Unit Holders 10,504 9,883 Interest on convertible debt 8,303 8,194 Hotel depreciation and amortization 99,955 85,117 ------------- ------------------ Diluted FFO $222,258 $199,426 ============= ==================
As required by the Emerging Issues Task Force ("EITF") Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods", the Company recognized $45,894 of additional contingent rental income for the three months ended December 31, 1999. There is no year-to-date effect of EITF No. 98-9. Diluted FFO for the fourth quarter of 1999 before the effect of deferring contingent rent was $50,549 and was $95,555 after the effect of deferring contingent rent. Year Ended December 31, 1998 compared with the Year Ended December 31, 1997 Subsequent to August 3, 1998, the Company earned participating lease revenue of $136.0 million. Substantially all of the Company's Hotels are leased to and operated by OPCO. Participating lease revenue represents lease payments to the Company from the lessees pursuant to the Company's participating lease agreements. Total revenue increased by $208.9 million or 66% to $525.3 million in 1998 compared to $316.4 million in 1997. This increase was primarily attributable to the Merger, the acquisition of new hotels and revenue growth from hotels in the Company's portfolio that benefited from renovation and repositioning programs. Hotel departmental operating expenses increased slightly for the year ended December 31, 1998 compared to the prior year. Hotel operations for the year are only reflected through August 3, 1998. Subsequent to that date, in conjunction with the Merger and Spin-Off, hotel operations were leased to 21 OPCO. The increase in hotel department operating expenses is primarily due to an increase in the number of owned and leased hotels in 1998 prior to the Merger and Spin-Off. Undistributed operating expenses increased significantly in 1998 as a result of the acquisition of new properties in 1998 and the Merger. Hotel operations for the year are only reflected through August 3, 1998. Subsequent to August 3, 1998, the Company is responsible for real estate taxes, property insurance and various other undistributed expenses that are not included in hotel operations which are leased to OPCO. Net interest expense increased $43.4 million to $64.4 million for the year ended December 31, 1998, from $21.0 million in 1997. This increase was attributable to the borrowings made to finance the acquisition and renovation of hotels during 1998 and the debt assumed in connection with the Merger. Minority interests increased $3.7 million to $5.1 million from $1.4 million in 1997 due to the issuance of OP Units in conjunction with the Merger and the acquisition of certain hotels. Income taxes increased $0.8 million in 1998 to $15.7 million from $14.9 million in 1997. Subsequent to August 3, 1998, the Company's overall effective tax rate decreased to 3% as a result of the elimination of federal income taxes when the Company became a REIT. The slight increase in income taxes compared to prior year is a result of the substantial increase in pre-tax income in 1998 coupled with an overall effective tax rate of 38.2% through August 2, 1998. On August 3, 1998, the Company recognized extraordinary losses of $4.1 (net of a tax benefit of $2.1 million), due to the write-off of unamortized deferred financing fees in conjunction with refinancing certain credit facilities. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which requires that all non-governmental entities expense costs of start-up activities, including organizational costs, as those costs are incurred and requires the write-off of any unamortized balances upon implementation. SOP 98-5 is effective for financial statements issued for periods beginning after December 15, 1998. The Company chose to adopt SOP 98-5 effective July 1, 1998. The cumulative effect of this accounting change was a charge against income for the year ended December 31, 1998 of $0.9 million (net of tax benefit of $0.6 million). Earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") grew $112.1 million to $194.6 million in 1998 from $82.5 million in 1997. This growth reflects both the increases in the number of hotels owned and improved operating margins on the Company's overall hotel portfolio. Liquidity and Capital Resources The Company's principal sources of liquidity are cash on hand, cash generated from operations, and funds from external borrowings and debt and equity offerings. The Company expects to fund its continuing operations through cash generated by its participating leases. The Company also expects to finance hotel acquisitions, hotel renovations and joint venture investments through a combination of internally generated cash, external borrowings, and the issuance of OP Units and/or common stock. Additionally, the Company must, in order to maintain favorable tax treatment accorded to a REIT under the Internal Revenue Code, distribute to stockholders at least 95% of its REIT taxable income. The Company expects to fund such distributions through cash generated from operations, borrowings on the Company's credit facilities or through its preferred return on its investment in MIP. Operating activities provided $229.2 million of net cash for the year ended December 31, 1999 mainly due to higher levels of net income, depreciation and amortization, minority interests and accrued expenses and other liabilities. The Company used $188.0 million of cash in investing activities during the year ended December 31, 1999, primarily for capital expenditures and a preferred equity investment in MIP, a joint venture established to acquire upscale, full- service hotels. Net cash used in financing activities of $42.8 million 22 resulted primarily from dividends paid, partially offset by net borrowings under the Company's credit facilities. In conjunction with the Merger, CapStar terminated its existing credit facility effective August 3, 1998, and the Company entered into a $1.0 billion senior secured credit facility (the "New Credit Facility"). The New Credit Facility is structured as a $300 million, five-year term loan facility; a $200 million, five-and-a-half year term loan facility; and a $500 million, three-year revolving credit facility with two one-year optional extensions. The interest rate on the term loans and revolving facility ranges from 100 to 200 basis points over 30-day LIBOR, depending on certain financial performance covenants and long-term senior unsecured debt ratings. The weighted average interest rate on borrowings outstanding under the New Credit Facility as of December 31, 1999 was 8.4%. The initial proceeds from the New Credit Facility were used to refinance CapStar's and AGH's existing credit facilities. As of December 31, 1999, the Company had $90.0 million available under the New Credit Facility's revolving facility. On March 18, 1999, the Company sold $55.0 million aggregate principal amount (issue price of $51.9 million, net of discount) of 8.75% senior subordinated notes due 2007, generating net proceeds of $51.2 million to the Company. The Company used the net proceeds to repay indebtedness under its New Credit Facility and to invest in MIP, a joint venture established to acquire upscale, full-service hotels. The Company's investment is in the form of a preferred partnership interest. On August 12, 1999, the Company completed a $330.0 million 10-year non- recourse financing ("New Secured Facility") secured by a portfolio of 19 hotels. The loan bears a fixed interest rate 8.01% and matures in 2009. The Company used the net proceeds to repay its $250 million secured facility ("Secured Facility") and its $100 million non-recourse facility ("Non-Recourse Facility"). During 1999, the Company acquired one hotel for a purchase price of $10.6 million of cash and $1.5 million of OP Units. The acquisition was funded using existing cash and borrowings on the New Credit Facility. The Company also sold two hotels during 1999 for a total price of $8.9 million. The resulting gain on the sales was not material to the Company's financial statements. Capital for renovation work has historically been and is expected to continue to be provided by a combination of internally generated cash and external borrowings. Once initial renovation programs for a hotel are completed, the Company expects to spend approximately 4% annually of hotel revenues for ongoing capital expenditure programs, including room and facilities refurbishments, renovations, and furniture and equipment replacements. For the year ended December 31, 1999, the Company spent $160.0 million on initial renovation and ongoing capital expenditure programs. The Company expects to spend $40 million in 2000 on renovations and recurring refurbishment projects. The Company's Board of Directors has authorized the repurchase of up to five million shares of its common stock from time to time in open market or privately negotiated transactions. The stock repurchase is subject to prevailing market conditions and other considerations. The Company expects the program to be funded primarily through selected asset sales. As of December 31, 1999, the Company has repurchased a total of 407,400 shares for $6.3 million. The Company believes cash generated by operations, together with anticipated borrowing capacity under the New Credit Facility, will be sufficient to fund its existing working capital distributions, ongoing capital expenditures, and debt service requirements. The Company believes, however, that its future capital decisions will also be made in response to specific acquisition and/or investment opportunities, depending on conditions in the capital and/or other financial markets. Accordingly, the Company may consider increasing its borrowing capacity or issuing additional debt or equity securities, the proceeds of which could be used to finance acquisitions or investments, refinance existing debt, or repurchase common stock. Seasonality Demand in the lodging industry is affected by recurring seasonal patterns. For non-resort properties, demand is lower in the winter months due to decreased travel and higher in the spring and summer months 23 during peak travel season. For resort properties, demand is generally higher in winter and early spring. Since the majority of the Company's hotels are non- resort properties, the Company's operations generally reflect non-resort seasonality patterns. Excluding the effect of Emerging Issues Task Force ("EITF") Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods", the Company has lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters. Year 2000 Conversion The Company has reviewed its computer systems to identify the systems that could be affected by the "Year 2000" problem and implemented a plan to address the problem. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If not corrected, this could result in a major systems failure or miscalculations. The Company's hotel properties contain various information technology and embedded technology systems. Both types of systems contain microprocessors and microcontrollers that must be assessed for Year 2000 compliance. The Company identified the following six phases in its Year 2000 remediation programs: (1) increase awareness of issue; (2) assign responsibility for coordinating response to issue; (3) information collection; (4) analysis; (5) modification, repair or replacement and (6) testing. The Company completed all six phases and believes these systems are Year 2000 compliant. As an additional part of its implementation plan to address the Year 2000 problem, the Company also initiated communications with third parties with which it has material relationships to determine the extent of potential Year 2000 problems with these parties' services provided to the Company. The most critical of these services involve such items as reservations systems for the Company's hotels. Without such systems, the Company could suffer a material decline in business at many of its properties. The Company completed its communications and assessment of these outside parties' services in September 1999. As of March 13, 2000, the Company had encountered no significant Year 2000 problems related to third parties' services provided to the Company. The Company incurred costs for outside consultants and capital expenditures in 1999 and 1998 related to Year 2000 which aggregated approximately $3.6 million. Future consulting and capital acquistion costs are expected to be insignificant. These costs, which were expensed as incurred, have been funded from operations. The costs through December 31, 1999 did not have a material affect on the Company's financial position or results of operations. As of March 13, 2000, the Company had encountered no significant Year 2000 related problems. 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on long-term debt obligations that impact the fair value of these obligations. The Company's policy is to manage interest rates through the use of a combination of fixed and variable rate debt. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows at a combination of fixed and variable rates, and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes. The Company has no cash flow exposure due to general interest rate changes for its fixed long-term debt obligations. The table below presents the principal amounts (in thousands of dollars), weighted average interest rates, and fair values by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. The Company considers all of its debt instruments as non-trading.
Long-term Debt ------------------------------------------------------------------------------------ Average Interest Average Expected Maturity Fixed Rate Rate Variable Rate Interest Rate - -------------------------- ------------------ ------------------- ---------------- --------------- 2000 $ 8,694 8.0% $ 2,000 7.4% 2001 11,534 8.1% 17,000 7.4% 2002 16,179 8.1% 32,000 7.4% 2003 8,872 7.9% 667,000 8.0% 2004 189,652 5.1% 190,000 7.4% Thereafter 533,840 8.1% - N/A ------------------ ------------------- ---------------- --------------- Total $768,771 7.4% $908,000 7.8% ================== =================== ================ =============== Fair Value at 12/31/99 $717,411 $908,000 ================== ================
In anticipation of the August 1999 completion of the New Secured Facility, the Company entered into two separate hedge transactions during July 1999. Upon completion of the New Secured Facility, the Company terminated the underlying treasury lock agreements, resulting in a net payment to the Company of $5.1 million. This amount was deferred and is being recognized as a reduction to interest expense over the life of the underlying debt. As a result, the effective interest rate on the New Secured Facility has been reduced to 7.76%. During September 1999, the Company entered into two separate $100 million swap agreements with financial institutions in order to hedge against the impact future interest rate fluctuations may have on the Company's existing floating rate debt instruments. The swap agreements effectively replaced two $100 million swap agreements that were to expire in November 1999. The swap agreements effectively fix 30-day LIBOR at 6.0%. During the period ended December 31, 1999, the Company made payments totaling $278,000 relating to these hedges. These amounts are included in interest expense. The hedge agreements terminate in September 2001. During 1998, the Company entered into six separate $100 million swap agreements. The swap agreements effectively fix 30-day LIBOR at between 4.9% and 5.4%. During the periods ended December 31, 1999 and 1998, the Company made (received ) net payments of $(729,000) and $211,000, respectively, relating to these hedges. These amounts are included in interest expense. The hedge agreements terminate at various times between November 1999 and September 2000. On February 18, 1997, the Company entered into a $40 million swap agreement and a $40 million collar agreement with Lehman Brothers Special Financing, Inc. and Canadian Imperial Bank of Commerce, respectively. The swap agreement effectively fixed 30-day LIBOR at 5.9% while the collar agreement created a 30- day LIBOR floor of 5.1% and ceiling of 7.5%. During the years ended December 31, 1999 25 and 1998 the Company made payments totaling $246,000 and $56,000, respectively, relating to these hedges. These amounts are included in interest expense. Both hedge agreements terminated in September 1999. Additionally, in anticipation of the August 1997 offering of $150 million aggregate principal amount of its 8.75% senior subordinated notes due 2007 (the "Subordinated Notes"), the Company entered into separate hedge transactions during June and July 1997. Upon completion of the Subordinated Notes offering, the Company terminated the underlying swap agreements, resulting in a net payment to the Company of $836,000. This amount was deferred and is being recognized as a reduction to interest expense over the life of the underlying debt. As a result, the effective interest rate on the Subordinated Notes has been reduced to 8.69%. Although the Company conducts business in Canada, the Canadian operations were not material to the Company's consolidated financial position, results of operations or cash flows as of December 31, 1999 and 1998. Additionally, foreign currency transaction gains and losses were not material to the Company's results of operations for the years ended December 31, 1999 and 1998. Accordingly, the Company was not subject to material foreign currency exchange rate risk from the effects that exchange rate movements of foreign currencies would have on the Company's future costs or on future cash flows it would receive from its foreign subsidiaries. To date, the Company has not entered into any significant foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements, Supplementary Data and Financial Statement Schedules are filed as part of this Annual Report on Form 10-K: MeriStar Hospitality Corporation Independent Auditors' Report............................................................................................ 28 Consolidated Balance Sheets as of December 31, 1999 and 1998............................................................ 29 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.............................. 30 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997.................... 31 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.............................. 32 Notes to the Consolidated Financial Statements.......................................................................... 33 Schedule III - Real Estate and Accumulated Depreciation................................................................. 48
All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto. 27 INDEPENDENT AUDITORS' REPORT The Board of Directors MeriStar Hospitality Corporation: We have audited the accompanying consolidated balance sheets of MeriStar Hospitality Corporation and subsidiaries (the "Company) as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and the supplementary schedule. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement and schedule presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MeriStar Hospitality Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the supplementary schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Washington, D.C. January 28, 2000 28 MERISTAR HOSPITALITY CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (in thousands, except per share amounts)
1999 1998 ----------- ----------- ASSETS Investments in hotel properties $3,118,723 $2,957,543 Accumulated depreciation (182,430) (83,797) ----------- ----------- 2,936,293 2,873,746 Cash and cash equivalents 2,556 4,180 Accounts receivable, net 1,328 3,044 Income taxes receivable - 339 Prepaid expenses, inventory and other 9,137 3,877 Note receivable from Lessee 57,110 67,000 Due from Lessee 11,476 7,437 Investments in and advances to affiliates 40,085 8,787 Restricted cash 17,188 11,879 Intangible assets, net of accumulated amortization of $5,742 and $2,666 19,028 18,171 ------------ ----------- $3,094,201 $2,998,460 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 886 $ 2,111 Accrued expenses and other liabilities 57,169 45,549 Accrued interest 31,380 24,472 Income taxes payable 730 - Dividends and distributions payable 26,263 25,988 Deferred income taxes 9,345 8,453 Long-term debt 1,676,771 1,602,352 ------------ ----------- Total liabilities 1,802,544 1,708,925 ------------ ----------- Minority interests 121,055 138,543 Stockholders' Equity: Common stock, par value $0.01 per share Authorized- 250,000 shares Issued - 47,664 and 46,718 shares 477 467 Additional paid-in capital 1,164,750 1,133,357 Retained earnings 16,874 23,655 Accumulated other comprehensive income (5,247) (6,487) Less common stock held in treasury - 407 shares (6,252) - ------------ ----------- Total stockholders' equity 1,170,602 1,150,992 ------------ ----------- $3,094,201 $2,998,460 ============ ===========
See accompanying notes to consolidated financial statements. 29 MERISTAR HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in thousands, except per share amounts)
1999 1998 1997 ------------ ------------ ----------- Revenue: Participating lease revenue $368,012 $135,994 $ - Hotel operations: Rooms - 275,610 207,736 Food and beverage - 85,374 86,298 Other operating departments - 19,496 15,049 Office rental, parking and other revenue 6,892 5,649 2,174 Hotel management and other fees - 3,174 5,136 ------------ ------------ ----------- Total revenue 374,904 525,297 316,393 ------------ ------------ ----------- Hotel operating expenses by department: Rooms - 65,048 51,075 Food and beverage - 67,493 68,036 Other operating departments - 10,121 8,492 Office rental, parking and other operating expenses 1,964 2,713 845 Undistributed operating expenses: Administrative and general 5,749 62,350 50,332 Property operating costs - 50,027 38,437 Property taxes, insurance and other 47,027 29,814 12,558 Lease expense - 34,641 4,116 Depreciation and amortization 103,099 60,703 20,990 Spin-off costs - 8,481 - ------------ ----------- ----------- Total operating expenses 157,839 391,391 254,881 ------------ ----------- ----------- Net operating income 217,065 133,906 61,512 Interest expense, net 100,398 64,378 21,024 ------------ ------------ ------------- Income before minority interests, income taxes, extraordinary loss and cumulative effect of accounting change 116,667 69,528 40,488 Minority interests 11,069 5,121 1,425 ------------ ------------ ------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change 105,598 64,407 39,063 Income taxes 2,102 15,699 14,911 ------------ ------------ ------------- Income before extraordinary loss and cumulative effect of accounting change 103,496 48,708 24,152 Extraordinary loss on early extinguishment of debt, net of tax benefit of $93 in 1999, $2,083 in 1998, and $2,508 in 1997 4,532 4,080 4,092 Cumulative effect of accounting change, net of tax benefit of $564 - 921 - ------------ ----------- ----------- Net income $ 98,964 $ 43,707 $ 20,060 ============ =========== =========== Earnings per share: Basic: Income before extraordinary loss and cumulative effect of accounting change $ 2.19 $ 1.45 $ 1.29 Extraordinary loss (0.10) (0.12) (0.22) Cumulative effect of accounting change - (0.03) - ------------ ----------- ----------- Net income $ 2.09 $ 1.30 $ 1.07 ============ =========== ============ Diluted: Income before extraordinary loss and cumulative effect of accounting change $ 2.11 $ 1.40 $ 1.27 Extraordinary loss (0.08) (0.11) (0.21) Cumulative effect of accounting change - (0.03) - ------------ ----------- ----------- Net income $ 2.03 $ 1.26 $ 1.06 ============ =========== ============
See accompanying notes to consolidated financial statements. 30 MERISTAR HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in thousands)
Common Stock --------------------------------------- Issued Treasury --------------------------------------- Accumlated Additional Other Paid In Retained Comprehensive Shares Amount Shares Amount Capital Earnings Income Total -------- -------- -------- -------- ------------- ------------ -------------- ----------- Balance, January 1, 1997 12,754 $128 - $ - $ 158,533 $ 2,054 $ - $ 160,715 - - - Net income for the year - - - - - 20,060 - 20,060 Foreign currency translation adjustment - - - - - - (2,527) (2,527) -------- -------- -------- -------- ---------- --------- ------ ---------- Comprehensive income 17,533 -------- -------- -------- -------- ---------- --------- ------ ---------- Issuances of common stock 11,713 117 - - 330,047 - - 330,164 Redemption of OP Units 400 4 - - 10,996 - - 11,000 -------- -------- -------- -------- ---------- --------- ------ ---------- Balance, December 31, 1997 24,867 249 - - 499,576 22,114 (2,527) 519,412 Net income for the year - - - - - 43,707 - 43,707 Foreign currency translation adjustment - - - - - - (3,960) (3,960) -------- -------- -------- -------- ---------- --------- ------ ---------- Comprehensive income 39,747 -------- -------- -------- -------- ---------- --------- ------ ---------- Issuances of common stock 20,839 208 - - 654,671 - - 654,879 Distribution to spun-off - - - - (52,310) - - (52,310) affiliate Redemption of OP Units 1,012 10 - - 31,420 - - 31,430 Dividends declared - - - - - (42,166) - (42,166) -------- -------- -------- -------- ---------- --------- ------ ---------- Balance, December 31, 1998 46,718 467 - - 1,133,357 23,655 (6,487) 1,150,992 Net income for the year - - - - - 98,964 - 98,964 Foreign currency translation adjustment - - - - - - 1,240 1,240 -------- -------- -------- -------- ---------- --------- ------ ---------- Comprehensive income 100,204 -------- -------- -------- -------- ---------- --------- ------ ---------- Issuances of common stock 95 1 - - 1,990 - - 1,991 Share repurchase - - (407) (6,252) - - - (6,252) Redemption of OP Units 851 9 - - 29,403 - - 29,412 Dividends declared - - - - - (105,745) - (105,745) -------- -------- -------- -------- ---------- --------- ------- ---------- Balance, December 31, 1999 47,664 $477 407 $(6,252) $1,164,750 $ 16,874 $(5,247) $1,170,602 ======== ======== ======== ======== ========== ========= ======= ==========
See accompanying notes to the consolidated financial statements. 31 MERISTAR HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in thousands)
1999 1998 1997 --------- ----------- --------- Operating activities: Net income $ 98,964 $ 43,707 $ 20,060 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 103,099 60,703 20,990 Extraordinary loss on early extinguishment of debt, before tax effect 4,625 6,163 6,600 Cumulative effect of accounting change, before tax effect - 1,485 - Minority interests 11,069 5,121 1,425 Non-cash spin-off costs - 3,205 - Deferred income taxes 892 (4,445) 4,917 Changes in operating assets and liabilities: Accounts receivable, net 1,716 29,673 (17,900) Deposits, prepaid expenses, inventory and other (5,260) 24,760 (17,449) Income tax receivable 339 - - Intangible assets (245) - - Accounts payable (1,225) (7,100) 12,601 Accrued expenses, accrued interest and other liabilities 18,528 7,865 29,509 Due from lessee (4,039) (7,437) - Income taxes payable 730 (904) (871) --------- --------- --------- Net cash provided by operating activities 229,193 162,796 59,882 --------- --------- --------- Investing activities: Investments in hotel properties (170,063) (701,710) (558,265) Sales of hotel properties 8,900 - - Purchases of intangible assets - (5,584) (13,476) Investments in and advances to affiliates (31,298) (2,320) (11,320) Purchases of minority interests (72) (44) (87) Repayments (funding) of notes receivable 9,890 (67,000) - Change in restricted cash (5,309) (8,847) (3,111) --------- --------- --------- Net cash used in investing activities (187,952) (785,505) (586,259) --------- --------- --------- Financing activities: Proceeds from issuance of long-term debt 484,924 1,407,261 844,192 Principal payments on long-term debt (410,217) (821,051) (568,828) Deferred costs (6,899) (4,251) (16,612) Proceeds from issuances of common stock, net 1,991 1,870 330,164 Purchases of treasury stock (6,252) - - Spin-off to stockholders - (23,745) - Dividends paid to stockholders (105,773) (16,178) - Distributions to minority investors (586) (650) (488) --------- --------- --------- Net cash (used in) provided by financing activities (42,812) 543,256 588,428 --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents (53) 204 (406) Net (decrease) increase in cash and cash equivalents (1,624) (79,249) 61,645 Cash and cash equivalents, beginning of year 4,180 83,429 21,784 --------- --------- ---------- Cash and cash equivalents, end of year $ 2,556 $ 4,180 $ 83,429 ========= ========= ==========
See accompanying notes to consolidated financial statements. 32 MERISTAR HOSPITALITY CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (dollars in thousands, except per share amounts) 1. Organization MeriStar Hospitality Corporation (the "Company") was formed on August 3, 1998, as a result of the merger (the "Merger") of CapStar Hotel Company ("CapStar") with and into American General Hospitality Corporation ("AGH"), a Maryland corporation operating as a real estate investment trust ("REIT"). The Company owns a portfolio of primarily upscale, full-service hotels, diversified by franchise and brand affiliations, in the United States and Canada. Substantially all of the Company's hotels are leased to and operated by MeriStar Hotels & Resorts, Inc. ("OPCO"). As of December 31, 1999, the Company owned 116 hotels with 29,348 rooms located in 27 states, the District of Columbia and Canada. The following table outlines the Company's portfolio of owned, leased and managed hotels:
Owned Leased Managed Total ------------------------ ------------------------ ------------------------ ---------------------- Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms ------ ----- ------ ----- ------ ----- ------ ----- December 31, 1999 116 29,348 - - - - 116 29,348 December 31, 1998 117 29,351 - - - - 117 29,351 December 31, 1997 47 12,019 40 5,687 27 4,631 114 22,337
On March 15, 1998, CapStar and AGH entered into a definitive agreement (the "Merger Agreement") pursuant to which the parties agreed, subject to stockholder approval and other conditions and covenants, to the Merger, with the surviving entity being named "MeriStar Hospitality Corporation." The Merger was approved at a special meeting of stockholders of CapStar and the annual meeting of stockholders of AGH on July 28, 1998. The Merger and related transactions became effective August 3, 1998. Pursuant to the Merger Agreement, CapStar also distributed on a pro rata basis to its stockholders all of the capital stock of OPCO (the "Spin-Off"), whose assets consisted of CapStar's hotel operations (including leased hotels) and management business. The Spin-Off occurred on August 3, 1998. On August 3, 1998, the Company's common stock, par value $0.01 per share ("Common Stock"), and the common stock of OPCO began trading on the New York Stock Exchange. The Merger was accounted for as a purchase for financial reporting purposes and, accordingly, the operating results of AGH have been included in the Company's consolidated financial statements since August 3, 1998, the date of acquisition. In accordance with the provisions of Accounting Principles Board Opinion No. 16, "Business Combinations," CapStar was considered the acquiring enterprise for financial reporting purposes. The Company established a new accounting basis for AGH's assets and liabilities based on their fair values. Prior to August 3, 1998, the financial statements of the Company included hotel operations and operations of OPCO; subsequent to August 3, 1998, the hotel operations are leased to OPCO following the Spin-Off and are no longer reflected in the Company's operating results. The Company has included expenditures related directly to the acquisition of AGH as part of the cost of acquiring AGH and those expenditures relating to the Spin-Off as expenses as incurred. 2. Summary of Significant Accounting Policies Principles of Consolidation- The consolidated financial statements include the accounts of the Company and all of its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Investments in unconsolidated joint ventures and affiliated companies in which the Company holds a voting interest of 50% or less and exercises significant influence are accounted for using the equity method. 33 The Company uses the cost method to account for its investment in entities in which it does not have the ability to exercise significant influence. Cash Equivalents and Restricted Cash- The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash represents amounts required to be maintained in escrow under certain of the Company's credit facilities. Investments in Hotel Properties- Investments in hotel properties are recorded at cost, which includes the allocated purchase price for hotel acquisitions, or at fair value at the time of contribution for contributed property. Property and equipment balances are depreciated using the straight-line method over lives ranging from five to 40 years. For the years ended December 31, 1999, 1998 and 1997, the Company capitalized interest of $12,540, $5,182, and $442, respectively. Properties held for sale are carried at the lower of their carrying values or estimated fair values less costs to sell. Depreciation of these properties is discontinued when an operating property is classified as held for sale. Properties held for sale are not material and, therefore, are included in investments in hotel properties. Intangible Assets- Intangible assets consist primarily of deferred financing fees. These deferred fees are amortized on a straight-line basis over the lives of the related borrowings for up to 10 years. Total accumulated amortization at December 31, 1999 and 1998 was $5,742 and $2,666, respectively. In 1999, 1998 and 1997, the Company recognized extraordinary losses of $4,532, $4,080, and $4,092, (net of tax benefits of $93, $2,083, and $2,508), respectively, due to the write-off of unamortized deferred financing fees in conjunction with refinancing certain credit facilities. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of- The carrying values of long-lived assets, which include property and equipment and all intangibles, are evaluated periodically in relation to the operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of expected undiscounted future net cash flows is less than book value. No impairment losses were recorded during 1999, 1998 or 1997. Income Taxes-The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts. In conjunction with the Merger on August 3, 1998, the Company became a REIT and is therefore no longer subject to federal income taxes, provided that it complies with various requirements necessary to maintain REIT status. The Company is subject to state and local taxes in certain jurisdictions. Foreign Currency Translation- Results of operations for the Company's Canadian hotels are maintained in Canadian dollars and translated using the average exchange rates during the period. Assets and liabilities are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Resulting translation adjustments are reflected in stockholders' equity as a cumulative foreign currency translation adjustment. Revenue Recognition- Prior to the Merger, revenue was earned through the operations and management of the hotel properties and was recognized when earned. Subsequent to the Merger, the Company earns participating lease revenue. Participating lease revenue represents lease payments from lessees pursuant to participating lease agreements. Office, retail and parking rental is generally recognized on a straight-line basis over the terms of the respective leases. 34 2. Summary of Significant Accounting Policies (Continued) Participating Lease Agreements- The Company's participating leases have non- cancelable remaining terms ranging from 9 to 11 years, subject to earlier termination on the occurrence of certain contingencies, as defined. The rent due under each percentage lease is the greater of base rent or percentage rent, as defined. Percentage rent applicable to room and food and beverage revenue varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified threshold amounts. Both the minimum rent and the revenue thresholds used in computing percentage rents are subject to annual adjustments based on increases in the United States Consumer Price Index. Percentage rent applicable to other revenues is calculated by multiplying fixed percentages by the total amounts of such revenues. During interim reporting periods, the Company defers recognition of revenue for lease payments considered to be contingent until specified percentage rent thresholds are met. Financial Instruments- From time to time the Company enters into swap and collar agreements that are designated as, and are effective as, hedges against the impact of interest rate fluctuation on certain of the Company's existing and probable future long-term debt instruments. Because these agreements qualify for hedge accounting treatment, any gains or losses are recognized as adjustments to interest expense over the lives of the underlying debt instruments. For hedge agreements that are terminated early or that are associated with anticipated future debt instruments, gains or losses are deferred until those debt instruments are entered into. If the Company determines it is no longer probable that the Company will enter into an anticipated debt instrument, any related deferred gains or losses are recognized in the current period. Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segment Information- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires a public entity to report selected information about operating segments in financial reports issued to shareholders. It also establishes standards for related disclosures about product and services, geographic areas and major customers. Based on the guidance provided in the standard, the Company has determined that its business is conducted in one operating segment. The following table summarizes geographic information required to be disclosed under SFAS No. 131:
1999 1998 1997 ---------- ---------- --------- Revenue: U.S. $ 367,893 $ 510,344 $300,028 Foreign 7,011 14,953 16,365 ---------- ---------- -------- $ 374,904 $ 525,297 $316,393 ========== ========== ======== Investments in hotel properties, net: U.S. $2,876,909 $2,817,974 Foreign 59,384 55,772 ---------- ---------- $2,936,293 $2,873,746 ========== ==========
35 2. Summary of Significant Accounting Policies (Continued) Comprehensive Income-SFAS No. 130, "Reporting Comprehensive Income," requires an enterprise to display comprehensive income and its components in a financial statement to be included in an enterprise's full set of annual financial statements or in the notes to financial statements. Comprehensive income represents a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events for the period other than transactions with owners in their capacity as owners. Comprehensive income of the Company includes net income and other comprehensive income from foreign currency items. For the year ended December 31, 1999, net income was $98,964, other comprehensive income, net of tax, was $1,240 and comprehensive income was $100,204. For the year ended December 31, 1998, net income was $43,707, other comprehensive income, net of tax, was $ (3,960) and comprehensive income was $39,747. For the year ended December 31, 1997, net income was $20,060, other comprehensive income, net of tax, was $ (2,527) and comprehensive income was $17,533. Cumulative Effect of Accounting Change-In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities," which requires that all non- governmental entities expense costs of start-up activities, including organizational costs, as those costs are incurred and requires the write-off of any unamortized balances upon implementation. SOP No. 98-5 is effective for financial statements issued for periods beginning after December 15, 1998. The Company chose to adopt SOP No.98-5 effective July 1, 1998. The effect of this accounting change was a charge against income for the year ended December 31, 1998 of $921 (net of tax benefit of $564). New Accounting Pronouncements- In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that an entity recognize all derivatives as either assets or liabilities in statements of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137 which amended SFAS No. 133 to defer the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is currently in the process of evaluating the effect this new standard will have on its financial statements. Reclassifications- Certain 1998 and 1997 amounts have been reclassified to conform to 1999 presentation. 3. Investments in Hotel Properties Investments in hotel properties consists of the following: December 31, --------------------------------- 1999 1998 ----------- ----------- Land $ 318,360 $ 314,503 Buildings 2,378,318 2,294,130 Furniture, fixtures and equipment 320,787 234,403 Construction-in-progress 101,258 114,507 ---------- ---------- Total $3,118,723 $2,957,543 ========== ========== 4. Investments in and Advances to Affiliates The Company has ownership interests in certain unconsolidated corporate joint ventures and affiliated companies. In 1999, the Company also invested $40,000 in MeriStar Investment Partners, LP ("MIP"), a joint venture established to acquire upscale, full-service hotels. The Company's investment is in the form of a preferred partnership interest. The Company receives a 16% preferred return on its investment. The Company's ultimate equity investment in this partnership may be up to $60,000. As of December 31, 1998, the Company had an investment in one joint venture in which it had a 50% ownership interest. In 1999, the Company sold its 50% ownership interest in that joint venture to OPCO at net book value. 36 5. Long-Term Debt Long-term debt consists of the following:
December 31, --------------------------- 1999 1998 ----------- ----------- New Credit Facility................................... $ 908,000 $ 910,000 New Secured Facility.................................. 328,954 - Secured Facility...................................... - 250,000 Subordinated Notes.................................... 202,041 149,826 Convertible Notes..................................... 172,500 172,500 Non-Recourse Facility................................. - 52,750 Mortgage Debt and Other............................... 65,276 67,276 ---------- ---------- $1,676,771 $1,602,352 ========== ==========
New Credit Facility-In conjunction with the Merger, the Company entered into a $1,000,000 senior secured credit facility (the "New Credit Facility"). The New Credit Facility is structured as a $300,000, five-year term loan facility; a $200,000, five-and-a-half year term loan facility; and a $500,000, three-year revolving credit facility with two one-year optional extensions. The New Credit Facility is secured by the Company's Common Stock and its general partnership, limited partnership and limited liability company ownership interests in its subsidiaries. The interest rate on the term loans and revolving facility ranges from 100 to 200 basis points over the 30-day London Interbank Offered Rate ("LIBOR"), depending on certain financial performance covenants and long-term senior unsecured debt ratings. The weighted average interest rate on borrowings outstanding under the New Credit Facility as of December 31, 1999 was 8.4%. As of December 31, 1999, the Company had $90.0 million available under the New Credit Facility's revolving facility. New Secured Facility- In 1999, the Company completed a $330,000 10-year non- recourse financing ("New Secured Facility") secured by a portfolio of 19 hotels. The loan bears a fixed interest rate of 8.01% and matures in 2009. The Company used most of the net proceeds to repay the Secured Facility and the Non-Recourse Facility. Secured Facility - Effective August 3, 1998, the Company entered into an 18- month, $250,000 secured loan facility ("Secured Facility"), which was expected to be converted into a commercial mortgage-backed security secured by sixteen hotels. The interest rate on the Secured Facility was 110 basis points over 30- day LIBOR. The loan was repaid in 1999 with proceeds from the New Secured Facility. Subordinated Notes- In 1999, the Company sold $55,000 aggregate principal amount (issue price of $51,906, net of discount) of 8.75% senior subordinated notes ("Subordinated Notes") due 2007, generating net proceeds of $51,219 million to the Company. The Company used the net proceeds to repay indebtedness under its New Credit Facility and to invest in MIP. These notes are unsecured obligations of the Company and provide for semi-annual payments of interest on February 15 and August 15, commencing on August 15, 1999. In 1997, the Company completed the offering of $150,000 aggregate principal amount (issue price of $149,799, net of discount) of its 8.75% senior subordinated notes due 2007 (the "Subordinated Notes"), generating net proceeds to the Company of $144,620. The indenture pursuant to which the Subordinated Notes were issued contains certain covenants, including maintenance of certain financial ratios, reporting requirements, and other customary restrictions. The Subordinated Notes are unsecured obligations of the Company and provide for semi-annual payments of interest on February 15 and August 15, commencing on February 15, 1998. Convertible Notes- In 1997, the Company completed the offering of $172,500 aggregate principal amount of its 4.75% convertible subordinated notes due 2004 (the "Convertible Notes"), generating net proceeds to the Company of $167,581. The proceeds were used to repay outstanding indebtedness under a prior credit facility and to finance certain hotel acquisitions. The Convertible Notes are unsecured 37 obligations of the Company and provide for semi-annual payments of interest on April 15 and October 15, commencing on April 15, 1998. Mortgage Debt- In connection with the Merger, the Company assumed mortgage debt secured by seven hotels. The mortgage debt matures between 2001 and 2012 and the interest rates on the mortgages range from 7.5% to 10.5%. Non-Recourse Facility- In 1997, the Company entered into a $100,000 non- recourse facility (the "Non-Recourse Facility"). The Non-Recourse Facility was secured by three hotels owned by the Company and bore interest at a rate of between 1.75% and 2.70% over 30-day LIBOR, based upon compliance with certain ratios. In 1999, the loan was repaid with proceeds from the New Secured Facility. Hedge Agreements- In anticipation of the August 1999 completion of the New Secured Facility, the Company entered into two separate hedge transactions during July 1999. Upon completion of the New Secured Facility, the Company terminated the underlying treasury lock agreements, resulting in a net payment to the Company of $5,142. This amount was deferred and is being recognized as a reduction to interest expense over the life of the underlying debt. As a result, the effective interest rate on the New Secured Facility has been reduced to 7.76%. During September 1999, the Company entered into two separate $100,000 swap agreements with financial institutions in order to hedge against the impact future interest rate fluctuations may have on the Company's existing floating rate debt instruments. These swap agreements effectively replaced two $100,000 swap agreements that were to expire in November 1999. The swap agreements effectively fix 30-day LIBOR at 6.0%. During the year ended December 31, 1999, the Company made payments totaling $278 relating to these hedges. These amounts are included in interest expense. The hedge agreements terminate in September 2001. During 1998, the Company entered into six separate $100,000 swap agreements. The swap agreements effectively fixed 30-day LIBOR at between 4.9% and 5.4%. During the years ended December 31, 1999 and 1998, the Company (received) made net payments of ($729) and $211, respectively, relating to these hedges. These amounts are included in interest expense. The hedge agreements terminate at various times between November 1999 and September 2000. Future Maturities- Aggregate future maturities of the above obligations are as follows: 2000............................................................... $ 10,694 2001............................................................... 28,534 2002............................................................... 48,179 2003............................................................... 675,872 2004............................................................... 379,652 Thereafter......................................................... 533,840 ---------- $1,676,771 ==========
Management has determined that the fair value of the outstanding balance of the Company's long-term debt approximates $1,625,411 at December 31, 1999. 6. Income Taxes The Company's income taxes were allocated as follows:
1999 1998 1997 ------------ ------------ ------------ Taxes on income before extraordinary loss and cumulative effect of accounting change................ $2,102 $15,699 $14,911 Tax benefit on extraordinary loss...................... (93) (2,083) (2,508) Tax benefit on cumulative effect of accounting change.. - (564) - ------------ ------------ ------------ $2,009 $13,052 $12,403 ============ ============ ============
38 The Company's effective income tax rate differs from the federal statutory income tax rate as follows:
1999 1998 1997 ------------ ------------ ------------ Statutory tax rate 35.0% 35.0% 35.0% Effect of REIT dividends paid deduction (35.0) (35.0) - Effect of federal taxes in pre-REIT period - 17.9 - State and local taxes 1.7 2.1 2.6 Difference in effective rate on foreign subsidiaries 0.3 2.8 0.6 Other - 0.2 - ------------ ------------ ------------ 2.0% 23.0% 38.2% ============ ============ ============
The components of income tax expense related to income before extraordinary loss and cumulative effect of accounting change are as follows:
1999 1998 1997 -------- -------- -------- Current: Federal $ - $14,873 $ 7,542 State 1,020 3,771 899 Foreign 190 1,500 1,553 ------ ------- ------- 1,210 20,144 9,994 Deferred: Federal - (3,546) 4,243 State 842 (899) 505 Foreign 50 - 169 ------ ------- ------- 892 (4,445) 4,917 ------ ------- ------- $2,102 $15,699 $14,911 ====== ======= =======
The tax effects of the principal temporary differences that give rise to the Company's net deferred tax liability are as follows: December 31, ------------------------------ 1999 1998 ---------- ----------- Accelerated depreciation $1,846 $1,111 Fair market value of hotel assets acquired 6,800 6,800 Allowance for doubtful accounts (30) (29) Accrued vacation (15) (14) Accrued expenses 482 311 Other 262 274 ------ ------ Net deferred tax liability $9,345 $8,453 ====== ====== There is no valuation allowance for deferred tax assets as of December 31, 1999 or 1998 as management believes it is more likely than not that these deferred tax assets will be fully realized. In conjunction with the Merger and related transactions, the Company had several significant events that affect income tax-related balances for the year ended December 31, 1998. These events are summarized below: . The Spin-Off was treated as a taxable event to the Company and CapStar's shareholders. As a result, the Company experienced a taxable gain equal to the excess of the fair market value of the OPCO stock over the Company's tax basis in that stock. The taxable gain associated with this transaction was $35,181. 39 . As a result of the Merger, the Company will continue to file as a REIT. REITs are generally not subject to federal income taxes, provided that they comply with various requirements necessary to maintain REIT status. Since the Company expects to maintain its REIT status, the tax effect of cumulative temporary differences as of August 3, 1998 has been reversed as a credit to deferred income tax expense and reduction in deferred income taxes payable. This reversal reduced deferred income taxes payable by approximately $19,290 as of August 3, 1998. . REITs are subject to federal income taxes in certain instances for asset dispositions occurring within 10 years of electing REIT status. The Company does not expect to incur federal tax liability resulting from the disposition of assets with built-in gain. . As described above, for purposes of preparing the Company's financial statements, the Company established a new accounting basis for AGH's assets and liabilities based on their fair values. In accordance with generally accepted accounting principles, the Company has provided a deferred income tax liability for the estimated future tax effect of differences between the accounting and tax bases of assets acquired from AGH. This deferred income tax liability, related to future state and local income taxes, is estimated as $6,800, based on information available at the date of the Merger and subsequently. 7. Stockholders' Equity and Minority Interests Common Stock Transactions- On March 12, 1997, the Company completed an offering of 5,750,000 shares of Common Stock at a price of $24.75 per share. After underwriting discounts, commissions and other offering expenses, net proceeds to the Company were $134,051, and were used to fund certain hotel acquisitions and repay a portion of the Company's outstanding indebtedness. On October 9, 1997, the Company completed an additional offering of 5,953,722 shares of common stock at $34.625 per share. Concurrent with the common stock offering, the Company also completed the Convertible Notes offering. The notes were initially convertible into shares of the Company's common stock, any time after 90 days following issuance, at the option of the holders at $43 per share. After underwriting discounts, commissions and other offering expenses, net proceeds to the Company from the Convertible Notes offering and the common stock offering were $167,581 and $195,766, respectively. In conjunction with the Merger, the conversion price was adjusted to $34 per share. On March 15, 1998, CapStar and AGH entered into the Merger Agreement. Pursuant to the Merger, CapStar shareholders received one share each in the Company and OPCO, for each CapStar share owned. AGH shareholders received 0.8475 shares of the Company for each AGH share owned. To effect the Merger, the Company issued 20,607,611 shares valued at $755,907 to former AGH shareholders. CapStar also distributed on a pro rata basis to its stockholders all of the capital stock of OPCO, which consisted of CapStar's hotel operations (including leased hotels) and management business. In conjunction with the Spin-Off, the Company distributed $23,745 of cash and $28,565 of net assets to the new shareholders of OPCO. In May 1997, CapStar implemented a stock purchase plan that allowed eligible employees to purchase the Company's common stock at a discount to market value. The Company had reserved 500,000 shares of common stock for issuance under this plan. In June 1998, the plan was terminated in accordance with the Merger Agreement. During the 1999 Annual Meeting of Stockholders, the shareholders authorized 100,000,000 shares of preferred stock, par value $0.01 per share, of the Company to be issued from time to time with such rights, preferences and priorities as the Board of Directors shall designate. In September 1999, the Company's Board of Directors authorized the repurchase of up to five million shares of its Common Stock from time to time in open market or privately negotiated transactions. As of December 31, 1999, the Company has repurchased a total of 407,400 shares for $6,252. 40 OP Units- Substantially all of the Company's assets are held indirectly by and operated through MeriStar Hospitality Operating Partnership, L.P. (the "Operating Partnership"), the Company's subsidiary operating partnership. The Operating Partnership's partnership agreement provides four classes of partnership interests ("OP Units"): Common OP Units, Class B OP Units, Class C OP Units and Class D OP Units. Common OP Units and Class B OP Units receive quarterly distributions per OP Unit equal to the dividend paid on each share of the Company's Common Stock. Class C OP Units receive a non-cumulative, quarterly distribution equal to $0.5575 per Class C OP Unit until such time as the dividend rate on the Company's Common Stock exceeds $0.5575 whereupon the Class C OP Units automatically convert into Common OP Units. Class D OP Units pay a 6.5% cumulative annual preferred return and are entitled to a liquidation preference of $22.16 per Class D OP Unit. All net income earned and capital proceeds received by the Operating Partnership, after payment of the annual preferred return and, if applicable, the liquidation preference, are shared by the holders of the Common OP Units. During 1999, 65,875 Common OP Units were issued to partially finance the purchase of a hotel and 974,588 Common OP units were issued as a conditional component of a purchase agreement for a hotel purchased in 1998. During 1998, 962,858 Common and Class B OP Units were issued to partially finance the purchases of certain hotels and 3,305,175 Common OP Units were issued to former holders of AGH OP Units. During 1997, the Company issued 1,483,759 Common and Class B OP Units and 392,157 Class D OP Units to partially finance the purchases of both certain hotels and lease contracts on hotels. Each OP Unit is redeemable by the holder for one share of Common Stock (or, at the Company's option, for cash in an amount equal to the market value of a share of Common Stock). In addition, the Class D OP Units may be redeemed by the Operating Partnership at a price of $22.16 per Class D OP Unit (or, at the Company's option, for a number of shares of Common Stock having a value equal to such redemption price) at any time after April 1, 2000 or by the holders of the Class D OP Units at a price of $22.16 per Class D OP Unit (in cash or, at the holder's option, for a number of shares of Common Stock having a value equal to the redemption price) at any time after April 1, 2004. On September 2, 1998 and November 4, 1998, respectively, the Company declared its third and fourth quarter dividends, equivalent to an annual rate of $2.02 per share of Common Stock and OP Unit in the Operating Partnership. The third quarter dividend was paid on a prorated basis from August 4, 1998 (the first day of operations following the Merger) through September 30, 1998. The amount of the dividend was $0.31837 per share of Common Stock and OP Unit and was paid on October 30, 1998. The fourth quarter dividend of $0.505 per share of Common Stock and OP Unit and was paid on January 29, 1999. On March 17, 1999, June 21, 1999, September 15, 1999 and December 6, 1999, the Company declared its first, second, third and fourth quarter dividends, respectively, equivalent to an annual rate of $2.02 per share of Common Stock and OP Unit in the Operating Partnership. The amount of the dividend for each quarter was $0.505 per share of Common Stock and OP Unit and was paid on April 30, 1999, July 30, 1999, October 29, 1999 and January 31, 2000, respectively. 41 8. Earnings Per Share The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income before extraordinary loss and cumulative effect of accounting change ("EPS"):
Year Ended December 31, ---------------------------------------------------- 1999 1998 1997 -------------- --------------- --------------- Basic EPS Computation: Net income before extraordinary loss and cumulative effect of accounting change $ 103,496 $ 48,708 $ 24,152 Weighted average number of shares of Common Stock outstanding 47,276 33,653 18,785 -------------- --------------- --------------- Basic EPS $ 2.19 $ 1.45 $ 1.29 ============== =============== =============== Diluted EPS Computation: Net income before extraordinary loss and cumulative effect of accounting change $ 103,496 $ 48,708 $ 24,152 Minority interest, net of tax 10,143 2,633 368 Interest on convertible debt, net of tax 8,137 - - -------------- --------------- --------------- Adjusted net income $ 121,776 $ 51,341 $ 24,520 -------------- --------------- --------------- Weighted average number of shares of Common Stock outstanding 47,276 33,653 18,785 Common Stock equivalents: Stock options 102 383 189 OP Units 5,205 2,624 380 Convertible debt 5,066 - - -------------- --------------- --------------- Total weighted average number of diluted shares of Common Stock outstanding 57,649 36,660 19,354 -------------- --------------- --------------- Diluted EPS $ 2.11 $ 1.40 $ 1.27 ============== =============== ===============
In certain years, the effects of certain OP Units and convertible debt were not included in the computation of diluted EPS as their effect was anti- dilutive. 9. Related-Party Transactions Pursuant to an intercompany agreement, the Company and OPCO provide each other with, among other things, reciprocal rights to participate in certain transactions entered into by each party. In particular, OPCO has a right of first refusal to become the lessee of any real property acquired by the Company. OPCO also provides the Company with certain services including administrative, renovation supervision, corporate, accounting, finance, insurance, legal, tax, information technology, human resources, acquisition identification and due diligence, and operational services, for which OPCO is compensated in an amount that the Company would be charged by an unaffiliated third party for comparable services. During the years ended December 31, 1999 and 1998, the Company paid OPCO $1,600 and $781, respectively, for such services. 42 Summarized financial information of the Company's significant lessee, OPCO, is as follows:
Balance sheet data: 1999 1998 ----------------- ----------------- Total assets $ 258,931 $247,529 Total liabilities $ 179,168 $183,102 Operating data: Revenue $1,292,114 $562,437 Net income $ 6,685 $ 3,950
OPCO has a $75,000 revolving credit facility with the Company. Borrowings by OPCO bear interest at 30-day LIBOR plus 350 basis points. During 1999 and 1998, the Company earned interest of $4,907 and $1,967, respectively, from this facility. As of December 31, 1999, $57,000 was outstanding on the facility. The Company has determined that the fair value of this note receivable approximates its carrying value. In order for AGH to qualify as a REIT prior to the Merger, AGH's operating partnership sold certain personal property relating to certain of the hotels acquired by AGH in connection with its initial public offering to AGH Leasing, L.P. (which has since come under the control of OPCO) for $315, which amount was paid by issuance of a promissory note to AGH's operating partnership. The note was transferred to the Company in connection with the Merger. The promissory note bears interest at the rate of 10.0% per annum and requires the payment of quarterly installments of principal and interest over a five-year period ending on July 31, 2001. At December 31, 1999, the balance outstanding on the note was $110. Certain members of management and their respective affiliates owned equity interests relating to a hotel which was acquired by the Company in January 1999. Such persons and affiliates received an aggregate of $1,488 of the Company's OP Units in exchange for such interests in the hotel. Certain members of management and their respective affiliates owned equity interests relating to a hotel which was acquired by AGH in November 1997. Such persons and affiliates received an aggregate of $13,650 operating partnership units in AGH's operating partnership ("AGH OP Units") in exchange for such interests in the hotel; which converted to 11,568 OP Units at the Merger. The AGH OP Units were converted into 11,568 shares of Common Stock in December 1998. Of the $150,000 aggregate principal amount of Subordinated Notes sold by the Company in August 1997, $50,000 principal amount was sold at a price of 97.866% to an affiliate of an investment company, one of the principal stockholders of which is a director of the Company. The Subordinated Notes purchased are identical to those purchased by third parties, including voting rights. 10. Stock-Based Compensation At the date of the Merger, CapStar had outstanding approximately 1,758,000 options (the "CapStar Options") under an equity incentive plan. As a result of the Merger, all holders of CapStar Options received one option in the Company and one option of OPCO, and the original exercise price of the CapStar Options was allocated between the two companies. In addition, approximately 1,060,000 of the CapStar Options became fully vested as of the Merger date. In connection with the Merger, a new equity incentive plan (the "Equity Incentive Plan") was adopted. This plan authorizes 4,549,561 shares of common stock to be awarded. Awards may be granted to officers or other key employees of the Company or an affiliate. These shares are exercisable in three annual installments and expire ten years from the grant date. In addition, the Company adopted a new equity incentive plan for non- employee directors (the "Directors' Plan"). The Directors' Plan authorizes up to 125,000 options to be awarded. These shares are 43 exercisable in three annual installments and expire ten years from the grant date. As of December 31, 1999, 80,000 options had been awarded. In conjunction with the Merger, holders of CapStar options were granted a total of 150,000 shares of stock with a value of $3,205. This restricted stock vests ratably over a three-year period. In addition, during 1999, the Company has granted a total of 92,500 shares of restricted stock with a value of $1,775. This restricted stock vests ratably over a five-year period. Stock option activity for 1999, 1998 and 1997 is as follows:
Equity Incentive Plan Directors' Plan --------------------------------------- -------------------------------------- Number of Average Number of Average Shares Option Price Shares Option Price --------------- ------------------ --------------- ------------------ Balance, January 1, 1997 764,841 $18.00 - $ - Granted 855,050 33.11 - - Exercised (235) 18.00 - - Forfeited (18,250) 18.00 - - --------------- ------------------ --------------- ------------------ Balance, December 31, 1997 1,601,406 26.28 - - Granted 2,171,796 24.78 45,000 21.38 Exercised (37,823) 17.45 - - Forfeited (32,000) 29.44 - - --------------- ------------------ --------------- ------------------ Balance, December 31, 1998 3,703,379 24.80 45,000 21.38 Granted 1,015,750 19.37 35,000 23.63 Exercised (109,012) 15.64 - - Forfeited (264,064) 27.87 - - --------------- ------------------ --------------- ------------------ Balance, December 31, 1999 4,346,053 $23.56 80,000 $22.36 =============== ================== =============== ================== Shares exercisable at December 31, 1997 291,116 $18.00 - $ - =============== ================== =============== ================== Shares exercisable at December 31, 1998 2,231,072 $24.63 - $ - =============== ================== =============== ================== Shares exercisable at December 31, 1999 2,577,620 $24.53 15,000 $21.38 =============== ================== =============== ==================
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ----------------------------------------------------------------- ----------------------------------- Weighted Weighted Average Weighted Average Range of exercise Number Remaining Average Number Exercise prices outstanding Contractual Life Exercise Price exercisable Price - ------------------ --------------- --------------------- ------------------- --------------- --------------- $15.64 to $19.19 1,582,791 8.16 $17.74 617,041 $15.65 $20.53 to $25.31 1,147,502 7.82 21.72 645,904 21.69 $25.80 to $31.42 1,484,780 7.05 29.98 1,252,815 29.96 $31.51 to $32.08 210,980 8.00 32.05 76,860 32.01 --------------- --------------------- ------------------- --------------- --------------- $15.64 to $32.08 4,426,053 7.69 $23.56 2,592,620 $24.55 =============== ===================== =================== =============== ===============
The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, the Company applies Accounting Principles Board Opinion No. 25 in accounting for the Equity Incentive Plan and therefore no compensation cost has been recognized for the Equity Incentive Plan. 44 Pro forma information regarding net income and diluted EPS is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998 and 1997:
1999 1998 1997 ----------------- ------------------ ----------------- Risk-free interest rate 6.70% 5.51% 5.81% Dividend rate $2.02 $2.02 - Volatility factor 0.31 0.35 0.26 Weighted average expected life 3.07 years 6.09 years 3.72 years
The Company's pro forma net income and diluted EPS as if the fair value method had been applied were $98,273 and $2.02 for 1999, $32,402 and $0.96 for 1998, and $18,273 and $0.96 for 1997. The effects of applying SFAS No. 123 for disclosing compensation costs may not be representative of the effects on reported net income and diluted EPS for future years. 11. Commitments and Contingencies The Company leases land at certain hotels from third parties. Certain leases contain contingent rent features based on gross revenues at the respective property. Future minimum lease payments required under these operating leases as of December 31, 1999 were as follows: 2000 $ 1,773 2001 1,773 2002 1,773 2003 1,773 2004 1,773 Thereafter 67,638 ------- $76,503 ======= The Company leases its hotels to OPCO and one other lessee under noncancellable participating leases that expire from 2008 to 2011. The Company also leases certain office, retail and parking space to outside parties under non-cancelable operating leases with initial or remaining terms in excess of one year. Future minimum rental receipts under these leases as of December 31, 1999 were as follows: 2000 $ 228,652 2001 227,647 2002 227,165 2003 226,870 2004 226,430 Thereafter 1,372,800 ---------- $2,509,564 ========== In the course of the Company's normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company. Based on currently available facts, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. 45 12. Acquisitions During 1999, the Company acquired one hotel for a purchase price of $10,642 of cash and $1,488 of OP Units. The acquisition was funded using existing cash and borrowings on the New Credit Facility. The Company also sold 2 hotels during 1999 for a total price of $8,900. The resulting gain on the sales was immaterial to the Company's financial statements. During 1998, the Company acquired 70 hotels (containing 17,332 rooms), of which 53 were acquired pursuant to the Merger. The Company purchased AGH for approximately $1,306,000 through the issuance of approximately 23,913,000 shares of Common Stock and OP Units in the Company's subsidiary operating partnership. The total purchase price for the remaining 17 acquired hotels during 1998 was $549,068 of cash and $16,932 of OP Units. The cash portions of these acquisitions were funded through borrowings on the New Credit Facility and a prior credit facility. The following unaudited pro forma summary presents information as if the Merger, the Spin-Off and all 117 hotels owned at December 31, 1998 had been acquired at the beginning of the periods presented. The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the Company. PRO FORMA INFORMATION (UNAUDITED) 1998 1997 --------------------------------- Total revenue................... $332,632 $280,482 Net income...................... $ 96,232 $ 67,487 Diluted EPS..................... $ 2.05 $ 1.48 13. Quarterly Financial Information (Unaudited) The following is a summary of the Company's quarterly results of operations:
1999 1998 ------- -------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- -------- -------- -------- -------- --------- ------- Total revenue................... $64,093 $74,055 $103,214 $133,542 $143,602 $184,145 $104,301 $93,249 Total operating expenses........ 39,521 38,687 37,727 41,904 125,890 147,209 81,827 36,465 Net operating income............ 24,572 35,368 65,487 91,638 17,712 36,936 22,474 56,784 Income before extraordinary loss and cumulative effect of accounting change............. 267 7,179 37,709 58,341 4,451 14,905 3,868 25,484 Net income ..................... 267 7,179 33,177 58,341 4,451 14,905 (1,133) 25,484 Diluted earnings per share...... $ - $ 0.15 $ 0.67 $ 1.14 $0.18 $ 0.55 $ (0.03) $ 0.54
46 As required by the Emerging Issues Task Force Issue No. 98-9, Accounting for Contingent Rent in Interim Financial Periods, the Company recognized $45,894 of additional contingent rental income for the three months ended December 31, 1999. There is no year-to-date effect of EITF No. 98-9. The effect of EITF No. 98-9 on the Company's financial statements is as follows:
Three Months Ended December 31, 1999 ------------------------------------ Prior to Effect Effect After Effect of of of EITF No. 98-9 EITF No. 98-9 EITF No. 98-9 --------------- ------------- ------------- Net operating income $ 45,744 $45,894 $ 91,638 Interest expense ( 25,777) - (25,777) Minority interests (1,865) (4,382) ( 6,247) Income taxes (385) (888) (1,273) Extraordinary loss, net of tax - - - --------- ------- -------- Net income $ 17,717 $40,624 $ 58,341 ========= ======= ========
14. Supplemental Cash Flow Information
1999 1998 1997 ------------ ------------- ------------- Cash paid for interest and income taxes: Interest, net of capitalized interest of $12,540, $5,182, and $442, respectively 93,491 $ 48,156 $ 15,734 Income taxes 1,261 18,591 7,606 Non-cash investing and financing activities: Additions to equipment through capital leases - - $ 40 Long-term debt assumed in purchase of property and equipment - 543 16,478 OP Units issued in purchase of property and equipment 1,488 16,932 32,264 OP Units issued in purchase of intangible assets - - 24,000 Redemption of OP Units 29,412 31,430 11,000 Deferred financing fees not yet paid - - 528 Book value of assets distributed to spun-off affiliate - $ 41,449 - Book value of liabilities distributed to spun-off affiliate - (11,768) - Book value of debt distributed to spun-off affiliate - (1,116) - ----------- ------------- ------------- Book value of net assets distributed to spun-off affiliate - $ 28,565 - =========== ============= ============= Fair value of assets acquired in Merger - $ 1,306,018 - Fair value of liabilities assumed in Merger - (26,167) - Fair value of debt assumed in Merger - (523,944) - ----------- ------------- ------------- Fair value of net assets acquired in Merger - $ 755,907 - =========== ============= =============
47 MERISTAR HOSPITALITY CORPORATION SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (dollars in thousands)
Costs subsequent Initial cost to to Company acquisition Gross amount at end of year ----------------- -------------- --------------------------- Building Building Building Accum- and and and ulated Year of Encum- Improve- Improve- Improve- Deprecia- Construc- Date Description brances Land ments Land ments Land ments tion tion Acquired Life ------------------------------------------------------------------------------------------------------- Hotel Assets: Salt Lake Airport Hilton, UT - $ 770 $12,828 $ - $2,812 $ 770 $15,640 $1,763 1980 3/3/95 40 Radisson Hotel, Schaumburg, IL - 1,080 5,131 - 1,881 1,080 7,012 723 1979 6/30/95 40 Sheraton Hotel, Colorado Springs, CO (1) 1,071 14,592 1 3,642 1,072 18,234 1,906 1974 6/30/95 40 Hilton Hotel, Bellevue, WA 48 5,211 6,766 - 1,516 5,211 8,282 861 1979 8/4/95 40 Marriott Hotel, Somerset, NJ (1) 1,978 23,001 - 3,979 1,978 26,980 2,664 1978 10/3/95 40 Westin Atlanta Airport, Atlanta, GA - 2,650 15,926 (300) 9,258 2,350 25,184 2,431 1982 11/15/95 40 Sheraton Hotel, Charlotte, NC (1) 4,700 11,057 - 3,375 4,700 14,432 1,358 1985 2/2/96 40 Radisson Hotel Southwest, Cleveland, OH - 1,330 6,353 - 4,547 1,330 10,900 906 1978 2/16/96 40 Orange County Airport Hilton, Irvine, CA (1) 9,990 7,993 - 3,133 9,990 11,126 967 1976 2/22/96 40 The Latham Hotel, Washington, DC - 6,500 5,320 - 3,566 6,500 8,886 685 1981 3/8/96 40 Hilton Hotel, Arlington, TX (1) 1,836 14,689 79 2,819 1,915 17,508 1,555 1983 4/17/96 40 Hilton Hotel, Arlington, VA - 4,000 15,069 - 323 4,000 15,392 1,315 1990 8/23/96 40 Southwest Hilton, Houston, TX - 2,300 15,665 - 959 2,300 16,624 1,295 1979 10/31/96 40 Embassy Suites, Englewood, CO (1) 2,500 20,700 - 2,782 2,500 23,482 1,769 1986 12/12/96 40 Holiday Inn, Colorado Springs, CO - 1,600 4,232 - 978 1,600 5,210 349 1974 12/17/96 40 Embassy Row Hilton, Washington, DC - 2,200 13,247 - 2,240 2,200 15,487 1,085 1969 12/17/96 40 Hilton Hotel & Towers, Lafayette, LA (1) 1,700 16,062 - 1,284 1,700 17,346 1,256 1981 12/17/96 40 Hilton Hotel, Sacramento, CA (1) 4,000 16,013 - 1,658 4,000 17,671 1,296 1983 12/17/96 40 Santa Barbara Inn, Santa Barbara, CA - 2,600 5,141 - 1,110 2,600 6,251 446 1959 12/17/96 40 San Pedro Hilton, San Pedro, CA - 640 6,047 - 2,300 640 8,347 545 1989 1/28/97 40 Doubletree Hotel, Albuquerque, NM (1) 2,700 15,075 - 801 2,700 15,876 1,136 1975 1/31/97 40 Westchase Hilton & Towers, Houston, TX (1) 3,000 23,991 - 1,364 3,000 25,355 1,827 1980 1/31/97 40 Four Points Hotel, Cherry Hill, NJ - 1,700 4,178 - 2,040 1,700 6,218 394 1991 3/20/97 40 Sheraton Great Valley Inn, Frazer, PA - 2,150 11,653 11 2,712 2,161 14,365 831 1971 3/27/97 40 Holiday Inn Calgary Airport, Calgary, Alberta, Canada - 751 5,011 (7) 1,553 744 6,564 551 1981 4/1/97 40 Sheraton Hotel Dallas, Dallas, TX - 1,300 17,268 - 2,358 1,300 19,626 1,273 1974 4/1/97 40 Radisson Hotel Dallas, Dallas, TX - 1,800 17,580 - 1,177 1,800 18,757 1,259 1972 4/1/97 40 Sheraton Hotel Guildford, Surrey, BC, Canada - 2,366 24,008 (24) 789 2,342 24,797 2,403 1992 4/1/97 40 Doubletree Guest Suites, Indianapolis, IN 1,000 8,242 - 821 1,000 9,063 595 1987 4/1/97 40 Ramada Vancouver Centre, Vancouver, BC, Canada - 4,400 7,840 (43) 2,613 4,357 10,453 921 1968 4/1/97 40 Holiday Inn Sports Complex, Kansas City, MO - 420 4,742 - 1,551 420 6,293 380 1975 4/30/97 40 Hilton Crystal City, Arlington, VA - 5,800 29,879 - 790 5,800 30,669 1,890 1974 7/1/97 40 Doubletree Resort Hotel, Cathedral City, CA - 1,604 16,141 - 2,598 1,604 18,739 1,073 1985 7/1/97 40 Radisson Hotel & Suites, Chicago, IL 4,870 39,175 - 1,793 4,870 40,968 2,485 1971 7/15/97 40 Georgetown Inn, Washington, DC - 6,100 7,103 - 712 6,100 7,815 454 1962 7/15/97 40 Embassy Suites Center City, Philadelphia, PA (1) 5,500 26,763 - 1,442 5,500 28,205 1,627 1963 8/12/97 40 Doubletree Hotel Austin, Austin, TX (1) 2,975 25,678 - 2,501 2,975 28,179 1,569 1984 8/14/97 40 Radisson Plaza Hotel, Lexington, KY 240 1,100 30,375 - 3,759 1,100 34,134 2,006 1982 8/14/97 40 Jekyll Inn, Jekyll Island, GA 850 - 7,803 - 2,782 - 10,585 575 1971 8/20/97 40 Holiday Inn Metrotown, Burnaby, BC, Canada - 1,115 5,303 (11) 1,292 1,104 6,595 502 1989 8/22/97 40 Embassy Suites International Airport, Tucson, AZ - 1,640 10,444 - 1,401 1,640 11,845 585 1982 10/23/97 40 Westin Morristown, NJ - 2,500 19,128 100 4,171 2,600 23,299 1,047 1962 11/20/97 40 Doubletree Hotel Bradley International Airport, Windsor Locks, CT - 1,013 10,228 87 1,422 1,100 11,650 547 1985 11/24/97 40 Sheraton Hotel, Mesa, AZ - 1,850 16,938 - 1,303 1,850 18,241 897 1985 12/5/97 40 Metro Airport Hilton & Suites, Detroit, MI - 1,750 12,639 - 1,033 1,750 13,672 647 1989 12/16/97 40 Marriott Hotel, Los Angeles, CA - 5,900 48,250 - 5,457 5,900 53,707 2,584 1983 12/18/97 40
48
Initial cost to Costs subsequent to Company acquisition Gross amount at end of year ----------------------------------------------------------------------------- Building Building Building Accum- and and and ulated Year of Encum- Improve- Improve- Improve- Deprecia- Construc- Date Description brances Land ments Land ments Land ments tion tion Acquired Life ------------------------------------------------------------------------------------------------------ Austin Hilton & Towers, TX - 2,700 15,852 - 2,013 2,700 17,865 822 1974 1/6/98 40 Dallas Renaissance North, TX - 3,400 20,813 - 2,751 3,400 23,564 1,104 1979 1/6/98 40 Houston Sheraton Brookhollow Hotel, TX - 2,500 17,609 - 2,148 2,500 19,757 953 1980 1/6/98 40 Seelbach Hilton, Louisville, KY - 1,400 38,462 - 2,096 1,400 40,558 1,940 1905 1/6/98 40 Midland Hilton & Towers, TX - 150 8,487 - 1,416 150 9,903 459 1976 1/6/98 40 Westin Oklahoma, OK - 3,500 27,588 - 1,683 3,500 29,271 1,408 1977 1/6/98 40 Sheraton Hotel, Columbia, MD - 3,600 21,393 - 1,195 3,600 22,588 939 1972 3/27/98 40 Radisson Cross Keys, Baltimore, MD - 1,500 5,615 - 446 1,500 6,061 246 1973 3/27/98 40 Sheraton Fisherman's Wharf, San Francisco, CA (1) 19,708 61,751 - 2,599 19,708 64,350 2,701 1975 4/2/98 40 Hartford Hilton, CT - 4,073 24,458 - 131 4,073 24,589 968 1975 5/21/98 40 Holiday Inn Dallas DFW Airport South, TX 13,021 3,388 28,847 - (6) 3,388 28,841 1,016 1974 8/3/98 - Courtyard by Marriott Meadowlands, NJ 4,529 - 9,649 - 45 - 9,694 338 1993 8/3/98 40 Hampton Inn Richmond Airport, VA - 534 3,653 - 473 534 4,126 460 1972 8/3/98 - Hotel Maison de Ville, New Orleans, LA - 292 3,015 - (2) 292 3,013 106 1778 8/3/98 40 Hilton Hotel Toledo, OH - - 11,708 - 18 - 11,726 414 1987 8/3/98 40 Holiday Inn Select Dallas DFW Airport West, TX - 947 8,346 - 26 947 8,372 812 1974 8/3/98 40 Holiday Inn Select New Orleans International Airport, LA (1) 3,040 25,616 - 76 3,040 25,692 910 1973 8/3/98 40 Hampton Inn Ocean City, MD - 384 4,940 - 40 384 4,980 608 1989 8/3/98 - Crowne Plaza Madison, WI (1) 2,629 21,634 - 176 2,629 21,810 770 1987 8/3/98 40 Wyndham Albuquerque Airport Hotel, NM - - 18,889 - 112 - 19,001 669 1972 8/3/98 40 Wyndham San Jose Airport Hotel, CA - - 35,743 - 997 - 36,740 1,260 1974 8/3/98 40 Holiday Inn Select Mission Valley, CA 2,410 20,998 - 155 2,410 21,153 745 1970 8/3/98 40 Sheraton Safari Hotel, Lake Buena Vista, FL - 4,103 35,263 - 8,305 4,103 43,568 1,288 1985 8/3/98 40 Hilton Monterey, CA - 2,141 17,666 - 5,165 2,141 22,831 651 1971 8/3/98 40 Hilton Hotel Durham, NC - 1,586 15,577 - 1,022 1,586 16,599 559 1987 8/3/98 40 Wyndham Garden Hotel Marietta, GA - 1,900 17,077 - 83 1,900 17,160 597 1985 8/3/98 40 Westin Resort Key Largo, FL - 3,167 29,190 - 260 3,167 29,450 1,038 1985 8/3/98 40 Doubletree Guest Suites Atlanta, GA 8,915 2,236 18,514 - 3,209 2,236 21,723 744 1985 8/3/98 40 Radisson Hotel Arlington Heights, IL - 1,540 12,645 - 2,093 1,540 14,738 457 1981 8/3/98 40 Holiday Inn Select Bucks County, PA - 2,610 21,744 - 324 2,610 22,068 773 1987 8/3/98 40 Hilton Hotel Cocoa Beach, FL - 2,783 23,076 - 1,647 2,783 24,723 863 1986 8/3/98 40 Radisson Twin Towers Orlando, FL - 9,555 73,486 - 4,578 9,555 78,064 2,633 1972 8/3/98 40 Crowne Plaza Phoenix, AZ - 1,852 15,957 - 3,448 1,852 19,405 654 1981 8/3/98 40 Hilton Airport Hotel Grand Rapids, MI (1) 2,049 16,657 - 539 2,049 17,196 594 1979 8/3/98 40 Marriott West Loop Houston, TX (1) 2,943 23,934 - 2,603 2,943 26,537 861 1976 8/3/98 40 Courtyard by Marriott Durham, NC - 1,406 11,001 - 47 1,406 11,048 391 1996 8/3/98 40 Courtyard by Marriott, Marina Del Rey, CA (1) 3,450 24,534 - 346 3,450 24,880 872 1976 8/3/98 40 Courtyard by Marriott, Century City, CA - 2,165 16,465 - 20 2,165 16,485 584 1986 8/3/98 40 Courtyard by Marriott, Lake Buena Vista, FL - - 41,267 - 700 - 41,967 1,464 1972 8/3/98 40 Crowne Plaza, San Jose, CA (1) 2,130 23,404 - 1,500 2,130 24,904 869 1975 8/3/98 40 Doubletree Hotel Westshore, Tampa, FL - 2,904 23,476 - 87 2,904 23,563 834 1972 8/3/98 40 Howard Johnson Resort Key Largo, FL - 1,784 12,419 - 477 1,784 12,896 444 1971 8/3/98 40 Radisson Annapolis, MD - 1,711 13,671 - 104 1,711 13,775 486 1975 8/3/98 40 Holiday Inn Fort Lauderdale, FL - 2,381 19,419 - 75 2,381 19,494 690 1969 8/3/98 40 Holiday Inn Express Hanover, MD - 821 6,687 - 11 821 6,698 640 1988 8/3/98 - Holiday Inn Madeira Beach, FL - 1,781 13,349 - 22 1,781 13,371 474 1972 8/3/98 40 Holiday Inn Chicago O'Hare, IL 20,054 4,290 72,631 - 187 4,290 72,818 2,582 1975 8/3/98 40 Holiday Inn & Suites Alexandria, VA - 1,769 14,064 - 52 1,769 14,116 499 1985 8/3/98 40 Hilton Clearwater, FL - - 69,285 - 559 - 69,844 2,457 1980 8/3/98 40 Radisson Rochester, NY - - 6,499 - 40 - 6,539 229 1971 8/3/98 40 Radisson Old Towne Alexandria, VA - 2,241 17,796 - 39 2,241 17,835 632 1975 8/3/98 40
49
Initial cost to Costs subsequent to Company acquisition Gross amount at end of year ---------------------------------------------------------------- Building Building and Building and Accum- and Improve- Improve- ulated Year of Encum- Improve- ments ments Deprecia- Construc- Date Description brances Land ments Land Land tion tion Acquired Life ------------------------------------------------------------------------------------------------------- Ramada Inn Clearwater, FL - 1,270 13,453 - 89 1,270 13,542 1,602 1969 8/3/98 - Richmond Hotel and Conference Center - 245 3,380 - 20 245 3,400 712 1975 8/3/98 - Crowne Plaza Las Vegas, NV - 3,006 24,011 - 15 3,006 24,026 855 1989 8/3/98 40 Crowne Plaza Portland, OR 5,064 2,950 23,254 - 55 2,950 23,309 828 1988 8/3/98 40 Four Points Hotel, Mt. Arlington, NJ 4,724 6,553 6,058 - 39 6,553 6,097 215 1984 8/3/98 40 Ramada Inn Mahwah, NJ - 1,117 8,994 - 120 1,117 9,114 321 1972 8/3/98 40 Ramada Plaza Meriden, CT - 1,247 10,057 - 12 1,247 10,069 357 1985 8/3/98 40 Ramada Plaza Shelton, CT 4,703 2,040 16,235 - 20 2,040 16,255 575 1989 8/3/98 40 Sheraton Crossroads Mahwah, NJ - 3,258 26,185 - 160 3,258 26,345 932 1986 8/3/98 40 St. Tropez Suites, Las Vegas, NV - 3,027 24,429 - 10 3,027 24,439 869 1986 8/3/98 40 Doral Forrestal, Princeton, NJ - 9,578 57,555 - 7,044 9,578 64,599 2,088 1981 8/11/98 40 South Seas Plantation, Captiva, FL - 3,084 83,573 - 5,024 3,084 88,597 2,607 1975 10/1/98 40 Radisson Suites Beach Resort, Marco Island, FL - 7,120 35,300 - 1,378 7,120 36,678 1,098 1983 10/1/98 40 Best Western Sanibel Island, FL - 3,868 3,984 - (25) 3,868 3,959 124 1967 10/1/98 40 The Dunes Golf & Tennis Club, Sanibel Island, FL - 7,705 3,043 - 81 7,705 3,124 94 1964 10/1/98 40 Sanibel Inn, Sanibel Island, FL - 8,482 12,045 - (59) 8,482 11,986 373 1964 10/1/98 40 Seaside Inn, Sanibel Island, FL - 1,702 6,416 - 16 1,702 6,432 200 1964 10/1/98 40 Song of the Sea, Sanibel Island, FL - 339 3,223 - 62 339 3,285 101 1964 10/1/98 40 Sundial Beach Resort, Sanibel Island, FL - 320 12,009 - 699 320 12,708 375 1975 10/1/98 40 Holiday Inn, Madison, WI - 4,143 6,692 49 4,143 6,741 168 1965 1/11/99 40 ------------------------------------------------------------------ $318,467 $2,202,982 $(107) $175,336 $318,360 $2,378,318 $115,234 ==================================================================
(1) These properties secure the New Secured Facility which, as of December 31, 1999, had an outstanding balance of $328,954. The components of hotel property and equipment are as follows:
Property and Accumulated Equipment Depreciation ------------- ------------ Land $ 318,360 $ - Building and Improvements 2,378,318 115,234 Furniture and equipment 320,787 67,196 Construction in progress 101,258 - ------------- ------------ Total property and equipment $ 3,118,723 $ 182,430 ============= ============
A reconciliation of the Company's investment in hotel property and equipment and related accumulated depreciation is as follows:
1999 1998 1997 ------------------------------------------------------ Hotel property and equipment Balance, beginning of period $ 2,957,543 $ 947,597 $ 342,366 Acquisitions during period 12,081 1,865,142 550,913 Improvements and construction -in-progress 160,294 144,804 54,318 Cost of real estate sold (11,195) - - ------------- ------------ ----------- Balance, end of period 3,118,723 2,957,543 947,597 ------------- ------------ ----------- Accumulated depreciation Balance, beginning of period 83,797 26,858 8,432 Additions-depreciation expense 99,297 56,939 18,426 Cost of real estate sold (664) - - ------------- ------------ ----------- Balance, end of period 182,430 83,797 26,858 ------------- ------------ ----------- Net hotel property and equipment, end of period $ 2,936,293 $ 2,873,746 $ 920,739 ============= ============ ===========
50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 405 of Regulation S-K with respect to Directors and Executive Officers of the Company is incorporated herein by reference to the sections entitled "Management" and "Principal Stockholders" in the Company's definitive proxy for its 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the sections entitled "Executive Compensation," "Compensation of Directors" and "Stock Option Grants" in the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the section entitled "Principal Stockholders" in the 2000 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section entitled "Certain Relationships and Related Transactions" in the 2000 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. Index to Financial Statements and Financial Statement Schedules 1. Financial Statements The Financial Statements included in the Annual Report on Form 10-K are listed in Item 8. 2. Financial Statement Schedules The Financial Statement Schedules included in the Annual Report on Form 10- K are listed in Item 8. 51 3. Exhibits All Exhibits listed below are filed with this Annual Report on Form 10-K unless specifically stated to be incorporated by reference to other documents previously filed with the Commission. Exhibit - ------- No. Description of Document - -- ----------------------- 3.1* Amended and Restated Articles of Incorporation of the Registrant (Articles of Merger between American General Hospitality Corporation and CapStar Hotel Company). 3.2* Amended and Restated By-laws of the Registrant. 4.1** Form of Share Certificate. 4.2 Specimen Subordinated Note. 4.3 Specimen Convertible Note (included in Exhibit 4.7). 4.4 Indenture, dated as of August 19, 1997, between CapStar Hotel Company and IBJ Schroder Bank & Trust Company, as Trustee. 4.5 Second Supplemental Indenture, dated as of August 3, 1998, between MeriStar Hospitality Corporation and IBJ Schroder Bank & Trust Company, as Trustee. 4.6 Indenture, dated as of October 16, 1997, between CapStar Hotel Company and First Trust, National Association, as Trustee, (the "Convertible Notes Indenture"). 4.7 Certificate dated October 16, 1997, pursuant to Section 3.1 of Convertible Notes Indenture. 4.8 First Supplemental Indenture, dated as of August 3, 1998, between MeriStar Hospitality Corporation and U.S. Bank Trust, National Association, as Trustee. 4.9**** Indenture, dated as of March 18, 1999, between MeriStar Hospitality Corporation and IBJ Whitehall Bank & Trust Company, as Trustee. 4.10**** Specimen Certificate of Outstanding Note (included in Exhibit 4.9 as Exhibit A). 4.11**** Specimen Certificate of Exchange Note. 10.1*** Second Amended and Restated Agreement of Limited Partnership of MeriStar Hospitality Operating Partnership, L.P. dated as of August 3, 1998. 10.2*** Second Amended and Restated Senior Secured Credit Agreement dated as of August 3, 1998. 10.3*** Loan Agreement made as of August 3, 1998 between MeriStar Hospitality Corporation and its affiliates and Secore Financial Corporation. 10.4* Form of MeriStar Incentive Plan. 10.5* Form of MeriStar Non-Employee Directors' Incentive Plan. 10.6* Form of Employment Agreement between MeriStar Hospitality Corporation and Paul W. Whetsell. 10.7* Form of Employment Agreement between MeriStar Hospitality Corporation and Steven D. Jorns. 10.8*** Form of Employment Agreement between MeriStar Hospitality Corporation and Bruce G. Wiles. 10.9*** Form of Employment Agreement between MeriStar Hospitality Corporation and John Emery. 10.10* Form of Exchange Rights Agreement, by and among MeriStar Hospitality Corporation, MeriStar Hospitality Operating Partnership, L.P., and the Persons set forth therein. 10.11* Operating Partnership, L.P., CMC Operating Company and CMC Operating Partnership, L.P. 10.12* Form of Operating Lease 10.13 Loan Agreement, dated as of August 12, 1999, between MeriStar Hospitality Operating Partnership, L.P. and Lehman Brothers Holdings Inc. D/B/A Lehman Capital, a division of Lehman Brothers Holdings Inc. 12 Schedule Regarding the Computation of Ratios 21 Subsidiaries of the Company 23 Consent of KPMG LLP 24 Power of Attorney (see signature page) 27 Financial Data Schedule * Incorporated by reference to the Company's Registration Statement on Form S-4 (File No. 333-49611), filed with the Securities and Exchange Commission on April 7, as amended. ** Incorporated by reference to the Company's Registration Statement on Form S-3 (File No. 333-66229), filed with the Securities and Exchange Commission on October 28, as amended. *** Incorporated by reference to the Company's Annual Report on Form 10-K (File No. 001-11903), filed with the Securities and Exchange Commission on March 2, 1999. **** Incorporated by reference to the Company's Registration Statement on Form S-4 (File No. 333-78163) filed with the Securities and Exchange Commission on May 10, 1999. B. Reports on Form 8-K None. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, MeriStar Hospitality Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERISTAR HOSPITALITY CORPORATION By: /s/ Paul W. Whetsell -------------------------------------- Paul W. Whetsell Chief Executive Officer and Chairman of the Board Dated: March 13, 2000 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Paul W. Whetsell, Bruce G. Wiles and John Emery, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and revocation, for such person and in such person's name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this report filed pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and things requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report and the foregoing Power of Attorney have been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Chief Executive Officer and Chairman of the Board March 13, 2000 /s/ Paul W. Whetsell of Directors (Principal Executive Officer) _____________________________ Paul W. Whetsell /s/ Steven D. Jorns Vice Chairman of the Board of Directors March 13, 2000 _____________________________ Steven D. Jorns /s/ Bruce G. Wiles President and Director March 13, 2000 _____________________________ Bruce G. Wiles Chief Financial Officer (Principal Financial and March 13, 2000 /s/ John Emery Accounting Officer) _____________________________ John Emery
53 /s/ James F. Dannhauser _____________________________ Director March 13, 2000 James F. Dannhauser /s/ Daniel L. Doctoroff _____________________________ Director March 13, 2000 Daniel L. Doctoroff /s/ William S. Janes _____________________________ Director March 13, 2000 William S. Janes /s/ Mahmood Khimji _____________________________ Director March 13, 2000 Mahmood Khimji /s/ H. Cabot Lodge III _____________________________ Director March 13, 2000 H. Cabot Lodge III /s/ James R. Worms _____________________________ Director March 13, 2000 James R. Worms 54 EX-4.2 2 EXHIBIT 4.2 Exhibit 4.2 (Face of Note) ____% [Series A] [Series B] Senior Subordinated Note due ____ FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS SECURITY IS % OF ITS PRINCIPAL AMOUNT, THE ISSUE DATE IS , [19 ][20 ], [AND] THE YIELD TO MATURITY IS % [THE METHOD USED TO DETERMINE THE YIELD IS AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT APPLICABLE TO THE SHORT ACCRUAL PERIOD OF , [19 ][20 ] TO [19 ][20 ], IS % OF THE PRINCIPAL AMOUNT OF THIS SECURITY]. No. $___________ CAPSTAR HOTEL COMPANY promises to pay to _____________, or registered assigns, the principal sum of __________________ Dollars on __________, ____. Interest Payment Dates: ________ __ and ______ __ Record Dates: ________ __ and ______ __ Dated: CAPSTAR HOTEL COMPANY By: ____________________________ Name: Title: Trustee's Certificate of Authentication: This is one of the [Global] Notes referred to in the within- mentioned Indenture: IBJ Schroder Bank & Trust Company, as Trustee By _____________________________ Authorized Signatory 1 (Back of Note) _____% [Series A] [Series B] Senior Subordinated Note due ____ of CapStar Hotel Company UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF A SUCCESSOR DEPOSITARY OR ANY NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE, AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (DTC), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH 2 OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. CapStar Hotel Company, a Delaware corporation (the "COMPANY"), promises to pay interest on the principal amount of this _____% [Series A] [Series B] Senior Subordinated Note due ____ (the "NOTE") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Note in cash at the rate per annum shown above and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company shall pay interest and Liquidated Damages, if any, semi-annually on each ________ __ and ______ __ commencing ________ __, 199_, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1% per annum in excess of the then applicable interest rate on this Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the _________ and _________ next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, if any, and interest and Liquidated Damages, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal and premium, if any, and interest and Liquidated Damages, if any, on all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company, any Guarantor or any other of its Subsidiaries may act in any such capacity. 3 4. INDENTURE. The Company issued the Notes under an Indenture dated as of August 19, 1997 (the "INDENTURE") between the Company, as issuer, and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. 5. OPTIONAL REDEMPTION. On or after ______ __, ____, the Company may redeem all or any portion of the Notes, at any time 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 twelve-month period beginning on ______ __ of the years indicated below: YEAR PERCENTAGE - ---- ---------- 2002............................................................... _______% 2003............................................................... _______% 2004............................................................... _______% 2005 and thereafter................................................ _______% Notwithstanding the foregoing, prior to ______ __, 2000, the Company may redeem, on any one or more occasions, with the net cash proceeds of one or more public offerings of its common equity (a "PUBLIC EQUITY OFFERING") (within 60 days of the consummation of any such Public Equity Offering), up to 35% of the aggregate principal amount of the Notes originally issued at a redemption price equal to _______% of the principal amount of such Notes plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date; PROVIDED, HOWEVER, that at least 65% of the aggregate principal amount of Notes originally issued remains outstanding immediately after any such redemption. [In addition, the Company, at its option, at any time prior to ______ ____, may redeem the Notes, in whole or in part (if in part, by lot or such other method as the Trustee shall deem fair or appropriate) at the Make-Whole Price, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase.] 6. OFFERS TO PURCHASE. Subject to the Company's obligation to make an offer to purchase Notes in connection with Asset Sales and a Change of Control (as described in the Indenture), the Company has no mandatory redemption or sinking fund obligations with respect to the Notes. Notice of any such offer to purchase will be given as provided in the Indenture. Holders of Notes that are the subject of an offer to purchase may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below and taking certain other actions, all as set forth in the Indenture. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 4 8. SUBORDINATION. The Notes and the Subsidiary Guarantees, if any, are subordinated to Senior Debt, as defined in the Indenture. To the extent provided in the Indenture, Senior Debt must be paid before the Notes and the Subsidiary Guarantees may be paid. The Company agrees, and each Holder by accepting a Note and any Subsidiary Guarantee agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000 of principal amount. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Company shall not be required to exchange or register the Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 of the Indenture and ending at the close of business on the day of selection, or to exchange or register any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part, or to exchange or register a Note between a record date and the next succeeding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, 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, and 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 Notes then outstanding. The Change of Control and Asset Sale purchase features of the Notes may not be amended or waived without the consent of at least 66 2/3% in principal amount of the Notes then outstanding. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to comply with Section 5.1, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes under the Indenture or any Guarantor's Obligations under its Subsidiary Guarantee in the case of a merger, consolidation or sale of assets involving the Company or such Guarantor, as applicable, pursuant to Article 5 or Article 11 of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Notes (including providing for Subsidiary Guarantees and any supplemental indenture required pursuant to Section 4.15 of the Indenture) or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA and to release a Guarantor in accordance with the Indenture. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages, if any, on the Notes (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) 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 Assets Sale Offer) (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (iii) failure by the Company or any Restricted Subsidiary to comply with Section 5.01 of the Indenture; (iv) failure by the Company or any Guarantor for 60 days in the performance of any other covenant, warranty or agreement in the Indenture or the Notes after 5 written notice shall have been given to the Company by the Trustee or to the Company and the Trustee from Holders of at least 25% in principal amount of the Notes then outstanding; (v) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of Non-Recourse Indebtedness of the Company or any of its Restricted Subsidiaries with an aggregate principal amount in excess of the lesser of (A) 10% of the total assets of the Company and its Restricted Subsidiaries measured as of the end of the Company's most recent fiscal quarter for which internal financial statements are available immediately prior to the date on which such default occurred, determined on a pro forma basis and (B) $50 million, and such 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 the Company or such Restricted Subsidiary of notice of such acceleration); (vi) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary of the Company and such failure continues for a period of 10 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 10 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such 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; (vii) failure by the Company or any of its Restricted Subsidiaries to pay final judgments rendered against them (other than judgment liens without recourse to any assets or property of the Company or any of its Restricted Subsidiaries 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 (other than any judgments as to which a reputable insurance company has accepted full liability); (viii) except as permitted by the Indenture, any Subsidiary Guarantee 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 or assigns), or any Person acting on behalf of such Guarantor (or its successors or assigns), shall deny or disaffirm its obligations or shall fail to comply with any obligations under its Subsidiary Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to the Company, any Guarantor or any of the Company's Subsidiaries that would constitute a Significant Subsidiary or any group of the Company's 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 certain events of bankruptcy or insolvency, with respect to the Company, any of its Subsidiary that would constitute a Significant Subsidiary or any group of its Subsidiaries that, taken together, would constitute a Significant Subsidiary or any Guarantor, all outstanding Notes will become due and payable without further action or notice. Under certain 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. 13. GUARANTEES OF NOTES. Payment of principal, premium, if any, and interest and Liquidated Damages, if any, (including interest on overdue principal and overdue interest, if lawful) on the Notes will be unconditionally guaranteed by the Guarantors, if any, pursuant to, and subject to the terms of, Article 11 of the Indenture. 6 14. SECURITY. The Notes will be unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. 15. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantee or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver and release may not be effective to waive or release liabilities under the federal securities laws. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 19. [SERIES A NOTES] REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement (as defined in the Indenture), and subject to certain terms and conditions stated therein, the Company will be obligated to consummate an Exchange Offer pursuant to which the Holders of the Notes shall have the right to exchange this Note for Exchange Notes, which have been registered under the Securities Act, in like principal amount and having terms identical in all material respect to the Note. In certain circumstances, and subject to certain terms and conditions, Holders of the Notes shall have the right to receive liquidated damages if the Company shall have failed to fulfill its obligations under the Registration Rights Agreement. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: CapStar Hotel Company 1010 Wisconsin Avenue, N.W. Suite 650 Washington, D.C. 20007 Attention: John Emery, Chief Financial Officer Telecopier No.: (202) 965-4445 7 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's Social Security or tax I.D. No.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _____________________________ Your Signature: ___________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:* ______________________ - -------------------------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). 8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.14 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on the Note) Tax Identification No:____________ Signature Guarantee:*/____________ - ------------------ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). 9 SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES The following exchanges of a part of this Global Note for Certificated Notes have been made:
Amount of Amount of Principal Amount decrease in increase in of this Global Signature of Principal Principal Note following authorized officer Amount of this Amount of this such decrease of Trustee Date of Exchange Global Note Global Note (or increase) or Custodian - --------------------------------------------------------------------------------------------------------------------
10 EX-4.4 3 EXHIBIT 4.4 EXHIBIT 4.4 CAPSTAR HOTEL COMPANY $200,000,000 SERIES A AND SERIES B 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007 INDENTURE Dated as of August 19, 1997 IBJ SCHRODER BANK & TRUST COMPANY Trustee TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE 1 SECTION 1.1 DEFINITIONS 1 SECTION 1.2 OTHER DEFINITIONS 14 SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT 14 SECTION 1.4 RULES OF CONSTRUCTION 15 ARTICLE 2 THE NOTES 15 SECTION 2.1 FORM AND DATING 15 SECTION 2.2 EXECUTION AND AUTHENTICATION 16 SECTION 2.3 REGISTRAR AND PAYING AGENT 16 SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST 17 SECTION 2.5 HOLDERS LISTS 17 SECTION 2.6 TRANSFER AND EXCHANGE 17 SECTION 2.7 REPLACEMENT NOTES 18 SECTION 2.8 OUTSTANDING NOTES 18 SECTION 2.9 TREASURY NOTES 19 SECTION 2.10 TEMPORARY NOTES 19 SECTION 2.11 CANCELLATION 19 SECTION 2.12 DEFAULTED INTEREST 19 SECTION 2.13 RECORD DATE 20 SECTION 2.14 CUSIP NUMBER 20 SECTION 2.15 RESTRICTIVE LEGENDS 20 SECTION 2.16 BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY 21 SECTION 2.17 SPECIAL TRANSFER PROVISIONS 22 ARTICLE 3 REDEMPTIONS AND OFFERS TO PURCHASE 24 SECTION 3.1 NOTICES TO TRUSTEE 24 SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED OR PURCHASED 24 SECTION 3.3 NOTICE OF REDEMPTION 25 SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION 25 SECTION 3.5 DEPOSIT OF REDEMPTION PRICE 26 SECTION 3.6 NOTES REDEEMED IN PART 26 SECTION 3.7 OPTIONAL REDEMPTION 26 SECTION 3.8 MANDATORY REDEMPTION 27 SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS 27
-i- ARTICLE 4 COVENANTS 29 SECTION 4.1 PAYMENT OF NOTES 29 SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY 29 SECTION 4.3 SEC REPORTS 30 SECTION 4.4 COMPLIANCE CERTIFICATE 30 SECTION 4.5 TAXES 31 SECTION 4.6 STAY, EXTENSION AND USURY LAWS 31 SECTION 4.7 LIMITATION ON RESTRICTED PAYMENTS 31 SECTION 4.8 LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES 34 SECTION 4.9 LIMITATION ON ADDITIONAL INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK 34 SECTION 4.10 LIMITATION ON SALE OF ASSETS 36 SECTION 4.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES 37 SECTION 4.12 LIMITATION ON LIENS 38 SECTION 4.13 CORPORATE EXISTENCE 38 SECTION 4.14 CHANGE OF CONTROL 38 SECTION 4.15 SUBSIDIARY GUARANTEES 39 SECTION 4.16 LINE OF BUSINESS 40 SECTION 4.17 PAYMENTS FOR CONSENT 40 SECTION 4.18 NO SENIOR SUBORDINATED DEBT 40 ARTICLE 5 SUCCESSORS 40 SECTION 5.1 WHEN THE COMPANY MAY MERGE, ETC 40 SECTION 5.2 SUCCESSOR SUBSTITUTED 41 ARTICLE 6 DEFAULTS AND REMEDIES 41 SECTION 6.1 EVENTS OF DEFAULT 41 SECTION 6.2 ACCELERATION 43 SECTION 6.3 OTHER REMEDIES 44 SECTION 6.4 WAIVER OF PAST DEFAULTS 44 SECTION 6.5 CONTROL BY MAJORITY 44 SECTION 6.6 LIMITATION ON SUITS 44 SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT 45 SECTION 6.8 COLLECTION SUIT BY TRUSTEE 45 SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM 45 SECTION 6.10 PRIORITIES 46 SECTION 6.11 UNDERTAKING FOR COSTS 46 ARTICLE 7 TRUSTEE 46
-ii- SECTION 7.1 DUTIES OF TRUSTEE 46 SECTION 7.2 RIGHTS OF TRUSTEE 47 SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE 48 SECTION 7.4 TRUSTEE'S DISCLAIMER 48 SECTION 7.5 NOTICE OF DEFAULTS 48 SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS 49 SECTION 7.7 COMPENSATION AND INDEMNITY 49 SECTION 7.8 REPLACEMENT OF TRUSTEE 50 SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC 51 SECTION 7.10 ELIGIBILITY; DISQUALIFICATION 51 SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY 51 ARTICLE 8 DISCHARGE OF INDENTURE 51 SECTION 8.1 DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE NOTES 51 SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE 52 SECTION 8.3 COVENANT DEFEASANCE 53 SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE 53 SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS 55 SECTION 8.6 REPAYMENT TO THE COMPANY 55 SECTION 8.7 REINSTATEMENT 56 ARTICLE 9 AMENDMENTS 56 SECTION 9.1 WITHOUT CONSENT OF HOLDERS 56 SECTION 9.2 WITH CONSENT OF HOLDERS 57 SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT 58 SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS 58 SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES 58 SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC 58 ARTICLE 10 SUBORDINATION 59 SECTION 10.1 AGREEMENT TO SUBORDINATE 59 SECTION 10.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY 59 SECTION 10.3 NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES 60 SECTION 10.4 [THIS SECTION INTENTIONALLY OMITTED] 60 SECTION 10.5 ACCELERATION OF NOTES 61 SECTION 10.6 WHEN DISTRIBUTION MUST BE PAID OVER 61 SECTION 10.7 NOTICE BY THE COMPANY 61 SECTION 10.8 SUBROGATION 61
-iii- SECTION 10.9 RELATIVE RIGHTS 61 SECTION 10.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY 62 SECTION 10.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE 62 SECTION 10.12 RIGHTS OF TRUSTEE AND PAYING AGENT 62 SECTION 10.13 AUTHORIZATION TO EFFECT SUBORDINATION 63 SECTION 10.14 AMENDMENTS 63 ARTICLE 11 SUBSIDIARY GUARANTEES 63 SECTION 11.1 SUBSIDIARY GUARANTEES 63 SECTION 11.2 WHEN A GUARANTOR MAY MERGE, ETC 64 SECTION 11.3 LIMITATION OF GUARANTOR'S LIABILITY 65 SECTION 11.4 RELEASE OF A GUARANTOR 65 ARTICLE 12 MISCELLANEOUS 66 SECTION 12.1 TRUST INDENTURE ACT CONTROLS 66 SECTION 12.2 NOTICES 66 SECTION 12.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS 67 SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT 67 SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION 67 SECTION 12.6 RULES BY TRUSTEE AND AGENTS 68 SECTION 12.7 LEGAL HOLIDAYS 68 SECTION 12.8 RECOURSE AGAINST OTHERS 68 SECTION 12.9 DUPLICATE ORIGINALS 68 SECTION 12.10 GOVERNING LAW 68 SECTION 12.11 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS 69 SECTION 12.12 SUCCESSORS 69 SECTION 12.13 SEVERABILITY 69 SECTION 12.14 COUNTERPART ORIGINALS 69 SECTION 12.15 TABLE OF CONTENTS, HEADINGS, ETC 69
EXHIBITS Exhibit A Form of Note Exhibit B Form of Supplemental Indenture Exhibit C Form of Certificate to be Delivered in Connection with Transfers to Non- QIB accredited Investors Exhibit D From of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S -iv- 1 INDENTURE dated as of August 19, 1997 between CapStar Hotel Company, a Delaware corporation (the "Company"), and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). Each of the Company and the Trustee agrees as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8 3/4% Series A Senior Subordinated Notes due 2007 of the Company (the "Series A Notes") and the 8 3/4% Series B Senior Subordinated Notes due 2007 of the Company (the "Series B Notes," and, together with the Series A Notes, the "Notes"). I. ARTICLE DEFINITIONS AND INCORPORATION BY REFERENCE A. SECTION DEFINITIONS. "Acquired Debt" means, with respect to any specified Person: (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person and (ii) Indebtedness encumbering any asset acquired by such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such 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 such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-Registrar or agent for service of notices and demands. "Asset Sale" means (i) the sale, lease (other than operating leases in respect of facilities which are ancillary to the operation of the Company's or a Restricted Subsidiary's Hospitality Related Business properties or assets), conveyance or other disposition of any property or assets of the Company or any Restricted Subsidiary (including by way of a sale and leaseback transaction), (ii) the issuance or sale of Equity Interests of any of the Company's Restricted Subsidiaries or (iii) any Event of Loss, other than, with respect to clauses (i), (ii) and (iii) 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 such property is no longer necessary for the proper conduct of the business of the Company or such Restricted Subsidiary, as applicable, (3) the transfer of assets by the Company to a Restricted Subsidiary of the Company or by a Restricted Subsidiary of the Company to the Company or to another Restricted Subsidiary of the Company, (4) (A) the exchange of one or more lodging facilities and related assets held by the Company or a Restricted Subsidiary of the Company for one or more lodging facilities and related assets of any person or entity, provided, that if any other assets are received by the Company or such Restricted Subsidiary in such exchange, such other consideration is in cash or Cash Equivalents; provided, further, that such 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 Section 4.10 hereof, or (B) the issuance of OP 2 Units or Preferred OP Units as full or partial consideration for the acquisition of lodging facilities and related assets, provided, that the Board of Directors of the Company has determined that the terms of any exchange or acquisition are fair and reasonable and that the fair market value of the assets received by the Company, as set forth 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 the Company or a Restricted Subsidiary of the Company, (5) any Restricted Payment, permitted under Section 4.7 hereof, (6) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in compliance with the provisions of Section 4.14 and Article V hereof, (7) the conversion of or foreclosure or any mortgage or note, provided that the Company or a Restricted Subsidiary receives the real property underlying any such 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 pursuant to 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: (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person and (ii) Indebtedness encumbering any asset acquired by such specified Person, in each case excluding Indebtedness incurred in connection with, or in contemplation of such other Person merging with or into or becoming a Subsidiary of such specified Person. "Board of Directors" means the Board of Directors of the Company or any authorized committee of the Board of Directors. "Business Day" means any day that is not a Saturday, Sunday or a day on which banking institutions in New York, New York or the city in which the Corporate Trust Office is located are authorized or obliged by law or executive order to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "Capital Stock" means any and all shares, interests, participation, 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 (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (ii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers acceptances with maturities not exceeding six months from the date of acquisition and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper or commercial paper master notes having a rating of at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. or at least A-2 or the equivalent thereof by Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition, (v) money market mutual funds that provide daily purchase and redemption features, and (vi) corporate debt 3 with maturities of not greater than six months and with a rating of at least A or the equivalent thereof by Standard & Poor's Corporation and a rating of at least A2 or the equivalent thereof by Moody's Investors Service, Inc. "Change of Control" means the occurrence of any of the following: (i) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the Company's assets to any person or group (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the acquisition by any person or group (as such term is used in Section 13(d)(3) of the Exchange Act) of a direct or indirect interest in more than 50% of the ownership of the Company or the voting power of the voting stock of the Company by way of purchase, merger or consolidation or otherwise (other than a creation of a holding company that does not involve a change in the beneficial ownership of the Company as a result of such transaction), (iv) the merger or consolidation of the Company with or into another corporation or the merger of another corporation into the Company with the effect that immediately after such transaction the stockholders of the Company immediately prior to such transaction hold 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 such merger or consolidation or (v) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Company" means CapStar Hotel Company, a Delaware corporation, until a successor replaces it in accordance with the applicable provisions of this Indenture, and thereafter, means such successor. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus: (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale, to the extent such losses were deducted in computing Consolidated Net Income, plus (b) provisions for taxes based on income or profits of such Person for such period, to the extent such provision for taxes was included in computing Consolidated Net Income, plus (c) Consolidated Interest Expense of such Person for such period to the extent such expense was deducted in computing Consolidated Net Income, plus (d) Consolidated Depreciation and Amortization Expense of such Person for such period, to the extent deducted in computing Consolidated Net Income less (e) noncash items increasing such Consolidated Net Income for such period in each case, on a consolidated basis for such 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 only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to such Person by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to 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. "Consolidated Current Liabilities" as of the date of determination means the aggregate amount of liabilities of the Company and its consolidated Subsidiaries which may properly be classified as current liabilities (including taxes payable as accrued), on a consolidated basis, after eliminating (i) all intercompany items between the Company and any 4 Subsidiary and (ii) 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 such 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 such 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 Subsidiaries 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 such 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 such period, on a consolidated basis, determined in accordance with GAAP, provided, that the following shall be excluded: (i) 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 the Company or one of its Restricted Subsidiaries, (ii) 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, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) 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 the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, and after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of: (i) minority interests in consolidated Subsidiaries held by Persons other than the Company or a Subsidiary; (ii) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors; (iii) any revaluation or other write-up in book value of assets subsequent to the Issuance Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; (iv) 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; (v) treasury stock; and (vi) cash set apart and held in a sinking or other analogous fund established for the purpose of 5 redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities. "Consolidated Net Worth" means, with respect to any Person, as of any date of determination, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amount reported on such Person's balance sheet as of such date with respect to any series of Preferred Stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such Preferred Stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Issuance Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all Investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments) and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the Issuance Date or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote of at least a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office" shall be at the address of the Trustee specified in Section 12.2 or such other address as the Trustee may give notice to the Company. "Credit Agreement" means the senior credit facility dated June 30, 1997, entered into between and among the Company and the lenders party thereto, providing for borrowings and letters of credit, including any related notes, security documentation, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, modified, supplemented, restructured, renewed, restated, refunded, replaced or refinanced or extended, in each case on a senior basis, from time to time on one or more occasions. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event if Default. "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "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, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the date on which the Notes mature. 6 "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). "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 such property or asset or (B) any actual condemnation, seizure or taking by the power of eminent domain or otherwise of such property or asset, or confiscation of such property or asset or the requisition of the use of such property or asset. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries in existence on the Issuance Date (after giving effect to the use of proceeds of the Notes issued hereunder), excluding, for this purpose, amounts outstanding under the Credit Agreement as in effect on the Issuance Date. "Existing Preferred OP Units" means Preferred OP Units issued and outstanding on the date of this Indenture. "Final Memorandum" means the Company's Offering Memorandum dated August 14, 1997 pertaining to the offer and sale of $150,000,000 in aggregate principal amount of Notes, pursuant to applicable exemptions from registration under the Securities Act. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its 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 subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to 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 such 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 the Company or any of its Restricted Subsidiaries, including all mergers, consolidations and dispositions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be calculated on a pro forma basis assuming that all such 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 such Person and its Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income and (b) the product of (i) all cash dividend or distribution payments on any series of Preferred Stock of such Person or its Restricted Subsidiaries (other than Preferred Stock owned by such Person or its Restricted Subsidiaries), times (ii) 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 such Person, expressed as a decimal, in each case, on a consolidated basis 7 and in accordance with GAAP; provided, however, that if the cash dividend on such Preferred Stock is deductible for federal tax purposes, then the fraction shall be equal to one. "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 such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issuance Date. "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 (including agreements to keep- well and to purchase assets, goods, securities or services). "Guarantor" means a Restricted Subsidiary that become a guarantor of the Notes pursuant to the terms of this Indenture, and its successor, if any. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "Holder" means the Person in whose name a Note is registered on the Registrar's books. "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, (i) developing, managing, operating, improving or acquiring lodging facilities, restaurants and other food-service facilities and convention or meeting facilities, and marketing services related thereto, (ii) acquiring, developing, operating, managing or improving any real estate taken in foreclosure (or similar settlement) by the Company or any of its Restricted Subsidiaries, or any real estate ancillary or connected to any lodging owned, managed or operated by the Company or any of its Restricted Subsidiaries, (iii) owning and managing mortgages in, or other Indebtedness secured by Liens on lodging and real estate related or ancillary to lodging or (iv) other related activities thereto. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or 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 such Person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the Guarantee of any Indebtedness of such Person or any other Person. 8 "Indenture" means this Indenture, as amended or supplemented from time to time. "Investments" means, with respect to any Person, all investments by such 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 the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company 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 Common Stock of such Restricted Subsidiary not sold or disposed of. "Issuance Date" means the date of this Indenture. "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 such 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 thereof, 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). "Liquidated Damages" has the meaning assigned to such term in the Registration Rights Agreements. "Make-Whole Amount" with respect to a Note means an amount equal to the excess, if any, of (i) the present value of the remaining interest, premium and principal payments due on such Note as if such Note were redeemed on August 15, 2002, computed using a discount rate equal to the Treasury Rate plus 62.5 basis points, over (ii) the outstanding principal amount of such Note. "Treasury Rate" is defined as the yield to maturity at the time of the computation of United States Treasury securities with a constant maturity (as compiled by and published in the most recent Federal Reserve Statistical Release H.15(519), which has become publicly available at least two business days prior to the date of the redemption notice or, if such Statistical Release is no longer published, any publicly available source of similar market date) most nearly equal to the then remaining maturity of the Notes assuming redemption of the Notes on August 15, 2002; provided, however, that if the Make-Whole Average Life of such Note is not equal to the constant maturity of a United States Treasury security for which such yields are given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life of such Notes is less than one year, the weekly average yield on actually traded United State Treasury securities adjusted to a constant maturity of one year shall be used. "Make- Whole Average Life" means the number of years (calculated to the nearest one- twelfth) between the date of redemption and August 15, 2002. "Make-Whole Price" with respect to a Note means the greater of (1) the sum of the outstanding principal amount and the Make-Whole Amount of such Note, and (ii) the redemption price of such Note on August 15, 2002, determined pursuant to the first paragraph of Section 3.7 hereof (104.375% of the principal amount). 9 "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sale, and excluding any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions), and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (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 such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets. "Non-Recourse Indebtedness" means Indebtedness (a) as to which neither the Company nor any of its Restricted Subsidiaries (i) provides credit support (other than in the form of a Lien on an asset serving as security for Non- Recourse Indebtedness) pursuant to any undertaking, agreement or instrument that would constitute Indebtedness, (ii) is directly or indirectly liable (other than in the form of a Lien on an asset serving as security for Non-Recourse Indebtedness) or (iii) 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 other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Notes" means the Notes issued under this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers" means the Chairman of the Board, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary, any Assistant Secretary or any Vice President of the Company. "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, the President, the Chief Operating Officer, or a Vice President and by the Chief Financial officer, the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary of the Company, as applicable, except with respect to certificates required to be furnished by the Company to the Trustee pursuant to Section 4.4 hereof, in which event "Officers' Certificate" means a certificate signed by the principal executive officer or principal financial officer. "OP Units" means limited partnership interests in CapStar Management Company, L.P., CapStar Management Company II, L.P. or any successor operating partnership that require the issuer thereof to pay dividends or distributions which are tied to dividends paid on the Company's common stock and which by their terms may be converted into, or exercised or redeemed for, cash or the Company's common stock. 10 "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of this Indenture. "Permitted Investments" means any (a) Investments in the Company, (b) Investments in any Restricted Subsidiary, (c) Investments in Cash Equivalents, (d) Investments by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company, (e) Investments in Unrestricted Subsidiaries or Permitted Joint Ventures, provided that such Investments are in entities solely or principally engaged in Hospitality-Related Businesses and that the aggregate of such Investments does not exceed the greater of (i) $25.0 million or (ii) 5% of Consolidated Net Tangible Assets and (f) Investments in Unrestricted Subsidiaries formed to acquire the Radisson Plaza, Lexington, Kentucky, the Embassy Suites Center City, Philadelphia and the Doubletree Hotel, Austin, in an aggregate amount not to exceed $50.0 million. "Permitted Joint Venture" means any corporation, partnership, limited liability company or partnership or other similar entity formed to hold lodging properties for which the Company holds a management contract related thereto in which the Company owns less than a 50.1% interest. "Permitted Junior Securities" means Equity Interest in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to Article 10 of this Indenture. "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 therewith); (b) such 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) such Refinancing Indebtedness or Refinancing Disqualified Stock is incurred or issued either by the Company or by a Restricted Subsidiary who is the obligor on the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced, defeased or refunded. 11 "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred OP Units" means limited partnership interests in CapStar Management Company, L.P., CapStar Management Company II, L.P. or any successor operating partnership that require the issuer thereof to pay regularly scheduled fixed distributions thereon, which are not related to dividends on the Company's common stock, and which by their terms may be converted into, or exercised or redeemed for, cash or the Company's common stock. "Preferred Stock" means (i) any Equity Interest with preferential right in the payment of dividends or distributions or upon liquidation, and (ii) 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 pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof or Indebtedness referred to in clauses (iii), (v), (vii), (ix) and (x) of the second paragraph of Section 4.9 hereof. "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 pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof or Indebtedness referred to in clauses (iii), (v), (vii), (ix) and (x) of the second paragraph of Section 4.9 hereof. "Registration Rights Agreements" means those certain Registration Rights Agreements dated as of the Issuance Date between the Company and Lehman Brothers Inc. and between the Company and OHST setting forth certain registration rights with respect to the Notes. "Representative" means the indenture trustee or other trustee, agent or representative in respect of Designated Senior Debt, provided, that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Investments" means an Investment other than a Permitted Investment. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means, in the case of the Company or any Guarantor, the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the 12 Company, whether outstanding on the Issuance Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all Obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, whether outstanding on the Issuance Date or thereafter incurred, and (y) all Hedging Obligations (including Guarantees thereof), whether outstanding on the Issuance Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company or any Guarantor to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company or any Subsidiary of the Company or any Guarantor (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) any liability for federal, state, local or other taxes owed or owing by the Company or any Guarantor, (v) that portion of Indebtedness incurred in violation of this Indenture provisions set forth under Section 4.9 hereof; provided, however, that in the case of this clause (v), (A) any Indebtedness issued to any person who had no actual knowledge that the incurrence of such Indebtedness was not permitted under this Indenture and who received in connection with the issuance thereof a certificate from the Chief Financial Officer of the Company to the effect that the issuance of such Indebtedness would not violate this Indenture shall constitute Senior Debt and (B) any Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business shall constitute Senior Debt provided that such Indebtedness is extinguished within three business days of occurrence, and (vi) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company or any Guarantor. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Trust Officer" means any officer in the Corporate Trust Office of the Trustee. 13 "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a board resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the same time from Persons who are not affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results (other than pursuant to agreements relating to the management of hotels entered into between Restricted Subsidiaries and Unrestricted Subsidiaries in the ordinary course of such Subsidiaries' business, consistent with past practice); and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such designation and an officer's certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.7 hereof. 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 this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.9 hereof, the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary, provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.9 hereof and (ii) no Default or Event of Default would be in existence following such designation. "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 (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding liquidation preference amount of such 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 (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. A. SECTION OTHER DEFINITIONS. Defined in Term Section ----------------------------------------------------- "Accredited Investor" 2.1 "Affiliate Transaction" 4.11 "Agent Members" 2.16 14 "Asset Sale Offer" 3.9 "Asset Sale Offer Price" 4.10 "Bankruptcy Law" 6.1 "Blockage Period" 10.3 "Change of Control Offer" 4.14 "Change of Control Payment" 4.14 "Change of Control Payment Date" 4.14 "Computation Period" 4.7 "Covenant Defeasance" 8.3 "Custodian" 6.1 "defeasance trust" 8.4 "Default Notice" 10.3 "Depositary" 2.1 "Event of Default" 7.1 "Excess Proceeds" 4.10 "Global Note" 2.1 "Legal Defeasance" 8.2 "Legal Holiday" 12.7 "Offshore Physical Securities" 2.1 "Paying Agent" 2.4 "Payment Blockage Notice" 10.3 "Private Placement Legend" 2.15 "Public Equity Offering" 3.7 "Redemption Percentages" 3.7 "Registrar" 2.3 "Restricted Payments" 4.7 "Rule 144A" 2.1 "Subsidiary Guarantee" 11.1 "US Physical Securities" 2.1 A. SECTION INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company, any Guarantor and any successor obligor. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. 15 A. SECTION RULES OF CONSTRUCTION. Unless the context otherwise requires: 1. a term has the meaning assigned to it; 1. an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; 1. "or" is not exclusive; 1. words in the singular include the plural, and in the plural include the singular; 1. provisions apply to successive events and transactions. I. ARTICLE THE NOTES A. SECTION FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. Subject to Section 2.7 hereof, the Notes shall be issued at any time, or from time to time, in an aggregate principal amount not to exceed $200,000,000. The Notes may have notations, legends or endorsements required by law, stock exchange rule or agreements to which the Company or any Guarantor is subject or usage. Each Note shall be dated the date of its authentication. The Notes shall be issued initially in denominations of $1,000 and integral multiples thereof. Notes offered and sold in reliance on Rule 144A under the Securities Act ("Rule 144A") and to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act ("Accredited Investors") shall be issued initially in the form of one or more permanent global notes in registered form, in substantially the form set forth in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian for The Depository Trust Company (the "Depositary"), duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in Exhibit A (the "Offshore Physical Securities"). Additionally, Notes offered and sold in reliance on any other exemption from registration under the Securities Act, including pursuant to Rule 144A, other than as described in the preceding paragraph may be issued, in the form of permanent certificated Notes in registered form, in substantially the form set forth in Exhibit A (the "U.S. Physical Securities"). The Offshore Physical Securities and the U.S. Physical Securities are sometimes collectively herein referred to as the "Physical Securities". A. SECTION EXECUTION AND AUTHENTICATION. An Officer of the Company shall sign the Notes for the Company by manual or facsimile signature. 16 If an Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Note has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Notes shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Notes for original issue up to an aggregate principal amount stated in Section 2.1 hereof. The aggregate principal amount of Notes outstanding at any time may not exceed the amount set forth herein, except as provided in Section 2.7. The Trustee may appoint an authenticating agent to authenticate Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. A. SECTION REGISTRAR AND PAYING AGENT. The Company shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (including any co- registrar, the "Registrar") and (ii) an office or agency where Notes may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.7 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes. A. SECTION PAYING AGENT TO HOLD MONEY IN TRUST . The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, or interest or Liquidated Damages (as defined in the Registration Rights Agreement), if any, on the Notes, and will notify the Trustee of any default by the Company or Guarantor, if any, in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If 17 the Company or any of its Subsidiaries acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. A. SECTION HOLDERS LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven (7) Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount thereof, and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). A. SECTION TRANSFER AND EXCHANGE. 1. Where Notes are presented to the Registrar with a request to register the transfer thereof or exchange them for an equal principal amount of Notes of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Notes at the Registrar's request, subject to such rules as the Trustee may reasonably require. 1. The Company and the Registrar shall not be required (i) to issue, to register the transfer of, or to exchange Notes during a period beginning at the opening of business on a Business Day fifteen (15) days before the day of any selection of Notes for redemption or purchase under Section 3.2 and ending at the close of business on the day of selection, (ii) to register the transfer of or exchange any Note so selected for redemption or purchase in whole or in part, except the unredeemed or unpurchased portion of any Note being redeemed or purchased in part or (iii) to register the transfer or exchange of a Note between the Record Date and the next succeeding Interest Payment Date. 1. No service charge shall be made for any registration of a transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment by the Holder of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.10, 3.6 or 9.5). 1. Prior to due presentment for registration of transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of, premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and neither the Trustee, any Agent, nor the Company shall be affected by notice to the contrary. 1. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. 18 A. SECTION REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee, or either of the Company or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if an indemnity bond is supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, each Agent and each authenticating agent from any loss which any of them may suffer if a Note is replaced. The Company and the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an additional Obligation of the Company. A. SECTION OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in interest in a Global Note effected by the Trustee in accordance with the provision hereof, and those described in this Section as not outstanding. If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. A. SECTION TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, a Guarantor, if any, or any Affiliate of the Company or a Guarantor, if any, shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Trust Officer knows to be so owned shall be so considered. The Company agrees to notify the Trustee of the existence of any Notes owned by the Company, by any Guarantor or by any Affiliate of the Company or a Guarantor. A. SECTION TEMPORARY NOTES. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company and the Trustee consider appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive Notes in exchange for temporary Notes. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. 19 Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. A. SECTION CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act) unless the Company directs them to be returned to them. The Company may not issue new Notes to replace Notes that have been redeemed or paid or that have been delivered to the Trustee for cancellation. All cancelled Notes held by the Trustee shall be destroyed and certification of their destruction delivered to the Company unless by a written order, signed by an Officer of the Company, the Company shall direct that cancelled Notes be returned to them. A. SECTION DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five (5) Business Days prior to the payment date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least fifteen (15) days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. A. SECTION RECORD DATE. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). A. SECTION CUSIP NUMBER. The Company in issuing the Notes may use a "CUSIP" number, and if it does so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company will promptly notify the Trustee in writing of any change in the CUSIP number. A. SECTION RESTRICTIVE LEGENDS. Each Global Note and Physical Security that constitutes a Restricted Security shall bear the following legend (the "Private Placement Legend") unless otherwise agreed by the Company and the Holder thereof: THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES 20 SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF A SUCCESSOR DEPOSITARY, OR ANY NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO., OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE, AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE 21 TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. A. SECTION BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY-. 1. The Global Note initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.15. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. 1. Transfers of the Global Note shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. Interest of beneficial owners in the Global Note may be transferred or exchanged for Physical Securities in accordance with the rules and procedures of the Depositary and the provisions of Section 2.17. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Note if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary to issue Physical Securities. 1. In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners pursuant to paragraph (b) above, the Registrar shall (if one or more Physical Securities are to be issued) reflect on its books and records the date and a decrease in the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. 1. In connection with the transfer of the entire Global Note to beneficial owners pursuant to paragraph (b) above, the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Securities of authorized denominations. 1. Any Physical Security constituting a Restricted Security delivered in exchange for an interest in the Global Note pursuant to paragraph (b) or (c) above shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the legend regarding transfer restrictions applicable to the Physical Securities set forth in Section 2.15. 22 1. The Holder of the Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. A. SECTION SPECIAL TRANSFER PROVISIONS. 1. Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: a) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after August 19, 1999, or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; and a) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Securities) a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Securities of like tenor and amount. 1. Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): a) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been effected in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Notes for its own account or an account with respect to which it exercises sole investment discretion and that any such account is a QIB within the meaning of Rule 144A, and it is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and a) if the proposed transferee is an Agent Member and the Notes to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in the Global Note, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to 23 principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred. 1. Private Placement Legend. Upon the registration of the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the registration of the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement legend unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17 exists or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. 1. General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain for at least two years copies of all letters, notices and other written communications received pursuant to Section 2.16 hereof or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. I. ARTICLE REDEMPTIONS AND OFFERS TO PURCHASE A. SECTION NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least 45 days but not more than 90 days before a redemption date (unless a shorter notice period shall be satisfactory to the Trustee), an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. If the Company is required to make an offer to purchase Notes pursuant to the provisions of Sections 4.10 or 4.14, it shall furnish to the Trustee, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the offer to purchase shall occur, (ii) the offer's terms, (iii) the purchase price, (iv) the principal amount of the Notes to be purchased and (v) a statement to the effect that (a) the Company or one of its Restricted Subsidiaries has made an Asset Sale and that the conditions set forth in Sections 3.9 and 4.10 have been satisfied or (b) a Change of Control has occurred and the conditions set forth in Section 4.14 have been satisfied, as applicable. A. SECTION SELECTION OF NOTES TO BE REDEEMED OR PURCHASED. In the event that less than all of the Notes are to be purchased in an Asset Sale Offer or redeemed at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate (and in 24 such manner as complies with applicable legal requirements). The Company shall give written notice to the Trustee of such requirements of any securities exchange not less than forty-five (45) nor more than ninety (90) days prior to the date on which notice of such redemption or purchase is to be given. In the event a partial redemption is made with the proceeds of a public offering by the Company of common equity securities, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as practicable (subject to procedures of the Depositary), unless such method is otherwise prohibited. In the event of partial redemption, other than pro rata, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. In the event that less than all of the Notes properly tendered in an Asset Sale Offer are to be purchased, the particular Notes to be purchased shall be selected promptly upon the expiration of such Asset Sale Offer. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of them selected shall be in principal amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding principal amount of Notes held by such Holder shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. In the event the Company is required to make an Asset Sale Offer pursuant to Section 3.9 and Section 4.10 hereof, and the amount of Excess Proceeds to be applied to such purchase would result in the purchase of a principal amount of Notes which is not evenly divisible by $1,000, the Trustee shall promptly refund to the Company the portion of such Excess Proceeds that is not necessary to purchase the immediately lesser principal amount of Notes that is so divisible. A. SECTION NOTICE OF REDEMPTION. At least thirty (30) days but not more than sixty (60) days before a redemption date, the Company shall mail, or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the CUSIP number of the Notes, if any, and the Notes to be redeemed and shall state: 1. the redemption date; 1. the redemption price; 1. if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note of the same series in principal amount equal to the unredeemed portion will be issued; 1. the name and address of the Paying Agent; 1. that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; 25 1. that, unless the Company defaults in making such redemption payment, interest and Liquidated Damages, if any, on Notes called for redemption ceases to accrue on and after the redemption date; 1. the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and 1. that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense. A. SECTION EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become due and payable on the redemption date at the redemption price. On and after the redemption date, unless the Company defaults in the payment of the redemption price, interest and Liquidated Damages, if any, will cease to accrue on the Notes or portions of them called for redemption and all rights of Holders of such Notes will terminate except for the right to receive the redemption price. Upon surrender to the Paying Agent, the Holders of such Notes shall be paid the redemption price plus accrued interest and Liquidated Damages, if any, to the redemption date, but interest installments and unpaid Liquidated Damages, if any, whose maturity is on or prior to the redemption date will be payable to the Holder of record at the close of business on the relevant record dates referred to in the Notes. A notice of redemption may not be conditional. A. SECTION DEPOSIT OF REDEMPTION PRICE. At least one Business Day before the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money in immediately available funds sufficient to pay the redemption price of and, if applicable, accrued interest and Liquidated Damages, if any, on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly, and in any event within two Business Days after the redemption date, return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of and, if applicable, accrued interest and Liquidated Damages, if any, on all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, interest and Liquidated Damages, if any, on the Notes or the portions of Notes to be redeemed will cease to accrue on the applicable redemption date, whether or not such Notes are presented for payment. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest will be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, from the redemption date until such unpaid interest is paid, in each case at the rate provided in the Notes and in Section 4.1 hereof. A. SECTION NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in 26 principal amount to the unredeemed portion of the Note surrendered; provided, however, that no Note of $1,000 or less in principal amount shall be purchased or redeemed in part. A. SECTION OPTIONAL REDEMPTION. At any time on or after August 15, 2002, the Notes will be subject to redemption at the option of the Company, in whole or in part, up on 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 and Liquidated Damages thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on August 15 of the years indicated below: Year Percentage - ---- ---------- 2002 104.375% 2003 102.917% 2004 101.458% 2005 and thereafter 100.000% Notwithstanding the foregoing, prior to August 15, 2000, the Company may redeem, on any one or more occasions, with the net cash proceeds of one or more public offerings of its common equity (a "Public Equity Offering") (within 60 days of the consummation of any such Public Equity Offering), up to 35% of the aggregate principal amount of the Notes issued at a redemption price equal to 108.750% of the principal amount of such Notes plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date; provided, however, that at least 65% of the aggregate principal amount of Notes originally issued remains outstanding immediately after each such redemption. In addition, the Company, at its option, at any time prior to August 15, 2002, may redeem the Notes, in whole or in part (if in part, by lot or by such other method as the Trustee shall deem fair or appropriate) at the Make- Whole Price, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date. A. SECTION MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to purchase Notes pursuant to Section 4.10 and Section 4.14, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. A. SECTION OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. Within 30 days after the date that Excess Proceeds exceed $10.0 million and an Asset Sale Offer is required under Section 4.10 hereof, the Company shall mail or cause the Trustee to mail (in the Company's name and at its expense and pursuant to an Officers' Certificate) an offer to purchase to each Holder of Notes pursuant to the terms of this Section 3.9 and to holders of other Indebtedness that ranks by its terms pari passu in right of payment with the Notes and the terms of which contain substantially similar requirements with respect to the application of net proceeds from asset sales as are contained herein. The Asset Sale Offer (as defined in Section 4.10) with respect to the Notes shall be mailed by the Company (or the Trustee) to Holders of Notes at their last registered address with a copy to the Trustee and the Paying Agent and shall set forth (a) notice that an Asset Sale 27 has occurred, that the Company is making an Asset Sale Offer, pursuant to this Section 3.9, and that each Holder of Notes then outstanding has the right to require the Company to repurchase, for cash, such Holder's Notes at the Asset Sale Offer Price, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the payment date; (b) the purchase price per $1,000 of principal amount and the payment date of the Asset Sale Offer, (c) the maximum amount of Excess Proceeds, required to be applied to such Asset Sale Offer with respect to the Notes; (d) that any Notes properly tendered pursuant to the Asset Sale Offer will be accepted for payment (subject to reduction as provided in this Section 3.9) on the payment date of the Asset Sale Offer and any Notes not properly tendered will remain outstanding and continue to accrue interest and Liquidated Damages, if applicable; (e) that unless the Company defaults in the payment of the Asset Sale Offer Price, all Notes accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest and Liquidated Damages after the payment date of the Asset Sale Offer; (f) that Holders electing to have any Notes purchased pursuant to an Asset Sale Offer will be required to surrender the Notes, with the form entitled Option of Holder to Elect Purchase on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, the Depository or the Paying Agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the payment date of the Asset Sale Offer; (g) that Holders will be entitled to withdraw their tendered Notes and their election to require the Company to purchase the Notes provided that the Paying Agent receives, not later than the close of business on the second Business Day preceding the payment date of the Asset Sale Offer, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes tendered for purchase, and a statement that such Holder is withdrawing such Holder's tendered Notes and such Holder's election to have such Notes purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the amount of the Asset Sale Offer, the Company shall select the Notes to be purchased by lot on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased or otherwise in accordance with this Indenture); and (i) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). If the payment date of the Asset Sale Offer is on or after an interest payment record date and on or before the related interest payment date, any accrued interest and Liquidated Damages will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender a Note pursuant to the Asset Sale Offer. The Company shall fix the payment date of the Asset Sale Offer for such purchase no earlier than 30 but no more than 60 days after the Asset Sale Offer is mailed as set forth above, except as may otherwise be required by applicable law. The Company shall comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to this Section 3.9. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 3.9, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Indenture by virtue thereof. On the payment date of the Asset Sale Offer, the Company shall, to the extent permitted by law, (x) accept for payment Notes or portions thereof properly tendered pursuant to the Asset Sale Offer, (y) deposit with the Paying Agent the amount of money, in immediately available funds, equal to the maximum Excess Proceeds required under Section 4.10 to be applied to such Asset Sale Offer with respect to such Notes and (z) deliver or cause to be delivered to the Trustee, Notes so accepted together with an Officers' Certificate stating the 28 Notes or portions thereof tendered to the Company. If the aggregate purchase price of all Notes properly tendered exceeds the maximum amount of Excess Proceeds, required to be applied to such Asset Sale Offer with respect to such Notes, as applicable, the Notes or portions thereof to be purchased shall be selected pursuant to Section 3.2 hereof. The Paying Agent shall promptly mail to each Holder of Notes so accepted for payment a check in an amount equal to the aggregate purchase price of the Notes purchased by the Company from such Holder and the Trustee shall promptly authenticate and mail to each Holder a new Note of the same series equal in principal amount to any unpurchased portion of any Note surrendered, if any, or return any unpurchased Note to such Holder; provided, however, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce in a newspaper of national circulation or in a press release provided to a nationally recognized financial wire service the results of the Asset Sale Offer on the payment date. Other than as specifically provided in this Section 3.9, each purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1, 3.2, 3.5 and 3.6 hereof. I. ARTICLE COVENANTS A. SECTION PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in this Indenture and the Notes. Principal, premium, if any, and interest and Liquidated Damages, if any, shall be considered paid on the due date if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds as of 9:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and Liquidated Damages, if any, then due. Such Paying Agent shall return to the Company promptly, and in any event, no later than five days following the date of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest paid on the Notes. The Company shall pay all Liquidated Damages, if any, in the same manner and on the same dates as set forth above and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the interest rate then applicable to the Notes to the extent lawful. In addition, it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any, (without regard to any applicable grace period) at the same rate to the extent lawful. A. SECTION MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee or Registrar) where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. 29 The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. A. SECTION SEC REPORTS. 1. The Company shall, whether or not required by the rules and regulations of the SEC, submit to the SEC for public availability and provide to the Trustee and the Holders copies of all quarterly and annual reports and other information, documents and reports specified in Sections 13 and 15(d) of the Exchange Act for so long as the Notes are outstanding. 1. If the Company or a Guarantor, if any, is required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause such annual report or quarterly or other financial report furnished to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar. 1. The Company and the Guarantors, if any, shall deliver all reports and other documents and information to the Holders under this Section 4.3. The Trustee shall, if requested to by the Company, deliver such reports, other documents and information to the Holders, but at the sole expense of the Company. 1. The Company, for so long as the Notes are outstanding, will continue to provide to Holders and to prospective purchasers of Notes the information required by Rule 144A(d)(4). 1. Notwithstanding anything contrary herein, the Trustee shall have no duty to review such documents for purposes of determining compliance with any provision of this Indenture. A. SECTION COMPLIANCE CERTIFICATE. 1. The Company shall deliver to the Trustee, within sixty (60) days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each of the Company and its Subsidiaries has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each of the Company and its Subsidiaries has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each of the Company and its Subsidiaries is taking or propose to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or 30 interest or Liquidated Damages, if any, on the Notes are prohibited (or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto). 1. The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of (i) any Default or Event of Default or (ii) any event of default under any other mortgage, indenture or instrument which with the passage of time or giving of notice would be a Default or an Event of Default under Section 6.1 hereof, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. A. SECTION TAXES. The Company shall, and shall cause each of its Subsidiaries to pay prior to delinquency, all material taxes, assessments, and governmental levies except as contested in good faith and by appropriate proceedings. A. SECTION STAY, EXTENSION AND USURY LAWS. The Company covenants, and the Company shall cause any Guarantor to covenant (to the extent they may lawfully do so), that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture. The Company (to the extent it may lawfully do so) hereby expressly waives, and the Company will cause any Guarantor (to the extent it may lawfully do so) expressly to waive, all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. A. SECTION LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (other than: (1) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company; (2) dividends or distributions by a Restricted Subsidiary of the Company, provided that to the extent that a portion of such dividend or distribution is paid to a holder of Equity Interests of a Restricted Subsidiary other than the Company or a Restricted Subsidiary, such portion of such dividend or distribution is not greater than such holder's pro rata aggregate common equity interest in such Restricted Subsidiary; and (3) dividends or distributions payable on Existing Preferred OP Units and Preferred OP Units issued in compliance with Section 4.09 hereof); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Restricted Subsidiary or other Affiliate of the Company (other than (A) any Equity Interests owned by the Company or any Restricted Subsidiary of the Company, (B) any Existing Preferred OP Units and (C) any Preferred OP Units issued in compliance with Section 4.9 hereof); (iii) purchase, redeem or otherwise acquire or retire for value any Indebtedness of the Company or any Restricted Subsidiary that is subordinated or junior in right of payment, by its terms, to the Notes or any Guarantee thereof prior to the scheduled final maturity or sinking fund payment dates for payment of principal and interest in accordance with the original documentation for such subordinated or junior Indebtedness; or (iv) make any Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: 31 1. no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; 1. the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such 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 pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and 1. such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Issuance Date (excluding Restricted Payments permitted by clauses (ii), (iii), (iv), (v) and (vi) (X) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from June 30, 1997 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 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) received by the Company from the issue or sale, in either case, since the Issuance Date of either (A) Equity Interests of the Company or of (B) debt securities of the Company that have been converted or exchanged into such Equity Interests (other than Equity Interests (or convertible or exchangeable debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted or exchanged into Disqualified Stock), plus (iii) in case any Unrestricted Subsidiary has been redesignated a Restricted Subsidiary pursuant to the terms of this Indenture or has been merged, consolidated or amalgamated with or into, or transfers or conveys assets to, or is liquidated into, the Company or a Restricted Subsidiary and provided that no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the lesser of (A) the book value (determined in accordance with GAAP) at the date of such redesignation, combination or transfer of the aggregate Investments made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary (or of the assets transferred or conveyed, as applicable) and (B) the fair market value of such Investments in such Unrestricted Subsidiary at the time of such 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 the Company, whose determination shall be conclusive and evidenced by a resolution of such 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 (iv) 100% of any dividends or interest actually received in cash by the Company or a Restricted Subsidiary after the Issuance Date from (A) a Restricted Subsidiary the Net Income of which has been excluded from the computation of Consolidated Net Income, (B) an Unrestricted Subsidiary, (C) a Person that is not a Subsidiary or (D) a Person that is accounted for on the equity method plus (v) $15.0 million. Notwithstanding the foregoing, the provisions of this Section 4.7 will not prohibit: a) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) (X) the redemption, purchase, retirement or other acquisition of any OP Unit in exchange for Equity Interests of the Company (other than Disqualified Stock) and (Y) the redemption, purchase, retirement or other acquisition of any Equity Interests of the Company or a Restricted Subsidiary (other than OP Units or Preferred OP Units) in exchange 32 for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that in the case of (X) and (Y) the amount of any proceeds that is utilized for such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repayment or purchase of Indebtedness of the Company or any Restricted Subsidiary that is subordinated or junior in right of payment, by its terms, to the Notes or any Guarantee thereof in a Permitted Refinancing; (iv) the defeasance, redemption, repayment or purchase of Indebtedness of the Company or any Restricted Subsidiary; that is subordinated or junior in right of payment, by its terms, to the Notes or any Guarantee thereof with the proceeds of a substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests (other than Disqualified Stock) of the Company; provided that the amount of any proceeds that is utilized for such defeasance, redemption, repayment or purchase shall be excluded from clause (c) (ii) of the preceding paragraph; (v) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company pursuant to any management equity subscription agreement or stock option agreement; provided, however, that the aggregate price paid for all such purchased, redeemed, acquired or retired Equity Interests shall not exceed $1,000,000 in any 12 month period; and (vi)(X) the making of any Permitted Investment described in clauses (a), (b), (c), (d) or (f) of the definition thereof and (Y) the making of any Permitted Investment described in clause (e) thereof, provided that, in the case of clauses (ii)(Y), (iii), (iv), (v) and (vi)(Y), no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof. In determining whether any Restricted Payment is permitted by this Section 4.7, the Company may allocate or reallocate all or any portion of such Restricted Payment among the clauses (i) through (vi) of the preceding paragraph or among such clauses and the first paragraph of this Section 4.7 including clauses (a), (b) and (c), provided that at the time of such allocation or reallocation, all such Restricted Payments, or allocated portions thereof, would be permitted under the various provisions of this Section 4.7. 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 the Company set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than (i) the end of any calendar quarter in which any Restricted Payment is made or (ii) 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 such quarter to exceed $5.0 million, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.7 were computed, which calculations may be based upon the Company's latest available financial statements. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default or Event of Default. For purposes of making the determination as to whether such designation would cause a Default or Event of Default, all outstanding Investments by the Company and its 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 such designation and will reduce the amount available for Restricted Payments under the first paragraph of this Section 4.7. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greatest of (x) the net book value of such Investments at the time of such designation, (y) the fair market value of such Investments at the time of such designation and (z) the original fair market value of such 33 Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. A. SECTION LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any of its 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) (i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances or capital contributions to the Company or any of its Restricted Subsidiaries, or (c) sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reasons of (i) Existing Indebtedness as in effect on the Issuance Date, (ii) the Credit Agreement, provided that the encumbrances or restrictions contained in such agreement as amended, modified, supplemented, restructured, renewed, restated, refunded, replaced or refinanced or extended from time to time on one or more occasions are no more restrictive than those contained in the Credit Agreement as in effect on the Issuance Date, (iii) this Indenture and the Notes, (iv) applicable law, (v) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries or of any Person that becomes a Restricted Subsidiary as in effect at the time of such acquisition or such Person becoming a Restricted Subsidiary (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition or such 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 such Person is not taken into account (to the extent of such restriction) in determining whether such acquisition was permitted by the terms of this Indenture, (vi) 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 practices, (vii) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in this clause (c) above on the property so acquired, (viii) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancings are no more restrictive than those contained in the agreements governing the Indebtedness or Disqualified Stock being refinanced, or (ix) customary restrictions in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages. A. SECTION LIMITATION ON ADDITIONAL INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur" and correlatively, an "incurrence" of) any Indebtedness (including Acquired Debt), the Company shall not issue, and shall not permit any 34 of its Restricted Subsidiaries to issue, any shares of Disqualified Stock and the Company shall not permit any of its Restricted Subsidiaries to issue any Preferred Stock; provided, however, that the Company or any Guarantor may incur Indebtedness or issue shares of Disqualified Stock and the Restricted Subsidiaries may incur Indebtedness under the Credit Agreement if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, 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 such four-quarter period. The foregoing provisions shall not apply to: 1. the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Indebtedness; provided, however, that if any such Indebtedness ceases to be Non-Recourse Indebtedness of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company; 1. the incurrence by the Company or its Restricted Subsidiaries of Indebtedness pursuant to the Credit Agreement in an aggregate principal amount not to exceed $300.0 million at any one time outstanding, minus any Net Proceeds that have been applied to permanently reduce the outstanding amount of such Indebtedness pursuant to clause (a) of the second paragraph of Section 4.10 hereof; 1. the incurrence by the Company and its Restricted Subsidiaries of Existing Indebtedness; 1. the incurrence by the Company or its Restricted Subsidiaries of Indebtedness under Hedging Obligations that do not increase the Indebtedness of the Company or the Restricted Subsidiary, as the case may be, other than as a result of fluctuations in interest or foreign currency exchange rates provided that such Hedging Obligations are 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; 1. the incurrence or the issuance by the Company of Refinancing Indebtedness or Refinancing Disqualified Stock or the incurrence or issuance by a Restricted Subsidiary of Refinancing Indebtedness or Refinancing Disqualified Stock; provided, however, that such Refinancing Indebtedness or Refinancing Disqualified Stock is a Permitted Refinancing; 1. the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (a) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than a Restricted Subsidiary and (b) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; 1. the incurrence of Indebtedness represented by the Notes and any Guarantee thereof; 35 1. the incurrence by the Company or any of its Restricted Subsidiaries, in the ordinary course of business and consistent with past practice, of surety, performance or appeal bonds; 1. the incurrence by the Company or any of its 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; 1. the incurrence by the Company or any of its Restricted Subsidiaries of Assumed Indebtedness--provided that, after giving effect to the incurrence thereof, the Company could incur at lease $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described in the preceding paragraph; and 1. the issuance of Preferred OP Units by the Company or any of its Restricted Subsidiaries as full or partial consideration for the acquisition of lodging facilities and related assets, provided that, after giving effect to the issuance thereof, the Company could incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described in the preceding paragraph. A. SECTION LIMITATION ON SALE OF ASSETS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, conduct an Asset Sale, unless (x) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) and (y) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided, however, that the principal amount of the following shall be deemed to be cash for purposes of this provision: (A) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto), of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets and (B) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 90 days of the closing of such Asset Sale (to the extent of the cash received). Notwithstanding the foregoing, the restriction in clause (y) above will not apply with respect to mortgages, other notes receivable or other securities received by the Company or any Restricted Subsidiary from a transferee of any assets to the extent such mortgages, other notes receivable or other securities are Investments permitted to be made by the Company or such Restricted Subsidiary under Section 4.7 hereof. Within 365 days of any Asset Sale, the Company or such Restricted Subsidiary may (a) apply the Net Proceeds from such Asset Sale to repay any Indebtedness that ranks by its terms senior to the Notes (or any Guarantee thereof) and, in the case of any Indebtedness under the Credit Agreement, to effect a permanent reduction in the amount of Indebtedness that may be incurred pursuant to clause (ii) of the second paragraph of Section 4.9 hereof, or (b) invest the Net Proceeds from such Asset Sale in property or assets used in a Hospitality-Related Business, provided that the Company or such Restricted Subsidiary will have complied with this clause (b) if, within 365 days of such Asset Sale, the Company or such Restricted Subsidiary shall have commenced and not completed or abandoned an investment in compliance with this clause (b) and shall have segregated such Net Proceeds from the general funds of the Company and its Subsidiaries for that purpose and such Investment is substantially completed within 180 days after the first anniversary of such Asset Sale. Any Net Proceeds from an Asset Sale that are not 36 applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall make an offer, to all Holders of Notes and to holders of other Indebtedness that ranks by its terms pari passu in right of payment with the 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 this Indenture (an "Asset Sale Offer") to purchase on a pro rata basis the maximum principal amount of 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 thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Notes and other such Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds available for purchase thereof, the Trustee shall select the Notes to be purchased in the manner described under Section 3.3 hereof. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Pending the final application of any Net Proceeds from an Asset Sale pursuant to this paragraph, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness of the Company or a Restricted Subsidiary that ranks by its terms senior to the Notes or otherwise invest such Net Proceeds in Cash Equivalents. Any offer to purchase the Notes pursuant to this Section 4.10 shall be made pursuant to the provisions of Section 3.9 hereof. Simultaneously with the notification of such offer to the Trustee, the Company shall provide the Trustee with an Officer's is Certificate setting forth the calculations used in determining the amount of Excess Proceeds to be applied to the purchase of the Notes. The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act and other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with any offer to purchase and the purchase of Notes as described above. To the extent that the provisions of any securities laws or regulations conflict with Section 3.9 and this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the provisions of Section 3.9 and this Section 4.10 to make an Asset Sale Offer. A. SECTION LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its 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) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary on an arm's length basis with an unrelated Person, (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction involving aggregate payments in excess of $5.0 million, an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and such Affiliate Transaction is approved by a majority of the disinterested members of the Board of Directors and (ii) 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 the Company or a Restricted Subsidiary of the Company), an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view issued, at the option of the Company, by an investment banking firm of national standing or 37 a Qualified Appraiser and (c) the Company delivers to the Trustee in the case of an Affiliate Transaction involving the acquisition or disposition of a lodging facility by the Company or a Restricted Subsidiary of the Company and (x) 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 (y) involving aggregate payments of $25.0 million or more, an opinion as to the fairness of the transaction to the Company or such Restricted Subsidiary from a financial point of view issued by an investment banking firm of national standing; provided, however, that the following shall not be deemed Affiliate Transactions: (A) any employment, deferred compensation, stock option, noncompetition, consulting or similar agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (B) transactions between or among the Company and/or its Restricted Subsidiaries, (C) the incurrence of fees in connection with the provision of hotel management services, provided that such fees are paid in the ordinary course of business and are consistent with past practice and (D) Restricted Payments permitted by Section 4.7 hereof. A. SECTION LIMITATION ON LIENS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien that secures obligations under any Indebtedness which is pari passu with or subordinated to the Notes, unless the Notes are equally and ratably secured with the obligations so secured or until such time as such obligations are no longer secured by a Lien. A. SECTION CORPORATE EXISTENCE. Subject to Section 4.14 and Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its Subsidiaries, in accordance with its respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries') rights (charter and statutory), licenses and franchises; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any of its Subsidiaries, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. A. SECTION CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require that the Company purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (the "Change of Control Payment"). Prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company shall (i) repay in full and terminate all commitments under Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender or holder of Senior Debt which has accepted such offer or (ii) obtain the requisite consents under the Credit Agreement and all other Senior Debt to permit the repurchase of the Notes as provided below. The Company shall 38 first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described below, and the Company's failure to comply with the covenant described in the immediately preceding sentence shall constitute an Event of Default described in clause (3) and not in clause (2) under Section 6.1 hereof. Within 10 days following the date upon which the Change of Control occurs, the Company 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. Such 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 such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Trustee or Paying Agent, if any, at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.14, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.14 to make a Change of Control Offer. On the Change of Control Payment Date, the Company will, to the extent permitted by law, (x) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (y) deposit with the Paying Agent an amount equal to the aggregate Change of Control Payment in respect of all Notes or portions thereof so tendered and (z) deliver, or cause to be delivered, to the Trustee for cancellation the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so accepted the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, however, that each such new Note shall be in principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce in a newspaper of national circulation or in a press release provided to a nationally recognized financial wire service the results of the Change of Control Offer on the Change of Control Payment Date. The Company 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 this Indenture applicable to a Change of Control made by the Company and purchased all Notes validly tendered and not withdrawn under such Change of Control Offer. A. SECTION SUBSIDIARY GUARANTEES. Prior to guaranteeing any other Indebtedness of the Company (other than the Credit Agreement), a Restricted Subsidiary that is also a Significant Subsidiary must execute and deliver to the Trustee a supplemental indenture in the form of Exhibit B hereto pursuant to which such Restricted Subsidiary shall Guarantee, on an unsecured senior subordinated basis, all of the Obligations of the Company with respect to the Notes together with an opinion of counsel (which counsel may be an employee of the Company) to the effect that the supplemental 39 indenture has been duly executed and delivered by such Restricted Subsidiary and is in compliance in all material respects with the terms of this Indenture. The Indebtedness represented by any such Subsidiary Guarantee (i.e., the payment of Obligations on the Notes) will be subordinated on the same basis to Senior Debt of the Guarantor as the Notes are subordinated to Senior Debt of the Company. A. SECTION LINE OF BUSINESS. For so long as any Notes are outstanding, the Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business or activity other than a Hospitality-Related Business. A. SECTION PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, 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 this Indenture or the Notes unless such 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 set forth in the solicitation documents relating to such consent, waiver or agreement. A. SECTION NO SENIOR SUBORDINATED DEBT. The Company shall not incur, issue, assume, guarantee or otherwise become liable for any Indebtedness that is senior in right of payment to the Notes and subordinate or junior in right of payment to any other Indebtedness of the Company, and no Guarantor shall incur, issue, assume, guarantee or otherwise become liable for any Indebtedness that is senior in right of payment to the Guarantee by such Guarantor of the Notes and subordinate or junior in right of payment to any other Indebtedness of the Guarantor. I. ARTICLE SUCCESSORS A. SECTION WHEN THE COMPANY MAY MERGE, ETC. The Company shall not consolidate or merge with or into or wind up into (whether or not the Company is the surviving entity), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another corporation, Person or entity unless: a) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; a) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture; a) at the time of such transaction and immediately after such transaction after giving pro forma effect thereto, no Default or Event of Default exists or would exist; 40 a) the Company or any Person formed by or surviving such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth (immediately after the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and a) the Company shall have delivered to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate and an Opinion of Counsel to the combined effect that such sale, assignment, transfer, lease, conveyance or other disposition, and, if applicable, any supplemental indenture executed in connection therewith, comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. A. SECTION SUCCESSOR SUBSTITUTED. Upon any consolidation, merger, lease, conveyance or transfer of all or substantially all of the assets of the Company, as the case may be, in accordance with Section 5.1 hereof, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, lease, conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such successor had been named as the Company herein or therein and thereafter the predecessor corporation shall be relieved of all further obligations and covenants under this Indenture and the Notes. I. ARTICLE DEFAULTS AND REMEDIES A. SECTION EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Indenture: (1) default for 30 days in the payment when due of interest or Liquidated Damages, if any, on the Notes (whether or not such payment shall be prohibited by the subordination provisions of this Indenture); (1) default in payment when due of 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 Assets Sale Offer) (whether or not such payment shall be prohibited by the subordination provisions of this Indenture); (1) failure by the Company or any Restricted Subsidiary to comply with Section 5.1; (1) failure by the Company or any Guarantor for 30 days in the performance of any other covenant, warranty or agreement in this Indenture or the Notes after written notice shall have been given to the Company by the Trustee or to the Company and the Trustee from Holders of at least 25% in principal amount of the Notes then outstanding; (1) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of Non-Recourse Indebtedness of the 41 Company or any of its Restricted Subsidiaries with an aggregate principal amount in excess of the lesser of (A) 10% of the total assets of the Company and its Restricted Subsidiaries measured as of the end of the Company's most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such default occurred, determined on a pro forma basis and (B) $50 million, and such 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 the Company or such Restricted Subsidiary of notice of any such acceleration); (1) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary of the Company and such failure continues for a period of 10 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 10 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such 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; (1) failure by the Company or any of its Restricted Subsidiaries to pay final judgments rendered against them (other than judgment liens without recourse to any assets or property of the Company or any of its Restricted Subsidiaries 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 (other than any judgments as to which a reputable insurance company has accepted full liability); (1) except as permitted by this Indenture, any Subsidiary Guarantee 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 or assigns), or any Person acting on behalf of such Guarantor (or its successors or assigns), shall deny or disaffirm its obligations or shall fail to comply with any obligations under its Subsidiary Guarantee; (1) the Company, any Guarantor or any of the Company's Subsidiaries that would constitute a Significant Subsidiary or any group of the Company's Subsidiaries that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of the Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, (e) admits in writing its inability to pay its debts as they become due; and (1) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 42 (a) is for relief in an involuntary case against the Company, any Guarantor or any Subsidiary that is a Significant Subsidiary of the Company or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary of the Company, (b) appoints a Custodian of the Company, any Guarantor or any Subsidiary that is a Significant Subsidiary of the Company or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary of the Company, or for all or substantially all of the property of the Company, any Guarantor or any Subsidiary that is a Significant Subsidiary of the Company, or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary of the Company, or (c) orders the liquidation of the Company, any Guarantor or any Subsidiary that is a Significant Subsidiary of the Company or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary of the Company, and the order or decree remains unstayed and in effect for 60 consecutive days. The term "Bankruptcy Law" means, title 11, U.S. Code or any similar federal or state law for the relief of debtors, each as amended from time to time. The term Custodian means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A. SECTION ACCELERATION. If any Event of Default (other than an Event of Default specified in clauses (9) and (10) of Section 6.1 hereof) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare all Notes to be due and payable immediately. Upon the effectiveness of such declaration, all amounts due and payable on the Notes, as determined in the succeeding paragraphs, shall be due and payable effective immediately. If an Event of Default specified in clause (9) or (10) of Section 6.1 hereof occurs, all outstanding Notes shall ipso facto become and be immediately due and payable immediately without further action or notice on the part of or by the Trustee or any Holder. In the event that the maturity of the Notes is accelerated pursuant to this Section 6.2, 100% of the principal amount thereof shall become due and payable plus premium, if any, and accrued and unpaid interest, if any, to the date of payment. A. SECTION OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. A. SECTION WAIVER OF PAST DEFAULTS. 43 Subject to Section 9.2 hereof, Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest or Liquidated Damages, if any, on any Note held by a non-consenting Holder. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. A. SECTION CONTROL BY MAJORITY. The Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, or that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. A. SECTION LIMITATION ON SUITS. A Holder may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default or the Trustee receives such notice from the Company; (1) the Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (1) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (1) 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 (1) during such 60-day period the Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. A. SECTION RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest and Liquidated Damages, if any, on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. A. SECTION COLLECTION SUIT BY TRUSTEE. 44 If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Guarantor for the whole amount of principal, premium, if any, and interest and Liquidated Damages, if any, remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. A. SECTION TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 7.7 hereof) and the Holders allowed in any judicial proceedings relative to the Company or any Guarantor (or any other obligor upon the Notes), their creditors or their property and shall be entitled and empowered to collect, receive and distribute any money or securities or other property payable or deliverable on any such claims and to distribute the same, and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders of the Notes may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. A. SECTION PRIORITIES. If the Trustee collects or receives any money or securities or other property pursuant to this Article, it shall pay out the money or securities or other property in the following order: First: to the Trustee, its agents and counsel for amounts due under Section 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Notes for principal, premium, if any, and interest and Liquidated Damages, if any, ratably, without preference or priority of any kind (including defaulted interest), according to the amounts due and payable on the Notes for principal, premium, if any, and interest and Liquidated Damages, if any, respectively; Third: without duplication, to Holders for any other obligations owing to the Holders under the Notes or this Indenture; and 45 Fourth: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any such payment to Holders. A. SECTION UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Notes. I. ARTICLE TRUSTEE A. SECTION DUTIES OF TRUSTEE. (1) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (1) Except during the continuance of an Event of Default: (a) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (a) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (1) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) this paragraph does not limit the effect of paragraph (2) of this Section 7.1; (a) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (a) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. 46 (1) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2) and (3) of this Section. (1) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (1) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. A. SECTION RIGHTS OF TRUSTEE. Subject to TIA Section 315: (1) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (1) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (1) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed and monitored with due care. (1) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (1) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (1) Without limiting the provisions of Section 7.1(5), the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of the Holders of a majority in aggregate principal amount of the then outstanding Notes pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (1) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (1) Except with respect to Section 4.1, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4. In addition, the Trustee 47 shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.1(1), 6.1(2) or 4.1 or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. A. SECTION INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Subsidiary of the Company or any Affiliate of the foregoing with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11 hereof. A. SECTION TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. A. SECTION NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known by a Trust Officer of the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal or interest on any Note, the Trustee may withhold the notice if and so long as a Trust Officer in good faith determines that withholding the notice is in the interests of Holders. The Trustee shall comply with TIA Section 315(b). A. SECTION REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each May 15 beginning with the May 15, 1998 following the date hereof, the Trustee shall mail to Holders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to Holders shall be submitted to the SEC and each stock exchange, if any, on which the Notes are listed. The Company shall promptly notify the Trustee when the Notes are listed on or delisted by any stock exchange. A. SECTION COMPENSATION AND INDEMNITY. The Company agrees to pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company agrees to reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for 48 its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company agrees to indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder except to the extent the Company has been prejudiced thereby. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and, if the Company or the Trustee shall have been advised by its respective counsel that representation of the Trustee and the Company by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed), the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The provisions of this paragraph shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own gross negligence or willful misconduct. The obligations of the Company under this Section 7.7 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. A. SECTION REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee at its discretion or if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (1) a Custodian or public officer takes charge of the Trustee or its property; or (1) the Trustee becomes incapable of acting. 49 If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. Subject to the provision of TIA Section 315(e), if the Trustee after written request by any Holder who has been a bona fide holder of a Note or Notes for at least six months fails to comply with Section 7.10, such Holder, on behalf of himself and others similarly situated, may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. A. SECTION SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. A. SECTION ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee powers, shall be subject to supervision or examination by Federal or state authority and shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a). The Trustee is subject to TIA Section 310(b). The provisions of TIA Section 310 shall apply to the Company as the obligor of the Notes. A. SECTION PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to 50 TIA Section 311(a) to the extent indicated therein. The provisions of TIA Section 311 shall apply to the Company as the obligor of the Notes. I. ARTICLE DISCHARGE OF INDENTURE A. SECTION DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE NOTES. 1. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, with respect to the Notes, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. 1. The Company may terminate its obligations (and the obligations of any Guarantor in respect of Subsidiary Guarantees) under the Notes and this Indenture (except those obligations referred to in the penultimate paragraph of this Section 8.1(b)) if all such Notes thereto authenticated and delivered (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment cash in United States dollars has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.6, or discharged from such trust) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if (i) either (x) pursuant to Article 3, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Notes under arrangements satisfactory to the Trustee for the giving of such notice or (y) all Notes have otherwise become due and payable hereunder, (ii) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, cash in United States dollars in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, interest and Liquidated Damages, if any, on the outstanding Notes to maturity or redemption; provided that the Trustee shall have been irrevocably instructed to apply such deposit to the payment of said principal, premium, if any, interest and Liquidated Damages, if any, with respect to the Notes; and, provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Debt pursuant to the provisions of Article 10; (iii) no Default or Event of Default with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which it is bound; (iv) the Company shall have paid all other sums payable by it hereunder; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the satisfaction and discharge of this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the Credit Agreement (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company or any Guarantor. Notwithstanding the foregoing paragraph, the Company's (and any Guarantor's) obligations in Sections 2.5, 2.6, 2.7, 2.8, 4.1, 4.2, 7.7, 8.6 and 8.7 shall survive until the Notes are no longer outstanding pursuant to the last paragraph of Section 2.8. After the Notes are not longer outstanding, the Company's obligations in Sections 7.7, 8.6 and 8.7 shall survive. 51 After such delivery or irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations (and the obligations of any Guarantors in respect of Subsidiary Guarantees) under the Notes and this Indenture except for those surviving obligations specified above. A. SECTION LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.1(a) hereof of the option applicable to this Section 8.2, the Company and the Guarantors, if any, shall be deemed to have been discharged from their obligations with respect to all outstanding Notes and Subsidiary Guarantees, if any, on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be outstanding only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 8.2, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Notes when such payments are due, solely from amounts deposited with the Trustee, as provided in Section 8.4 hereof, (ii) the Company's and the Guarantors' obligations with respect to the Notes under Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.10 and 4.2 hereof, (iii) the rights, powers, trusts, duties, indemnities and immunities of the Trustee and the Company's obligations in connection therewith and (iv) this Article 8. A. SECTION COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.1(a) hereof of the option applicable to this Section 8.3, the Company and the Guarantors, if any, shall be released from their obligations under the covenants contained in Sections 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.18, 5.1 and 11.2 with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not outstanding for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed outstanding for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Notes, the Company and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1(e) hereof but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, any event described in Sections 6.1(c) through 6.1(i) hereof shall not constitute Events of Default. A. SECTION CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 8.2 or Section 8.3 hereof to the outstanding Notes: 52 1. the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who shall agree to comply with the provisions of this Article 8 applicable to it), in trust (the "defeasance trust"), for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (a) cash in United States dollars in an amount, or (b) non-callable Government Securities which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in United States dollars in an amount, or (c) a combination thereof, in such amounts as will be sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest (including defaulted interest) and Liquidated Damages, if any, on the outstanding Notes and any other obligations owing to the Holders of the Notes, under the Notes or this Indenture 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, interest and Liquidated Damages, if any, on the outstanding Notes, provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such non-callable Government Securities to said payments with respect to the Notes; 1. in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States (which counsel may be an employee of the Company or any Subsidiary of the Company) reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issuance Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such 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 time, as would have been the case if such Legal Defeasance had not occurred; 1. in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States (which counsel may be an employee of the Company or any Subsidiary of the Company) 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 such Covenant Defeasance had not occurred; 1. no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds applied to such deposit) or, insofar as Section 6.1(h) or 6.1(i) hereof is concerned, at any time in the period ending on the 123rd day after the date of such 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 Company) (it being understood that this condition shall not be deemed satisfied until the expiration of such period); 2. 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 this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; 53 1. in the case of an election under either Section 8.2 or 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that, as of the date of such opinion, (A) the trust funds will not be subject to any rights of holders of Indebtedness other than the Notes and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 123rd day following the deposit and assuming no Holder of the Notes is an insider of the Company, after the 123rd day following the deposit, as of the date of such opinion, the trust funds will not be subject to avoidance under Section 547 of the United States Bankruptcy Code (or any successor provision thereto) and related judicial decisions or any other applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally under any United States or state law; 1. in the case of an election under either Section 8.2 or 8.3 hereof, the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 8.2 or 8.3 hereof was not made by the Company with the intent of preferring the Holders of Notes over other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and 1. the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel in the United States (which counsel may be an employee of the Company or any Subsidiary of the Company), each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 8.2 hereof or the Covenant Defeasance under Section 8.3 hereof (as the case may be) have been complied with as contemplated by this Section 8.4. A. SECTION DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.1(b) or Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Guarantors, if any, shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.1(b) or Section 8.4 hereof or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. A. SECTION REPAYMENT TO THE COMPANY. 54 The Trustee shall promptly pay to the Company after request therefor any excess money held at such time in excess of amounts required to pay any of the Company's Obligations then owing with respect to the Notes. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for one year after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. A. SECTION REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any cash or non- callable Government Securities in accordance with Section 8.1(b), Section 8.2 or Section 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company and the Guarantors, if any, under this Indenture, the Notes and the Subsidiary Guarantees, if any, shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1(b), Section 8.2 or Section 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.1(b), Section 8.2 or Section 8.3 hereof, as the case may be; provided, however, that, if the Company or any Guarantor makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company or such Guarantor shall be subrogated to the rights of the Holders of such Note to receive such payment from the money held by the Trustee or Paying Agent. I. ARTICLE AMENDMENTS A. SECTION WITHOUT CONSENT OF HOLDERS. The Company, any Guarantor and the Trustee, as applicable, may amend or supplement this Indenture, the Notes, and any Subsidiary Guarantee without the consent of any Holder: 1. to cure any ambiguity, defect or inconsistency; 2. to provide for uncertificated Notes in addition to or in place of certificated Notes; 1. to provide for the assumption of the Company's obligations to Holders of the Notes under this Indenture or any Guarantor's obligations under its Subsidiary Guarantee in the case of a merger, consolidation or sale of assets involving the Company or such Guarantor, as applicable, pursuant to Article 5 or Article 11 hereof; 55 1. to make any change that would provide any additional rights or benefits to the Holders of the Notes (including providing for Subsidiary Guarantees and any supplemental indenture required pursuant to Section 4.15 hereof) or that does not adversely affect the legal rights under this Indenture of any such Holder; 1. to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; and 1. to release a Guarantor in accordance with Section 11.4 hereof. Upon the request of the Company and any Restricted Subsidiary, in its capacity as a Guarantor, accompanied by a resolution of the Board of Directors of the Company or such Restricted Subsidiary, as applicable, authorizing the execution of any such amended or supplemental indenture and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company and any such Restricted Subsidiary in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental indenture which adversely affects its own rights, duties or immunities under this Indenture, or otherwise. A. SECTION WITH CONSENT OF HOLDERS. Except as provided below in this Section 9.2, the Company, any Guarantor and the Trustee together may amend this Indenture, the Notes and any Subsidiary Guarantee with the written consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes (including consents obtained in connection with a purchase of or a tender offer or exchange offer for Notes). Upon the request of the Company, accompanied by a resolution of the Board of Directors of the Company, authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company and any Guarantor, as the case may be, in the execution of such supplemental indenture unless such supplemental indenture adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders of each Note affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase of or a tender offer or exchange offer for Notes) may waive any existing default or compliance in a particular instance by the Company or any Guarantor with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section may not (with respect to any Notes held by a non-consenting Holder): 56 1. reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; 1. reduce the principal of or change the fixed maturity of any Note or waive any of the provisions with respect to the redemption of the Notes; 1. reduce the rate of or change the time for payment of interest on any Note; 1. waive a Default or an Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); 1. make any Note payable in money other than that stated in the Note; 1. make any change in the provisions of this 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 or Liquidated Damages on the Notes; 1. waive a redemption payment with respect to any Note; 1. modify or change any provision of this Indenture or the related definitions affecting the subordination or ranking of the Notes in a manner which adversely affects the Holders in any material respect; 1. except pursuant to Article 8 or pursuant to Section 11.4, release any Guarantor from its obligations under a Subsidiary Guarantee, or change any such Subsidiary Guarantee in any manner that would adversely affect the Holders in any material respect; or 1. make any change in the foregoing amendment and waiver provisions. A. SECTION COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Notes shall be set forth in an amendment or supplemental indenture that complies with the TIA as then in effect. A. SECTION REVOCATION AND EFFECT OF CONSENTS. Until an amendment or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to his or her Note if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.5, or (ii) such other date as the Company shall designate. 57 A. SECTION NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment or waiver. A. SECTION TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing such amendment or supplemental indenture, the Trustee shall be entitled to receive, and, subject to Section 7.1 hereof, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors of the Company or any Restricted Subsidiary in its capacity as a Guarantor, as applicable, approves it. I. ARTICLE SUBORDINATION A. SECTION AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. A. SECTION LIQUIDATION; DISSOLUTION; BANKRUPTCY. 1. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshalling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition by the Company or any of its Subsidiaries of any of the Notes for cash or property or otherwise, and until all Obligations with respect to Senior Debt are paid in full in cash or Cash Equivalents, any distribution to which the Holders would be entitled shall be made to the Holders of Senior Debt (except that Holders of the Notes may receive Permitted Junior Securities and payments made pursuant to Section 8.4 or Section 8.1(b)). 1. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or 58 securities, shall be received by any Holder when such payment or distribution is prohibited by Section 10.2(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, or to the trustee under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt then due remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. 1. The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article 5 hereof and as long as permitted under the terms of the Senior Debt shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article 5 hereof. A. SECTION NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES. If any default occurs and is continuing in the payment when due whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by, or on behalf of, the Company or any other Person on its behalf with respect to any Obligations on the Notes, or to acquire any of the Notes for cash or property or otherwise (except that Holders of Notes may receive Permitted Junior Securities and payments made from the trust pursuant to Section 8.1(b) or Section 8.4). In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 179 days after the delivery of such Default Notice (the Blockage Period), neither the Company nor any of its Subsidiaries shall (x) make any payment of any kind or character with respect to any Obligations on the Notes (except that Holders of Notes may receive Permitted Junior Securities and payments made from the trust pursuant to Section 8.4 or 8.1(b)) or (y) acquire any of the Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 179 days from the date the payment on the Notes was due and only one such Blockage Period may be commenced within any 365 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for the commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 365 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 180 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). 59 The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Debt, if any, received from the holders of Senior Debt (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Debt. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.2 or to pursue any rights or remedies hereunder. A. SECTION [THIS SECTION INTENTIONALLY OMITTED.] A. SECTION ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. A. SECTION WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.3 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such Holders) or their Representatives under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. A. SECTION NOTICE BY THE COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article. A. SECTION SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the 60 extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt. A distribution made under this Article to holders of Senior Debt that otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the Company on the Notes. A. SECTION RELATIVE RIGHTS. This Article defines the relative rights of Holders and holders of Senior Debt. Nothing in this Indenture shall: 1. impair, as between the Company and Holders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; 1. affect the relative rights of Holders and creditors of the Company other than their rights in relation to holders of Senior Debt; or 1. prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders. If the Company fails because of this Article to pay principal of or interest or Liquidated Damages, if any, on Notes on the due date, the failure is still a Default or Event of Default. A. SECTION SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. A. SECTION DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. A. SECTION RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such 61 payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. A. SECTION AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.9 hereof at least 30 days before the expiration of the time to file such claim, any Representative of Designated Senior Debt is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. A. SECTION AMENDMENTS. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt. I. ARTICLE SUBSIDIARY GUARANTEES A. SECTION SUBSIDIARY GUARANTEES. The Company's Obligations under the Notes and this Indenture will be jointly and severally guaranteed by any Restricted Subsidiary (a "Guarantor") which is required to execute and deliver a supplemental indenture pursuant to Section 4.15 hereof (the "Subsidiary Guarantees"). Subject to the provisions of this Article 11, any such Guarantor will, jointly and severally, unconditionally guarantee, on an unsecured senior subordinated basis, to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the Obligations of the Company under this Indenture or the Notes, that: (i) the principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes will be paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, call for redemption, offer to purchase or otherwise, and interest on the overdue principal of, premium, and interest and Liquidated Damages, if any, on the Notes and all other Obligations of the Company to the Holders or the Trustee under this Indenture or the Notes will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Notes; (ii) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise; and (iii) any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under any Subsidiary Guarantee will be paid. Failing payment when due of any amount so guaranteed for whatever reason, any Guarantor will be obligated (subject to any grace periods allowed pursuant to Section 6.1 hereof) to pay the same whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.2 hereof. An Event of Default under this Indenture or the Notes shall constitute an 62 event of default under any Subsidiary Guarantee, and shall entitle the Holders of Notes to accelerate the Obligations of any Guarantor hereunder in the same manner and to the same extent as the Obligations of the Company. Any Guarantor will agree that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of any Guarantor. Any Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of either or both of the Company, protest, notice and all demands whatsoever and covenants that its Subsidiary Guarantee will not be discharged except by complete performance of its Obligations under the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or any Guarantor any amount paid by any such entity to the Trustee or such Holder, any Subsidiary Guarantee to the Notes, to the extent theretofore discharged, shall be reinstated in full force and effect. Any Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holder in respect of any Obligations guaranteed hereby until payment in full of all Obligations guaranteed hereby. Any Guarantor will agree that, as between it, on the one hand, and the Holders of Notes and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any acceleration of such Obligations as provided in Article 6 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purpose of such Subsidiary Guarantee. A Guarantor shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holder under its Subsidiary Guarantee. The obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purpose of the foregoing sentence, the Trustee and the Holders of Notes shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. In the event that the Trustee or any Holder shall have received any Guarantor payment that is prohibited by the foregoing sentence, such Guarantor payment shall be paid over and delivered forthwith to the holders of the Senior Debt remaining unpaid, to the extent necessary to pay in full all Senior Debt. Each Holder of a Note by its acceptance thereof (a) agrees to and shall be bound by the provisions of this Section 11.1, (b) authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee its attorney-in-fact for any and all such purposes. A. SECTION WHEN A GUARANTOR MAY MERGE, ETC. No Guarantor shall consolidate or merge with or into (whether or not such Guarantor is the surviving person), another corporation, Person or entity whether or not affiliated with such Guarantor unless: 63 1. the person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the Obligations of such Guarantor pursuant to a supplemental indenture in the form of Exhibit B hereto and under the Notes and this Indenture; 1. immediately after giving effect to such transaction, no Default or Event of Default exists; and 1. such Guarantor or any person formed by or surviving any such consolidation or merger, (A) will have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction and (B) would be permitted by virtue of the Company's Fixed Charge Coverage Ratio set forth in the first paragraph of Section 4.9 hereof to incur, immediately after giving effect to such transaction, at least $1.00 of additional Indebtedness. The Guarantor shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i) and (ii) (in the case of clause (ii), to such counsel's knowledge), stating that the proposed transaction and such supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. Notwithstanding the foregoing, (A) a Guarantor may consolidate with or merge with or into the Company; provided, however, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of this Indenture, the due and punctual payment of the principal of, premium, if any, and interest and Liquidated Damages, if any, on all of the Notes, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed by the Company and (B) a Guarantor may consolidate with or merge with or into any other Guarantor. A. SECTION LIMITATION OF GUARANTOR'S LIABILITY. For purposes of this Article 11 and any Subsidiary Guarantee, each Guarantor's liability will be that amount from time to time equal to the aggregate liability of such Guarantor hereunder and thereunder, but shall be limited to the least of (i) the aggregate amount of the obligations of the Company under the Notes and this Indenture or (ii) the amount, if any, which would not have (A) rendered such Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Code and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Subsidiary Guarantee was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that, it shall be a presumption in any lawsuit or other proceeding in which a Guarantor is a party that the amount guaranteed pursuant to the Subsidiary Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of such Guarantor to contribution from other Guarantors and any other rights such Guarantor may have, contractual or otherwise, shall be taken into account. A. SECTION RELEASE OF A GUARANTOR. Concurrently with the payment in full of all of the Company's Obligations under the Notes and this Indenture (other than with respect to any indemnification obligations), each Guarantor shall be released from and relieved of its Obligations under this Article 11. In the 64 event of a sale or other disposition of all of the assets of any Guarantor, which sale or other disposition is otherwise in compliance with the terms of this Indenture, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be automatically and unconditionally released and relieved of any obligations under its Subsidiary Guarantee. The Trustee shall deliver an appropriate instrument evidencing any such release under this Section 11.4 upon receipt of a request by the Company accompanied by an Officers' Certificate and an Opinion of Counsel certifying as to the compliance with this Section 11.4. The provisions of Section 11.2 shall not apply to any merger or consolidation pursuant to which a Guarantor is released from its Obligations under this 11.4. I. ARTICLE MISCELLANEOUS A. SECTION TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of TIA Section 318(c), the imposed duties shall control. A. SECTION NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in Person or mailed by first-class mail (registered or certified, return receipt requested), or sent by telex, telecopier or overnight air courier guaranteeing next Business Day delivery, to the other's address: If to the Company: CapStar Hotel Company 1010 Wisconsin Avenue, N.W. Suite 650 Washington, D.C. 20007 Attention: John Emery, Chief Financial Officer Telecopier No.: (202) 965-4445 With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Richard S. Borisoff, Esq. Telecopier No.: (212) 373-2523 If to the Trustee: IBJ Schroder Bank and Trust Company 1 State Street New York, NY 10004 Attention: Corporate Trust Department 65 Telecopier No.: (212) 858-2952 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next Business Day delivery. Any notice or communication to a Holder shall be mailed by first-class mail to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed or given in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. A. SECTION COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). A. SECTION CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: 1. an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and 1. an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. A. SECTION STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to Section 4.4 and TIA Section 314(a)(4)) shall include: 66 1. a statement that the Person making such certificate or opinion has read such covenant or condition; 1. a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 1. a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and 1. a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificate of public officials. A. SECTION RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. A. SECTION LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a Sunday, or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. A. SECTION RECOURSE AGAINST OTHERS. No director, officer, partner, employee, agent, manager, stockholder, incorporator or other Affiliate, as such of the Company or of a Guarantor, if any, shall have any liability for any obligations of the Company or any Guarantor under the Notes, or this Indenture or a Subsidiary Guarantee, if any, or for any claim based upon, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes. Such waiver and release may not be effective to waive or release liabilities under the federal securities laws. A. SECTION DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. A. SECTION GOVERNING LAW. The internal law of the State of New York shall govern and be used, without reference to its choice of law principles (other than Sec. 5-1401 of the General Obligation Law), to construe this Indenture, the Notes and Subsidiary Guarantee. 67 A. SECTION NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. A. SECTION SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. A. SECTION SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. A. SECTION COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. A. SECTION TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 68 IN WITNESS WHEREOF, the parties hereto have caused their names to be signed hereto by their respective duly authorized officers as of the date first written above. SIGNATURES CAPSTAR HOTEL COMPANY, By: ____________________________________ Name: Title: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ____________________________________ Name: Title: EXHIBIT A (Face of Note) ____% [Series A] [Series B] Senior Subordinated Note due ____ FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS SECURITY IS % OF ITS PRINCIPAL AMOUNT, THE ISSUE DATE IS , [19 ][20 ], [AND] THE YIELD TO MATURITY IS % [THE METHOD USED TO DETERMINE THE YIELD IS AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT APPLICABLE TO THE SHORT ACCRUAL PERIOD OF , [19 ] [20 ] TO [19 ][20 ], IS % OF THE PRINCIPAL AMOUNT OF THIS SECURITY]. No. $___________ CAPSTAR HOTEL COMPANY promises to pay to _____________, or registered assigns, the principal sum of __________________ Dollars on __________, ____. Interest Payment Dates: ________ __ and ______ __ Record Dates: ________ __ and ______ __ Dated: CAPSTAR HOTEL COMPANY By: ____________________________ Name: Title: Trustee's Certificate of Authentication: This is one of the [Global] Notes referred to in the within- mentioned Indenture: IBJ Schroder Bank & Trust Company, as Trustee By _____________________________ Authorized Signatory A-2 (Back of Note) _____% [Series A] [Series B] Senior Subordinated Note due ____ of CapStar Hotel Company THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM, EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF A SUCCESSOR DEPOSITARY OR ANY NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE, AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (DTC), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED A-3 REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. I. INTEREST. CapStar Hotel Company, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this _____% [Series A] [Series B] Senior Subordinated Note due ____ (the "Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Note in cash at the rate per annum shown above and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company shall pay interest and Liquidated Damages, if any, semi- annually on each ________ __ and ______ __ commencing ________ __, 199_, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1% per annum in excess of the then applicable interest rate on this Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. I. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the _________ and _________ next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, if any, and interest and Liquidated Damages, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal and premium, if any, and interest and Liquidated Damages, if any, on all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. I. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company, any Guarantor or any other of its Subsidiaries may act in any such capacity. I. INDENTURE. The Company issued the Notes under an Indenture dated as of August 19, 1997 (the "Indenture") between the Company, as issuer, and the Trustee. A-4 The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. I. OPTIONAL REDEMPTION. On or after ______ __, ____, the Company may redeem all or any portion of the Notes, at any time 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 twelve-month period beginning on ______ __ of the years indicated below: Year Percentage - --------------- 2002 _______% 2003 _______% 2004 _______% 2005 and thereafter _______% Notwithstanding the foregoing, prior to ______ __, 2000, the Company may redeem, on any one or more occasions, with the net cash proceeds of one or more public offerings of its common equity (a "Public Equity Offering") (within 60 days of the consummation of any such Public Equity Offering), up to 35% of the aggregate principal amount of the Notes originally issued at a redemption price equal to _______% of the principal amount of such Notes plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date; provided, however, that at least 65% of the aggregate principal amount of Notes originally issued remains outstanding immediately after any such redemption. [In addition, the Company, at its option, at any time prior to ______ ____, may redeem the Notes, in whole or in part (if in part, by lot or such other method as the Trustee shall deem fair or appropriate) at the Make-Whole Price, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase.] I. OFFERS TO PURCHASE. Subject to the Company's obligation to make an offer to purchase Notes in connection with Asset Sales and a Change of Control (as described in the Indenture), the Company has no mandatory redemption or sinking fund obligations with respect to the Notes. Notice of any such offer to purchase will be given as provided in the Indenture. Holders of Notes that are the subject of an offer to purchase may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below and taking certain other actions, all as set forth in the Indenture. I. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. I. SUBORDINATION. The Notes and the Subsidiary Guarantees, if any, are subordinated to Senior Debt, as defined in the Indenture. To the extent provided in the Indenture, Senior Debt must be paid before the Notes and the Subsidiary Guarantees may be paid. The Company agrees, and each Holder by accepting a Note and any Subsidiary Guarantee A-5 agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney- in-fact for such purpose. I. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000 of principal amount. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Company shall not be required to exchange or register the Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 of the Indenture and ending at the close of business on the day of selection, or to exchange or register any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part, or to exchange or register a Note between a record date and the next succeeding Interest Payment Date. I. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. I. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, 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, and 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 Notes then outstanding. The Change of Control and Asset Sale purchase features of the Notes may not be amended or waived without the consent of at least 66 2/3% in principal amount of the Notes then outstanding. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to comply with Section 5.1, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes under the Indenture or any Guarantor's Obligations under its Subsidiary Guarantee in the case of a merger, consolidation or sale of assets involving the Company or such Guarantor, as applicable, pursuant to Article 5 or Article 11 of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Notes (including providing for Subsidiary Guarantees and any supplemental indenture required pursuant to Section 4.15 of the Indenture) or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA and to release a Guarantor in accordance with the Indenture. I. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages, if any, on the Notes (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) 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 Assets Sale Offer) (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (iii) failure by the Company or any Restricted Subsidiary to comply with Section 5.01 of the Indenture; (iv) failure by the Company or any Guarantor for 60 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 the Company by the Trustee or to the Company and the Trustee from Holders of at least 25% in principal amount of the Notes then outstanding; (v) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of Non-Recourse Indebtedness of the Company or any of its Restricted Subsidiaries with an A-6 aggregate principal amount in excess of the lesser of (A) 10% of the total assets of the Company and its Restricted Subsidiaries measured as of the end of the Company's most recent fiscal quarter for which internal financial statements are available immediately prior to the date on which such default occurred, determined on a pro forma basis and (B) $50 million, and such 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 the Company or such Restricted Subsidiary of notice of such acceleration); (vi) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary of the Company and such failure continues for a period of 10 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 10 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such 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; (vii) failure by the Company or any of its Restricted Subsidiaries to pay final judgments rendered against them (other than judgment liens without recourse to any assets or property of the Company or any of its Restricted Subsidiaries 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 (other than any judgments as to which a reputable insurance company has accepted full liability); (viii) except as permitted by the Indenture, any Subsidiary Guarantee 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 or assigns), or any Person acting on behalf of such Guarantor (or its successors or assigns), shall deny or disaffirm its obligations or shall fail to comply with any obligations under its Subsidiary Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to the Company, any Guarantor or any of the Company's Subsidiaries that would constitute a Significant Subsidiary or any group of the Company's 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 certain events of bankruptcy or insolvency, with respect to the Company, any of its Subsidiary that would constitute a Significant Subsidiary or any group of its Subsidiaries that, taken together, would constitute a Significant Subsidiary or any Guarantor, all outstanding Notes will become due and payable without further action or notice. Under certain 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. I. GUARANTEES OF NOTES. Payment of principal, premium, if any, and interest and Liquidated Damages, if any, (including interest on overdue principal and overdue interest, if lawful) on the Notes will be unconditionally guaranteed by the Guarantors, if any, pursuant to, and subject to the terms of, Article 11 of the Indenture. I. SECURITY. The Notes will be unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. I. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder shall have any liability for any obligations of the Company or any A-7 Guarantor under the Notes, any Subsidiary Guarantee or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver and release may not be effective to waive or release liabilities under the federal securities laws. I. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. I. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). I. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. I. [SERIES A NOTES] REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement (as defined in the Indenture), and subject to certain terms and conditions stated therein, the Company will be obligated to consummate an Exchange Offer pursuant to which the Holders of the Notes shall have the right to exchange this Note for Exchange Notes, which have been registered under the Securities Act, in like principal amount and having terms identical in all material respect to the Note. In certain circumstances, and subject to certain terms and conditions, Holders of the Notes shall have the right to receive liquidated damages if the Company shall have failed to fulfill its obligations under the Registration Rights Agreement. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: CapStar Hotel Company 1010 Wisconsin Avenue, N.W. Suite 650 Washington, D.C. 20007 Attention: John Emery, Chief Financial Officer Telecopier No.: (202) 965-4445 A-8 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's Social Security or tax I.D. No.) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _____________________________ Your Signature: (Sign exactly as your name appears on the face of this Note) Signature Guarantee:* ______________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.14 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on the Note) Tax Identification No:____________ Signature Guarantee:*/____________ _______________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-10 Transfer and Exchange In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) March 26, 1999, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Note is being transferred: Check One (1) ___ to the Company or a subsidiary thereof; or (2) ___ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) __ pursuant to an effective registration statement under the Securities Act; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied. Dated: ___________ Signed:_________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:________________________________________ A-11 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ___________________ Signed:_________________________ NOTICE: To be executed by an executive officer A-12 SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES The following exchanges of a part of this Global Note for Certificated Notes have been made:
Date of Exchange Amount of decrease Amount of increase Principal Amount Signature of ---------------- in in Principal of this Global Note authorized officer Principal Amount of this following such of Trustee or Note Amount of Global Note decrease Custodian ----------- --------- this Global Note (or increase) ---------------- -------------
A-13 EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE This "Supplemental Indenture", dated as of ________, between _________________ (the "Guarantor"), a subsidiary of CapStar Hotel Company, a Delaware corporation (the Company), and IBJ Schroder Bank & Trust Company, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company, a Delaware corporation, has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of August 19, 1997, providing for the issuance of up to an aggregate principal amount of $200,000,000 of _____% Senior Subordinated Notes due ____ (the "Notes"); WHEREAS, Section 4.15 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall unconditionally guarantee all of the Company's Obligations under the Notes pursuant to a Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: I. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. I. AGREEMENT TO GUARANTEE. The Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Company's obligations under the Notes on the terms and subject to the conditions set forth in Article 11 of the Indenture and to be bound by all other applicable provisions of the Indenture and to be bound by all other applicable provisions of the Indenture. The obligations of the Guarantor hereunder shall be junior and subordinated to the Senior Debt of such Guarantor in the manner and to the extent set forth in Article 11 of the Indenture. I. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, shareholder or agent of the Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver or release may not be effective to waive or release liabilities under the federal securities laws. B-1 I. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. I. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. I. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated:____________, ____ [Guarantor] By: ____________________________ Name: Title: IBJ Schroder Bank & Trust Company, as Trustee By: _____________________________ Name: Title: B-2 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors IBJ Schroder Bank & Trust Company 1 State Street New York, NY 10004 Attention: Corporate Trust Department Re: CapStar Hotel Company _____% Senior Subordinated Notes due ____ Ladies and Gentlemen: In connection with our proposed purchase of _____% Senior Subordinated Notes due ____ (the "Notes") of CapStar Hotel Company (the "Company"), we confirm that: I. We have received a copy of the Final Memorandum (the "Final Memorandum"), dated ______ __, 1997 relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated on pages A-1 and A-2 of the Final Memorandum and in the section entitled "Notice to Investors" of the Final Memorandum including the restrictions on duplication and circulation of the Final Memorandum. I. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture relating to the Notes (as described in the Final Memorandum) and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). I. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell or otherwise transfer any Notes prior to the date which is three years after the original issuance of the Notes, we will do so only (i) to the Company or any of its subsidiaries, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture relating to the Notes), a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (iv) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. I. We are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement C-1 Income Security Act of 1974), except as permitted in the section entitled "Notice to Investors" of the Final Memorandum. I. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. I. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. I. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereto to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By:___________________________ Name: C-2 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S IBJ Schroder Bank & Trust Company 1 State Street New York, New York Attention: Corporate Trust Department Re: CapStar Hotel Company (the Company) _____% Senior Subordinated Notes due ____ (the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $____________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: ---------------------------------------- I. the offer of the Notes was not made to a Person in the United - ---------------------------------------------------------------------------- States; - ------- I. either (a) at the time the buy offer was originated, the - ----------------------------------------------------------------------- transferee was outside the United States or we and any person acting on our - --------------------------------------------------------------------------- behalf reasonably believed that the transferee was outside the United States, or - -------------------------------------------------------------------------------- (b) the transaction was executed in, on or through the facilities of a - ---------------------------------------------------------------------- designated off-shore securities market and neither we nor any person acting on - ------------------------------------------------------------------------------ our behalf knows that the transaction has been pre-arranged with a buyer in the - ------------------------------------------------------------------------------- United States; - -------------- I. no directed selling efforts have been made in the United States - ------------------------------------------------------------------------------ in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation - -------------------------------------------------------------------------------- S, as applicable; - ----------------- I. the transaction is not part of a plan or scheme to evade the - --------------------------------------------------------------------------- registration requirements of the Securities Act; and - ---------------------------------------------------- I. we have advised the transferee of the transfer restrictions - -------------------------------------------------------------------------- applicable to the Notes. - ------------------------ D-1 You and the Company are entitled to rely upon this letter and are ----------------------------------------------------------------- irrevocably authorized to produce this letter or a copy hereof to any interested - -------------------------------------------------------------------------------- party in any administrative or legal proceedings or official inquiry with - ------------------------------------------------------------------------- respect to the matters covered hereby. Terms used in this certificate have the - ------------------------------------------------------------------------------- meanings set forth in Regulation S. - ----------------------------------- Very truly yours, ----------------- By:______________________ Authorized Signature -------------------- D-2 EX-4.5 4 EXHIBIT 4.5 Exhibit 4.5 MERISTAR HOSPITALITY CORPORATION TO IBJ SCHRODER BANK & TRUST COMPANY Trustee SECOND SUPPLEMENTAL INDENTURE Dated as of August 3, 1998 1 SECOND SUPPLEMENTAL INDENTURE, dated as of August 3, 1998 between MeriStar Hospitality Corporation, a Maryland corporation, having its principal office at 1010 Wisconsin Avenue, N.W., Suite 650, Washington, D.C. 20007 and IBJ Schroder Bank & Trust Company, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee under the Indenture referred to below (herein called the "Trustee"). RECITALS OF THE COMPANY WHEREAS, CapStar Hotel Company, a Delaware corporation ("CapStar") has heretofore executed and delivered to the Trustee a certain indenture, dated as of August 19, 1997 (the "Original Indenture"), as supplemented and amended by the First Supplemental Indenture, dated as of March 20, 1998 (the "First Supplement" and, together with the Original Indenture, the "Indenture"), pursuant to which one series of senior subordinated notes of CapStar (herein called the "Securities") were issued. All terms used in this Second Supplemental Indenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture; WHEREAS, CapStar and American General Hospitality Corporation, a Maryland corporation ("AGH") have entered into an Agreement and Plan of Merger, dated as of March 15, 1998 (the "Merger Agreement"), whereby CapStar will merge with and into AGH (the "Merger"), with the result that AGH will be the surviving corporation operating under the name MeriStar Hospitality Corporation (herein called the "Company"); WHEREAS, Section 5.1 of the Indenture provides that CapStar shall not enter the Merger unless the Company assumes all the obligations of CapStar under the Securities and the Indenture pursuant to a supplemental indenture; WHEREAS, Section 9.1 of the Indenture provides that without the written consent of any Holder, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may enter into an indenture supplemental to the Indenture to provide for the assumption of the Company's obligations to Holders of the Securities under the Indenture in the case of a merger involving the Company pursuant to Article 5 of the Indenture; WHEREAS, the Company pursuant to the foregoing authority, proposes in and by this Second Supplemental Indenture to amend the Indenture upon the Merger 2 to reflect the assumption by the Company of all the obligations of CapStar under the Securities and the Indenture; and WHEREAS, all things necessary to make this Second Supplemental Indenture a valid agreement of the Company and the Trustee and a valid amendment of and supplement to the Indenture have been done. 3 NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities as follows: ARTICLE ONE PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Assumption of Obligations. The Company assumes all the ------------------------- obligations of CapStar under the Securities and the Indenture. ARTICLE TWO MISCELLANEOUS SECTION 2.1 Incorporation of Indenture. All the provisions of this -------------------------- Second Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture; and the Indenture, as supplemented and amended by this Second Supplemental Indenture, shall be read, taken and construed as one and the same instrument. SECTION 2.2 Application of Second Supplemental Indenture. The provisions -------------------------------------------- and benefit of this Second Supplemental Indenture shall be effective with respect to Securities outstanding prior to and after the execution hereof. SECTION 2.3 Headings. The headings of the Articles and Sections of the -------- Second Supplemental Indenture are inserted for convenience of reference and shall not be deemed to be a part thereof. SECTION 2.4 Counterparts. This Second Supplemental Indenture may be ------------ executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 2.5 Conflict with Trust Indenture Act. If any provision hereof --------------------------------- limits, qualifies or conflicts with another provision hereof which is required to be included in this Second Supplemental Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. 4 SECTION 2.6 Successors and Assigns. All covenants and agreements in ---------------------- this Second Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. A. SECTION 2.7 Separability Clause. In case any provision in ------------------- this Second Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. A. SECTION 2.8 Governing Law. The internal law of the State of ------------- New York shall govern and be used to construe this Second Supplemental Indenture. 5 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. 6 STATE OF ) ) ss.: COUNTY OF ) On the day of , 1998, before me personally came, to me known, who, being by me duly sworn, did depose and say that he is of MERISTAR HOSPITALITY CORPORATION, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. _______________________________ Notary Public [NOTARIAL SEAL] My Commission Expires: STATE OF ) ) ss.: COUNTY OF ) On the day of , 1998, before me personally came, to me known, who, being by me duly sworn, did depose and say that he is of IBJ SCHRODER BANK & TRUST COMPANY, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. _______________________________ Notary Public [NOTARIAL SEAL] My Commission Expires: EX-4.6 5 EXHIBIT 4.6 Exhibit 4.6 CAPSTAR HOTEL COMPANY AND FIRST TRUST OF NEW YORK, N.A. Indenture Dated as of October 16, 1997 Subordinated Debt Securities TABLE OF CONTENTS
Page RECITALS OF THE COMPANY 1 ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1 Section 1.1 Definitions. 1 Section 1.2 Compliance Certificates and Opinions. 10 Section 1.3 Form of Documents Delivered to Trustee 11 Section 1.4 Acts of Holders 12 Section 1.5 Notices, etc., to Trustee and Company 14 Section 1.6 Notice to Holders; Waiver 14 Section 1.7 Effect of Headings and Table of Contents 15 Section 1.8 Successors and Assigns 15 Section 1.9 Separability Clause 15 Section 1.10 Benefits of Indenture 15 Section 1.11 Governing Law 16 Section 1.12 Legal Holidays 16 Section 1.13 Personal Immunity from Liability for Incorporators, Stockholders, Etc. 16 ARTICLE 2 SECURITIES FORMS 16 Section 2.1 Forms of Securities 16 Section 2.2 Form of Trustee's Certificate of Authentication 17 Section 2.3 Securities Issuable in Global Form 17 ARTICLE 3 THE SECURITIES 18 Section 3.1 Amount Unlimited; Issuable in Series 18 Section 3.2 Denominations 22 Section 3.3 Execution, Authentication, Delivery and Dating 23 Section 3.4 Temporary Securities 25 Section 3.5 Registration, Registration of Transfer and Exchange 28 Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities 31 Section 3.7 Payment of Interest; Interest Rights Preserved 33 Section 3.8 Persons Deemed Owners of 35 Section 3.9 Cancellation 36 Section 3.10 Computation of Interest 36
ARTICLE 4 SATISFACTION AND DISCHARGE 36 Section 4.1 Satisfaction and Discharge of Indenture 36 Section 4.2 Application of Trust Funds 38 ARTICLE 5 REMEDIES 38 Section 5.1 Events of Default 38 Section 5.2 Acceleration of Maturity; Rescission and Annulment 40 Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee 41 Section 5.4 Trustee May File Proofs of Claim 42 Section 5.5 Trustee May Enforce Claims Without Possession of Securities or Coupons 43 Section 5.6 Application of Money Collected 43 Section 5.7 Limitation on Suits 43 Section 5.8 Unconditional Right of Holders to Receive Principal, Premium, if any, Interest and Additional Amounts 44 Section 5.9 Restoration of Rights and Remedies 44 Section 5.10 Rights and Remedies Cumulative 44 Section 5.11 Delay or Omission Not Waiver 45 Section 5.12 Control by Holders of Securities 45 Section 5.13 Waiver of Past Defaults 45 Section 5.14 Waiver of Usury, Stay or Extension Laws 46 Section 5.15 Undertaking for Costs 46 ARTICLE 6 THE TRUSTEE 46 Section 6.1 Notice of Defaults 46 Section 6.2 Certain Rights of Trustee 47 Section 6.3 Not Responsible for Recitals or Issuance of Securities 48 Section 6.4 May Hold Securities 48 Section 6.5 Money Held in Trust 49 Section 6.6 Compensation and Reimbursement 49 Section 6.7 Corporate Trustee Required; Eligibility; Conflicting Interests 49 Section 6.8 Resignation and Removal; Appointment of Successor 50 Section 6.9 Acceptance of Appointment by Successor 51 Section 6.10 Merger, Conversion, Consolidation or Succession to Business 53 Section 6.11 Appointment of Authenticating Agent 53 ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY 55 Section 7.1 Disclosure of Names and Addresses of Holders 55 Section 7.2 Reports by Trustee 55 Section 7.3 Reports by Company 55 Section 7.4 Company to Furnish Trustee Names and Addresses of Holders 56
ARTICLE 8 CONSOLIDATION, MERGER, SALE,LEASE OR CONVEYANCE 57 Section 8.1 Consolidations and Mergers of Company and Sales, Leases and Conveyances Permitted Subject to Certain Conditions 57 Section 8.2 Rights and Duties of Successor Corporation 57 Section 8.3 Officers' Certificate and Opinion of Counsel 58 ARTICLE 9 SUPPLEMENTAL INDENTURES 58 Section 9.1 Supplemental Indentures without Consent of Holders 58 Section 9.2 Supplemental Indentures with Consent of Holders 60 Section 9.3 Execution of Supplemental Indentures 61 Section 9.4 Effect of Supplemental Indentures 61 Section 9.5 Conformity with Trust Indenture Act 61 Section 9.6 Reference in Securities to Supplemental Indentures 61 ARTICLE 10 COVENANTS 62 Section 10.1 Payment of Principal, Premium, if any, Interest and Additional Amounts 62 Section 10.2 Maintenance of Office or Agency 62 Section 10.3 Money for Securities Payments to Be Held in Trust 64 Section 10.4 Existence 65 Section 10.5 Maintenance of Properties 66 Section 10.6 Payment of Taxes and Other Claims 66 Section 10.7 Statement as to Compliance 66 Section 10.8 Additional Amounts 66 Section 10.9 Waiver of Certain Covenants 67 ARTICLE 11 REDEMPTION OF SECURITIES 68 Section 11.1 Applicability of Article 68 Section 11.2 Election to Redeem; Notice to Trustee 68 Section 11.3 Selection by Trustee of Securities to Be Redeemed 68 Section 11.4 Notice of Redemption 68 Section 11.5 Deposit of Redemption Price 70 Section 11.6 Securities Payable on Redemption Date 70 Section 11.7 Securities Redeemed in Part 71 ARTICLE 12 SINKING FUNDS 72 Section 12.1 Applicability of Article 72 Section 12.2 Satisfaction of Sinking Fund Payments with Securities 72 Section 12.3 Redemption of Securities for Sinking Fund 72 ARTICLE 13 REPAYMENT AT THE OPTION OF HOLDERS 73 Section 13.1 Applicability of Article 73 Section 13.2 Repayment of Securities 73
Section 13.3 Exercise of Option 73 Section 13.4 When Securities Presented for Repayment Became Due and Payable 74 Section 13.5 Securities Repaid in Part 75 ARTICLE 14 DEFEASANCE AND COVENANT DEFEASANCE 75 Section 14.1 Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance 75 Section 14.2 Defeasance and Discharge 76 Section 14.3 Covenant Defeasance 76 Section 14.4 Conditions to Defeasance or Covenant Defeasance 77 Section 14.5 Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions 79 ARTICLE 15 SUBORDINATION 81 Section 15.1 Agreement to Subordinate 81 Section 15.2 Liquidation; Dissolution; Bankruptcy 81 Section 15.3 Default on Senior Debt 81 Section 15.4 Acceleration of Securities 82 Section 15.5 When Distribution Must Be Paid Over 82 Section 15.6 Notice by Company 82 Section 15.7 Subrogation 82 Section 15.8 Relative Rights 82 Section 15.9 Subordination May Not Be Impaired by Trust 83 Section 15.10 Distribution or Notice to Representative 83 Section 15.11 Rights of Trustee and Paying Agent 83 EXHIBIT A FORMS OF CERTIFICATION 86 EXHIBIT A-1 FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE 86 EXHIBIT A-2 FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE 88
CAPSTAR HOTEL COMPANY Reconciliation and tie between Trust Indenture Act of 1939 (the "1939 Act") and Indenture, dated as of October 16, 1997. Trust Indenture Act Section Indenture Section Sec. 310(a)(1)....................... 6.7 (a)(2)......................... 6.7 (b)............................ 6.7, 6.8 Sec. 312(c).......................... 7.1 Sec. 313(a).......................... 7.2 (c)............................ 7.2 Sec. 314(a).......................... 7.3 (a)(4)......................... 10.11 (c)(1)......................... 1.2 (c)(2)......................... 1.2 (e)............................ 1.2 Sec. 315(b).......................... 6.1 Sec. 316(a) (last sentence).......... 1.1 ("Outstanding") (a)(1)(A)...................... 5.2, 5.12 (a)(1)(B)...................... 5.13 (b)............................ 5.8 Sec. 317(a)(1)....................... 5.3 (a)(2)......................... 5.4 Sec. 318(a).......................... 1.11 (c)............................ 1.11 NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. Attention should also be directed to Section 318(c) of the 1939 Act, which provides that the provisions of Sections 310 to and including 317 of the 1939 Act are a part of and govern every qualified indenture, whether or not physically contained therein. INDENTURE, dated as of October 16, 1997, between CAPSTAR HOTEL COMPANY, a Delaware corporation (hereinafter called the "Company"), having its principal office at 1010 Wisconsin Avenue, N.W., Suite 650, Washington, DC 20007 and First Trust of New York, N.A., a corporation organized under the laws of New York, as Trustee hereunder (hereinafter called the "Trustee"), having its Corporate Trust Office at 100 Wall Street, New York, New York 10005. RECITALS OF THE COMPANY The Company deems it necessary to issue from time to time for its lawful purposes subordinated debt securities (hereinafter called the "Securities") evidencing its unsecured and unsubordinated indebtedness, and has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of the Securities, unlimited as to principal amount, to bear interest at the rates or formulas, to mature at such times and to have such other provisions as shall be fixed as hereinafter provided. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are deemed to be incorporated into this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION A. Definitions. For all purposes of this Indenture, except as ----------- otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the TIA, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper," as used in TIA 2 Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the TIA; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act," when used with respect to any Holder, has the meaning specified in Section 1.4. "Additional Amounts" means any additional amounts which are required by a Security or by or pursuant to a Board Resolution, under circumstances specified therein, to be paid by the Company in respect of certain taxes imposed on certain Holders and which are owing to such Holders. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any authenticating agent appointed by the Trustee pursuant to Section 6.11. "Authorized Newspaper" means a newspaper, printed in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Whenever successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different Authorized Newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "Bankruptcy Law" has the meaning specified in Section 5.1. "Bearer Security" means any Security established pursuant to Section 2.1 which is payable to bearer. 3 "Board of Directors" means the board of directors of the Company, the executive committee or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day," when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means, unless otherwise specified with respect to any Securities pursuant to Section 3.1, any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in that Place of Payment or particular location are authorized or required by law, regulation or executive order to close. "CEDEL" means Centrale de Livraison de Valeurs Mobilieres, S.A., or its successor. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Stock" means, with respect to any Person, capital stock issued by such Person other than Preferred Stock. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by its Chairman of the Board, the President or a Vice President, and by its Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit (or composite currency) other than the ECU for the purposes for which it was established. 4 "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at . "corporation" includes corporations, associations, companies and business trusts. "coupon" means any interest coupon appertaining to a Bearer Security. "Custodian" has the meaning specified in Section 5.1. "Defaulted Interest" has the meaning specified in Section 3.7. "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of the European Communities. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels Office, or its successor as operator of the Euroclear System. "European Communities" means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community. "European Monetary System" means the European Monetary System established by the Resolution of December 5, 1978 of the Council of the European Communities. "Event of Default" has the meaning specified in Article Five. "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the ECU issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "GAAP" means generally accepted accounting principles, as in effect from time to time, as used in the United States applied on a consistent basis. "Government Obligations" means securities which are (i) direct obligations of the United States of America or the government which issued the Foreign 5 Currency in which the Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the foreign currency in which the Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "Holder" means, in the case of a Registered Security, the Person in whose name a Security is registered in the Security Register and in the case of a Bearer Security, the bearer thereof and, when used with respect to any coupon, shall mean the bearer thereof. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of Securities established as contemplated by Section 3.1; provided, however, that, if at any time more than one Person is -------- ------- acting as Trustee under this instrument, "Indenture" shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of the particular series of Securities for which such Person is Trustee established as contemplated by Section 3.1, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party. "Indexed Security" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. 6 "interest," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, shall mean interest payable after Maturity, and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 10.8, includes such Additional Amounts. "Interest Payment Date," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Maturity," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company or who may be an employee of or other counsel for the Company and who shall be satisfactory to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption or repayment at the option of the Holder money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any coupons appertaining thereto, provided that, if such Securities are be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; 7 (iii) Securities, except to the extent provided in Sections 14.2 and 14.3, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Fourteen; (iv) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (v) Securities converted into Common Stock or Preferred Stock pursuant to or in accordance with this Indenture if the terms of such Securities provide for convertibility pursuant to Section 3.1; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations required by TIA Section 3.13, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the maturity thereof pursuant to Section 5.2, (ii) the principal amount of any Security denominated in a Foreign Currency that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to the Dollar equivalent, determined pursuant to Section 3.1 as of the date such Security is originally issued by the Company, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above) of such Security, (iii) the principal amount of any Indexed Security that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided with respect to such Security pursuant to Section 3.1, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee 8 is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities or coupons on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment," when used with respect to the Securities of or within any series, means the place or places where the principal of (and premium, if any) and interest on such Securities are payable as specified as contemplated by Sections 3.1 and 10.2. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a mutilated, destroyed, lost or stolen coupon appertains shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security or the Security to which the mutilated, destroyed, lost or stolen coupon appertains. "Preferred Stock" means, with respect to any Person, capital shares issued by such Person that are entitled to a preference or priority over any other capital shares issued by such Person upon any distribution of such Person's assets, whether by dividend or upon liquidation. "Redemption Date," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Security" shall mean any Security which is registered in the Security Register. "Regular Record Date" for the interest payable on any Interest Payment Date on the Registered Securities of or within any series means the date specified for that purpose as contemplated by Section 3.1, whether or not a Business Day. 9 "Repayment Date" means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "Repayment Price" means, when used with respect to any Security to be repaid at the option of the Holder, the price at which it is to be repaid by or pursuant to this Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for an issue of Senior Debt. "Responsible Officer," when used with respect to the Trustee, means the chairman or vice-chairman of the Board of Directors, the chairman or vice- chairman of the executive committee of the Board of Directors, the president, any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject. "Security" has the meaning stated in the first recital of this Indenture and, more particularly, means any Security or Securities authenticated and delivered under this Indenture; provided, however, that, if at any time there is -------- ------- more than one Person acting as Trustee under this Indenture, "Securities" with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "Security Register" and Security Registrar" have the respective meanings specified in Section 3.5. "Senior Debt" means any obligation of the Company to its creditors whether now outstanding or subsequently incurred other than (i) any obligation as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligation is not Senior Debt, and (ii) obligations evidenced by the Securities. 10 "Significant Subsidiary" means any Subsidiary which is a "significant subsidiary" (as defined in Article I, Rule 1-02 of Regulation S-X, promulgated under the Securities Act of 1933) of the Company. "Special Record Date" for the payment of any Defaulted Interest on the Registered Securities of or within any series means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security or a coupon representing such installment of interest as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means a corporation a majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company. For the purposes of this definition, "voting stock" means stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended and as in force at the date as of which this Indenture was executed, except as provided in Section 9.5. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a Successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder; provided, however, that if -------- ------- at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series. "United States" means, unless otherwise specified with respect to any Securities pursuant to Section 3.1, the United States of America (including the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "United States person" means, unless otherwise specified with respect to any Securities pursuant to Section 3.1, an individual who is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or an estate or trust the income of which is subject to United States federal income taxation regardless of its source. 11 "Yield to Maturity" means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles. A. Compliance Certificates and Opinions. Upon any application ------------------------------------ or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates delivered pursuant to Section 10.8) shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. A. Form of Documents Delivered to Trustee. In any case where -------------------------------------- several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion as to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. 12 Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, or a certificate or representations by counsel, unless such officer knows, or in the exercise of reasonable care should know, that the opinion, certificate or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel or certificate or representations may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information as to such factual matters is in the possession of the Company, unless such counsel knows that the certificate or opinion or representations as to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. 1. Acts of Holders. Any request, demand, authorization, direction, --------------- notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing. If Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of the supplemental indenture with respect to such series, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. 1. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or 13 writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other reasonable manner which the Trustee deems sufficient. 1. The ownership of Registered Securities shall be proved by the Security Register. 1. The ownership of Bearer Securities may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security is produced to the Trustee by some other Person, or (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding. The ownership of Bearer Securities may also be proved in any other manner which the Trustee deems sufficient. 1. If the Company shall solicit from the Holders of Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, in or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by -------- the Holders on such 14 record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. In the absence of any such record date fixed by the Company, regardless as to whether a solicitation of the Holders is occurring on behalf of the Company or any Holder, the Trustee may, at its option, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Trustee shall have no obligation to do so. Any such record date shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith no later than the date of such solicitation. 1. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security. A. Notices, etc., to Trustee and Company. Any request, demand, ------------------------------------- authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Company. A. Notice to Holders; Waiver. Where this Indenture provides ------------------------- for notice of any event to Holders of Registered Securities by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, 15 and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. If by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder. Except as otherwise expressly provided herein or otherwise specified with respect to any Securities pursuant to Section 3.1, where this Indenture provides for notice to Holders of Bearer Securities of any event, such notice shall be sufficiently given if published in an Authorized Newspaper in The City of New York and in such other city or cities as may be specified in such Securities on a Business Day, such publication to be not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the date of the first such publication. If by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither the failure to give notice by publication to any particular Holder of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of such notice with respect to other Holders of Bearer Securities or the sufficiency of any notice to Holders of Registered Securities given as provided herein. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by 16 Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. A. Effect of Headings and Table of Contents. The Article and Section ---------------------------------------- headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. A. Successors and Assigns. All covenants and agreements in this ---------------------- Indenture by the Company shall bind its successors and assigns, whether so expressed or not. B. Separability Clause. In case any provision in this Indenture or in ------------------- any Security or coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. A. Benefits of Indenture. Nothing in this Indenture or in the Securities --------------------- or coupons, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders any benefit or any legal or equitable right, remedy or claim under this Indenture. A. Governing Law. This Indenture and the Securities and coupons shall be governed by and construed in accordance with the law of the State of New York. This Indenture is subject to the provisions of the TIA that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. A. Legal Holidays. In any case where any Interest Payment Date, -------------- Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or any Security or coupon other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu hereof), payment of interest or any Additional Amounts or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund payment date, or at the Stated Maturity or Maturity, provided that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be. A. Personal Immunity from Liability for Incorporators, Stockholders, Etc. ---------------------------------------------------------------------- No recourse shall be had for the payment of the principal of or premium, if any, or interest, if any, on any Security, or for any claim based thereon, or 17 otherwise in respect of any Security, or based on or in respect of this Indenture or any indenture supplemental hereto, against any incorporator, or against any past, present or future stockholder, director of officers, as such, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being expressly waived and released as a condition of, and as consideration for, the execution of this Indenture and the issue of Securities. I. SECURITIES FORMS A. Forms of Securities. The Registered Securities, if any, of each ------------------- series and the Bearer Securities, if any, of each series and related coupons shall be in substantially the forms as shall be established in one or more indentures supplemental hereto or approved from time to time by or pursuant to a Board Resolution in accordance with Section 3.1, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements placed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Securities may be listed, or to conform to usage. Unless otherwise specified as contemplated by Section 3.1, Bearer Securities shall have interest coupons attached. The definitive Securities and coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities or coupons, as evidenced by their execution of such Securities or coupons. A. Form of Trustee's Certificate of Authentication. Subject to Section ----------------------------------------------- 6.11, the Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. 18 First Trust of New York, N.A., as Trustee By: , Authorized Signatory A. Securities Issuable in Global Form. If Securities of or within a ---------------------------------- series are issuable in global form, as specified as contemplated by Section 3.1, then, notwithstanding clause (8) of Section 3.1 and the provisions of Section 3.2, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities of such series from time to time endorsed thereon and that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 3.3 or 3.4. Subject to the provisions of Section 3.3 and, if applicable, Section 3.4, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 3.3 or 3.4 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 1.2 and need not be accompanied by an Opinion of Counsel. The provisions of the last sentence of Section 3.3 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 1.2 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 3.3. Notwithstanding the provisions of Section 3.7, unless otherwise specified as contemplated by Section 3.1, payment of principal of and any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 3.8 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and 19 the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security (i) in the case of a permanent global Security in registered form, the Holder of such permanent global Security in registered form, or (ii) in the case of a permanent global Security in bearer form, Euroclear or CEDEL. I. THE SECURITIES A. Amount Unlimited; Issuable in Series. The aggregate ------------------------------------ principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in one or more Board Resolutions or pursuant to authority granted by one or more Board Resolutions and, subject to Section 3.3, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, any or all of the following, as applicable (each of which (except for the matters set forth in clauses (1), (2) and (15) below), if so provided, may be determined from time to time by the Company with respect to unissued Securities of the series when issued from time to time): (1) the title of the Securities of the series (which shall distinguish the Securities of such series from all other series of Securities); (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 9.6, 11.7 or 13.5); (3) the date or dates, or the method by which such date or dates will be determined, on which the principal of the Securities of the series shall be payable; (4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest will be payable and the Regular Record Date, if any, for the 20 interest payable on any Registered Security on any Interest Payment Date, or the method by which such date shall be determined, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (5) the place or places, if any, other than or in addition to the Borough of Manhattan, The City of New York, where the principal of (and premium, if any), interest, if any, on, and Additional Amounts, if any, payable in respect of, Securities of the series shall be payable, any Registered Securities of the series may be surrendered for registration of transfer, exchange or conversion and notices or demands to or upon the Company in respect of the Securities of the series and this Indenture may be served; (6) the period or periods within which, the price or prices at which, the currency or currencies, currency unit or units or composite currency or currencies in which, and other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, if the Company is to have the option; (7) the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which or the date or dates on which, the price or prices at which, the currency or currencies, currency unit or units or composite currency or currencies in which, and other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Registered Securities of the series shall be issuable and, if other than the denomination of $5,000, the denomination or denominations in which any Bearer Securities of the series shall be issuable; (9) if other than the Trustee, the identity of each Security Registrar and/or Paying Agent; (10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or, if applicable, the portion of the principal amount of Securities of the series that is convertible in accordance with the provisions of this Indenture, or the method by which such portion shall be determined; 21 (11) if other than Dollars, the Foreign Currency or Currencies in which payment of the principal of (and premium, if any) or interest or Additional Amounts, if any, on the Securities of the series shall be payable or in which the Securities of the series shall be denominated; (12) whether the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more currencies, currency units, composite currencies, commodities, equity indices or other indices), and the manner in which such amounts shall be determined; (13) whether the principal of (and premium, if any) or interest or Additional Amounts, if any, on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in a currency or currencies, currency unit or units or composite currency or currencies other than that in which such Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are denominated or stated to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are to be so payable; (14) provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence of such events as may be specified; (15) any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to Securities of the series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; (16) whether Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or without coupons) or both, any restrictions applicable to the offer, sale or delivery of Bearer Securities and the terms upon which Bearer Securities of the series may be exchanged for Registered Securities of the series and vice versa (if permitted by applicable laws and regulations), whether any Securities of the series are to be issuable initially in temporary global form and whether any Securities of the series are to be issuable in permanent global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series and of like tenor of any authorized form 22 and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 3.5, and, if Registered Securities of the series are to be issuable as a global Security, the identity of the depositary for such series; (17) the date as of which any Bearer Securities of the series and any temporary global Security representing Outstanding Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued; (18) the Person to whom any Interest on any Registered Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, the manner in which, or the Person to whom, any interest on any Bearer Security of the series shall be payable, if otherwise than upon presentation and surrender of the coupons appertaining thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary global Security on an Interest Payment Date will be paid if other than in the manner provided in Section 3.4; (19) the applicability, if any, of Sections 14.2 and/or 14.3 to the Securities of the series and any provisions in modification of, in addition to or in lieu of any of the provisions of Article Fourteen; (20) if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and/or terms of such certificates, documents or conditions; (21) if the Securities of the series are to be issued upon the exercise of warrants, the time, manner and place for such Securities to be authenticated and delivered; (22) whether and under what circumstances the Company will pay Additional Amounts on the Securities of the series to any Holder who is not a United States person (including any modification to the definition of such term) in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Securities rather than pay such Additional Amounts (and the terms of any such option); (23) the obligation, if any, of the Company to permit the conversion of the Securities of such series into the Company's Common Stock or Preferred 23 Stock, as the case may be, and the terms and conditions upon which such conversion shall be effected (including, without limitation, the initial conversion price or rate, the conversion period, any adjustment of the applicable conversion price and any requirements relative to the reservation of such shares for purposes of conversion); and (24) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and the coupons appertaining to any Bearer Securities of such series shall be substantially identical except, in the case of Registered Securities, as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution (subject to Section 3.3) and set forth in such Officers' Certificate or in any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuances of additional Securities of such series. If any of the terms of the Securities of any series are established by action taken pursuant to one or more Board Resolutions, a copy of an appropriate record of such action(s) shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the Securities of such series. A. Denominations. The Securities of each series shall be ------------- issuable in such denominations as shall be specified as contemplated by Section 3.1. With respect to Securities of any series denominated in Dollars, in the absence of any such provisions with respect to the Securities of any series, the Registered Securities of such series, other than Registered Securities issued in global form (which may be of any denomination), shall be issuable in denominations of $1,000 and any integral multiple thereof and the Bearer Securities of such series, other than Bearer Securities issued in global form (which may be of any denomination), shall be issuable in a denomination of $5,000. A. Execution, Authentication, Delivery and Dating. The ---------------------------------------------- Securities and any coupons appertaining thereto shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon, and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities and coupons may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. 24 Securities or coupons bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities or coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series, together with any coupon appertaining thereto, executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities; provided, however, that, -------- ------- in connection with its original issuance, no Bearer Security shall be mailed or otherwise delivered to any location in the United States; and provided further -------- ------- that, unless otherwise specified with respect to any series of Securities pursuant to Section 3.1, a Bearer Security may be delivered in connection with its original issuance only if the Person entitled to receive such Bearer Security shall have furnished a certificate to Euroclear or CEDEL, as the case may be, in the form set forth in Exhibit A-1 to this Indenture or such other certificate as may be specified with respect to any series of Securities pursuant to Section 3.1, dated no earlier than 15 days prior to the earlier of the date on which such Bearer Security is delivered and the date on which any temporary Security first becomes exchangeable for such Bearer Security in accordance with the terms of such temporary Security and this Indenture. If any Security shall be represented by a permanent global Bearer Security, then, for purposes of this Section and Section 3.4, the notation of a beneficial owner's interest therein upon original issuance of such Security or upon exchange of a portion of a temporary global Security shall be deemed to be delivery in connection with its original issuance of such beneficial owner's interest in such permanent global Security. Except as permitted by Section 3.6, the Trustee shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured have been detached and canceled. If all the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate or formula, maturity date, date of issuance and date from which interest shall accrue. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to TIA Section 315(a) through 315(d)) shall be fully protected in relying upon, (i) an Opinion of Counsel stating that 25 (a) the form or forms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; (b) the terms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; and (c) such Securities, together with any coupons appertaining the completed by appropriate insertions and executed and delivered by the Company to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors' rights generally and to general equitable principles; and (ii) an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the issuance of the Securities have been complied with and that, to the best of the knowledge of the signers of such certificate, no Event of Default with respect to any of the Securities shall have occurred and be continuing. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties, obligations or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 3.1 and of the preceding paragraph, if all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Officers' Certificate otherwise required pursuant to Section 3.1 or a Company Order, or an Opinion of Counsel or an Officers' Certificate otherwise required pursuant to the preceding paragraph at the time of issuance of each Security of such series, but such order, opinion and certificates, with appropriate modifications to cover such future issuances, shall be delivered at or before the time of issuance of the first Security of such series. Each Registered Security shall be dated the date of its authentication and each Bearer Security shall be dated as of the date specified as contemplated by Section 3.1. 26 No Security or coupon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security or Security to which such coupon appertains a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.9 together with a written statement (which need not comply with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. 1. Temporary Securities. Pending the preparation of definitive -------------------- Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form, or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form. Except in the case of temporary Securities in global form (which shall be exchanged in accordance with Section 3.4(b) or as otherwise provided in or pursuant to a Board Resolution), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series (accompanied by any non-matured coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations; provided, however, that no definitive Bearer Security shall be -------- ------- delivered in exchange for a temporary Registered Security; and provided further -------- ------- that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in Section 3.3. Until so exchanged, the temporary Securities of any series shall in 27 all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. 1. Unless otherwise provided in or pursuant to a Board Resolution, this Section 3.4(b) shall govern the exchange of temporary Securities issued in global form other than through the facilities of The Depository Trust Company. If any such temporary Security is issued in global form, then such temporary global Security shall, unless otherwise provided therein, be delivered to the London office of a depositary or common depositary (the "Common Depositary"), for the benefit of Euroclear and CEDEL, for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts as they may direct). Without unnecessary delay but in any event not later than the date specified in, or determined pursuant to the terms of, any such temporary global Security (the "Exchange Date"), the Company shall deliver to the Trustee definitive Securities, in aggregate principal amount equal to the principal amount of such temporary global Security, executed by the Company. On or after the Exchange Date, such temporary global Security shall be surrendered by the Common Depositary to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or from time to time in part, for definitive Securities without charge, and the Trustee shall authenticate and deliver, in exchange for each portion of such temporary global Security, an equal aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such temporary global Security to be exchanged. The definitive Securities to be delivered in exchange for any such temporary global Security shall be in bearer form, registered form, permanent global bearer form or permanent global registered form, or any combination thereof, as specified as contemplated by Section 3.1, and, if any combination thereof is so specified, as requested by the beneficial owner thereof; provided, -------- however, that, unless otherwise specified in such temporary global Security, - ------- upon such presentation by the Common Depositary, such temporary global Security is accompanied by a certificate dated the Exchange Date or a subsequent date and signed by Euroclear as to the portion of such temporary global Security held for its account then to be exchanged and a certificate dated the Exchange Date or a subsequent date and signed by CEDEL as to the portion of such temporary global Security held for its account then to be exchanged, each in the form set forth in Exhibit A-2 to this Indenture or in such other form as may be established pursuant to Section 3.1; and provided further that definitive Bearer Securities -------- ------- shall be delivered in exchange for a portion of a temporary global Security only in compliance with the requirements of Section 3.3. Unless otherwise specified in such temporary global Security, the interest of a beneficial owner of Securities of a series in a temporary global Security shall be exchanged for definitive Securities of the same series and of like tenor following the Exchange Date when the account holder instructs Euroclear or CEDEL, 28 as the case may be, to request such exchange on his behalf and delivers to Euroclear or CEDEL, as the case may be, a certificate in the form set forth in Exhibit A-1 to this Indenture (or in such other form as may be established pursuant to Section 3.1), dated no earlier than 15 days prior to the Exchange Date, copies of which certificate shall be available from the offices of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such series of Securities and each Paying Agent. Unless otherwise specified in such temporary global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary global Security, except that a Person receiving definitive Securities must bear the cost of insurance, postage, transportation and the like unless such Person takes delivery of such definitive Securities in person at the offices of Euroclear or CEDEL. Definitive Securities in bearer form to be delivered in exchange for any portion of a temporary global Security shall be delivered only outside the United States. Until exchanged in full as hereinabove provided, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and of like tenor authenticated and delivered hereunder, except that, unless otherwise specified as contemplated by Section 3.1, interest payable on a temporary global Security on an Interest Payment Date for Securities of such series occurring prior to the applicable Exchange Date shall be payable to Euroclear and CEDEL on such Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee of a certificate or certificates in the form set forth in Exhibit A-2 to this Indenture (or in such other forms as may be established pursuant to Section 3.1), for credit without further interest on or after such Interest Payment Date to the respective accounts of Persons who are the beneficial owners of such temporary global Security on such Interest Payment Date and who have each delivered to Euroclear or CEDEL, as the case may be, a certificate dated no earlier than 15 days prior to the Interest Payment Date occurring prior to such Exchange Date in the form set forth as Exhibit A-1 to this Indenture (or in such other forms as may be established pursuant to Section 3.1). Notwithstanding anything to the contrary herein contained, the certifications made pursuant to this paragraph shall satisfy the certification requirements of the preceding two paragraphs of this Section 3.4(b) and of the third paragraph of Section 3.3 of this Indenture and the interests of the Persons who are the beneficial owners of the temporary global Security with respect to which such certification was made will be exchanged for definitive Securities of the same series and of like tenor on the Exchange Date or the date of certification if such date occurs after the Exchange Date, without further act or deed by such beneficial owners. Except as otherwise provided in this paragraph, no payments of principal or interest owing with respect to a beneficial interest in a temporary global Security will be made unless and until such interest in such temporary global Security shall have been exchanged for an interest in a definitive Security. Any interest so received by Euroclear and CEDEL and not paid as herein provided shall be returned to the Trustee prior to the expiration of two years after such Interest Payment Date in order to be repaid to the Company. 29 A. Registration, Registration of Transfer and Exchange. The Company --------------------------------------------------- shall cause to be kept at the Corporate Trust Office of the Trustee or in any office or agency of the Company in a Place of Payment a register for each series of Securities (the registers maintained in such office or in any such office or agency of the Company in a Place of Payment being herein sometimes referred to collectively as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Trustee, at its Corporate Trust Office, is hereby initially appointed "Security Registrar" for the purpose of registering Registered Securities and transfers of Registered Securities on such Security Register as herein provided. In the event that the Trustee shall cease to be Security Registrar, it shall have the right to examine the Security Register at all reasonable times. Subject to the provisions of this Section 3.5, upon surrender for registration of transfer of any Registered Security of any series at any office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series, of any authorized denominations and of a like aggregate principal amount, bearing a number not contemporaneously outstanding, and containing identical terms and provisions. Subject to the provisions of this Section 3.5, at the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series, of any authorized denomination or denominations and of a like aggregate principal amount, containing identical terms and provisions, upon surrender of the Registered Securities to be exchanged at any such office or agency. Whenever any such Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. Unless otherwise specified with respect to any series of Securities as contemplated by Section 3.1, Bearer Securities may not be issued in exchange for Registered Securities. If (but only if) permitted by the applicable Board Resolution and (subject to Section 3.3) set forth in the applicable Officers' Certificate, or in any indenture supplemental hereto, delivered as contemplated by Section 3.1, at the option of the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such 30 unmatured coupon or coupons or matured coupon or coupons in default, any such permitted exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section -------- ------- 10.2, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or agency in a permitted exchange for a Registered Security of the same series and like tenor after the close of business at such office or agency on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date for payment, as the case may be, and interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon then due in accordance with the provisions of this Indenture. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 3.1, any permanent global Security shall be exchangeable only as provided in this paragraph. If the depositary for any permanent global Security is The Depository Trust Company ("DTC"), then, unless the terms of such global Security expressly permit such global Security to be exchanged in whole or in part for definitive Securities, a global Security may be transferred, in whole but not in part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to DTC for such global Security selected or approved by the Company or to a nominee of such successor to DTC. If at any time DTC notifies the Company that it is unwilling or unable to continue as depositary for the applicable global Security or Securities or if at any time DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934 if so required by applicable law or regulation, the Company shall appoint a successor depositary with respect to such global Security or Securities. If (x) a successor depositary for such global Security or Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of 31 such unwillingness, inability or ineligibility, (y) an Event of Default has occurred and is continuing and the beneficial owners representing a majority in principal amount of the applicable series of Securities represented by such global Security or Securities advise DTC to cease acting as depositary for such global Security or Securities or (z) the Company, in its sole discretion, determines at any time that all Outstanding Securities (but not less than all) of any series issued or issuable in the form of one or more global Securities shall no longer be represented by such global Security or Securities, then the Company shall execute, and the Trustee shall authenticate and deliver definitive Securities of like series, rank, tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such global Security or Securities. If any beneficial owner of an interest in a permanent global Security is otherwise entitled to exchange such interest for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified as contemplated by Section 3.1 and provided that any applicable notice provided in the permanent global Security shall have been given, then without unnecessary delay but in any event not later than the earliest date on which such interest may be so exchanged, the Company shall execute, and the Trustee shall authenticate and deliver definitive Securities in aggregate principal amount equal to the principal amount of such beneficial owner's interest in such permanent global Security. On or after the earliest date on which such interests may be so exchanged, such permanent global Security shall be surrendered for exchange by DTC or such other depositary as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose; provided, however, that no such exchanges may -------- ------- occur during a period beginning at the opening of business 15 days before any selection of Securities to be redeemed and ending on the relevant Redemption Date if the Security for which exchange is requested may be among those selected for redemption; and provided further that no Bearer Security delivered in -------- ------- exchange for a portion of a permanent global Security shall be mailed or otherwise delivered to any location in the United States. If a Registered Security is issued in exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such permanent global Security is payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and 32 entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6, 11.7 or 13.5 not involving any transfer. The Company or the Trustee, as applicable, shall not be required (i) to issue, register the transfer of or exchange any Security if such Security may be among those selected for redemption during a period beginning at the opening of business 15 days before selection of the Securities to be redeemed under Section 11.3 and ending at the close of business on (A) if such Securities are issuable only as Registered Securities, the day of the mailing of the relevant notice of redemption and (B) if such Securities are issuable as Bearer Securities, the day of the first publication of the relevant notice of redemption or, if such Securities are also issuable as Registered Securities and there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except, in the case of any Registered Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged for a Registered Security of that series and like tenor, provided that such Registered Security shall be simultaneously surrendered for redemption, or (iv) to issue, register the transfer of or exchange any Security which has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid. A. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated ------------------------------------------------ Security or a Security with a mutilated coupon appertaining to it is surrendered to the Trustee or the Company, together with, in proper cases, such security or indemnity as may be required by the Company or the Trustee to save each of them or any agent of either of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to the surrendered Security. 33 If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security or coupon has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen coupon appertains (with all appurtenant coupons not destroyed, lost or stolen), a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains. Notwithstanding the provisions of the previous two paragraphs in case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains, pay such Security or coupon; provided, however, that payment of principal of (and premium, if any), -------- ------- any interest on and any Additional Amounts with respect to, Bearer Securities shall, except as otherwise provided in Section 10.2, be payable only at an office or agency located outside the United States and, unless otherwise specified as contemplated by Section 3.1, any interest on Bearer Securities shall be payable only upon presentation and surrender of the coupons appertaining thereto. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series and their coupons, if any, duly issued hereunder. 34 The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons. A. Payment of Interest; Interest Rights Preserved. Except as otherwise ---------------------------------------------- specified with respect to a series of Securities in accordance with the provisions of Section 3.1, interest on any Registered Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.2; provided, however, that each installment of -------- ------- interest on any Registered Security may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 3.8, to the address of such Person as it appears on the Security Register or (ii) transfer to an account maintained by the payee located inside the United States. Unless otherwise provided as contemplated by Section 3.1 with respect to the Securities of any series, payment of interest may be made, in the case of a Bearer Security, by transfer to an account maintained by the payee with a bank located outside the United States. Unless otherwise provided as contemplated by Section 3.1, every permanent global Security will provide that interest, if any, payable on any Interest Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case may be, with respect to that portion of such permanent global Security held for its account by Cede & Co. or the Common Depositary, as the case may be, for the purpose of permitting such party to credit the interest received by it in respect of such permanent global Security to the accounts of the beneficial owners thereof. In case a Bearer Security of any series is surrendered in exchange for a Registered Security of such series after the close of business (at an office or agency in a Place of Payment for such series) on any Regular Record Date and before the opening of business (at such office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date and interest will not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 3.1, any interest on any Registered Security of any series that is payable, but is not punctually paid or duly provided for, on any 35 Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of such series and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more that 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of such series at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper in each place of payment, but such publications shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). In case a Bearer Security of any series is surrendered at the office or agency in a Place of Payment for such series in exchange for a Registered Security of such series after the close of business at such office or agency on any Special Record Date 36 and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such proposed date of payment and Defaulted Interest will not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. (2) The Company may make payment of any Defaulted Interest on the Registered Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. A. Persons Deemed Owners. Prior to due presentment of a Registered --------------------- Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered as the owner of such Security for the purpose of receiving payment or principal of (and premium, if any), and (subject to Sections 3.5 and 3.7) interest on, such Registered Security and for all other purposes whatsoever, whether or not such Registered Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Title to any Bearer Security and any coupons appertaining thereto shall pass by delivery. The Company, the Trustee and any agent of the Company or the Trustee may treat the Holder of any Bearer Security and the Holder of any coupon as the absolute owner of such Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupon be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 37 Notwithstanding the foregoing, with respect to any global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any depositary, as a Holder, with respect to such global Security or impair, as between such depositary and owners of beneficial interests in such global Security, the operation of customary practices governing the exercise of the rights of such depositary (or its nominee) as Holder of such global Security. A. Cancellation. All Securities and coupons surrendered for payment, ------------ redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and coupons and Securities and coupons surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. If the Company shall so acquire any of the Securities however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. Canceled Securities and coupons held by the Trustee shall be destroyed by the Trustee and the Trustee shall deliver a certificate of such destruction to the Company, unless by a Company Order the Company directs their return to it. A. Computation of Interest. Except as otherwise specified as ----------------------- contemplated by Section 3.1 with respect to Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year consisting of twelve 30-day months. I. SATISFACTION AND DISCHARGE A. Satisfaction and Discharge of Indenture. This Indenture shall upon --------------------------------------- Company Request cease to be of further effect with respect to any series of Securities specified in such Company Request (except as to any surviving rights of registration of transfer or exchange of Securities of such series herein expressly provided for and any right to receive Additional Amounts, and the Trustee, upon 38 receipt of a Company Order, and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series when (1) either (A) all Securities of such series theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange, whose surrender is not required or has been waived as provided in Section 3.5, (ii) Securities and coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6, (iii) coupons appertaining to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender has been waived as provided in Section 11.6, and (iv) Securities and coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all Securities of such series and, in the case of (i) or (ii) below, any coupons appertaining thereto not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose (A) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable, (B) Government Obligations that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later 39 than on day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient to pay and discharge the entire indebtedness on such Securities and such coupons not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, and any Additional Amounts with respect thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee and any predecessor Trustee under Section 6.6, the obligations of the Company to any Authenticating Agent under Section 6.11 and, if money shall have been deposited with and held by the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. A. Application of Trust Funds. Subject to the provisions of -------------------------- the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities, the coupons and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any), and any interest and Additional Amounts for whose payment such money has been deposited with or received by the Trustee, but such money need not be segregated from other funds except to the extent required by law. I. REMEDIES A. Events of Default. "Event of Default," wherever used herein with respect ----------------- to any particular series of Securities, means any one of the following events (whatever the reason for such Event of Default and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon or any Additional Amounts payable in respect of any Security of that series or of any coupon appertaining thereto, when such interest, Additional Amounts or coupon becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Security of that series when it becomes due and payable at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of any Security of that series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture with respect to any Security of that series (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case, (B) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of either of its property, or (C) orders the liquidation of the Company or any Significant Subsidiary, and the order or decree remains unstayed and in effect for 90 days; or (7) any other Event of Default provided with respect to Securities of that series. As used in this Section 5.1, the term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or State law for the relief of debtors and the term Custodian means any receiver, trustee, assignee, liquidator or other similar official under any Bankruptcy Law. A. Acceleration of Maturity; Rescission and Annulment. If an Event of -------------------------------------------------- Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal (or, if any Securities are Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be specified in the terms thereof) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or specified portion thereof shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay in the currency, currency unit or composite currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series): (A) all overdue installments of interest on and any Additional Amounts payable in respect of all Outstanding Securities of that series and any related coupons, (B) the principal of (and premium, if any, on) any Outstanding Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Securities, (C) to the extent that payment of such interest as lawful, interest upon overdue installments of interest and any Additional Amounts at the rate or rates borne by or provided for in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the nonpayment of the principal of (or premium, if any) or interest on Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. A. Collection of Indebtedness and Suits for Enforcement by Trustee. The --------------------------------------------------------------- Company covenants that if: (1) default is made in the payment of any installment of interest or Additional Amounts, if any, on any Security of any series and any related coupon when such interest or Additional Amount becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at its Maturity, then the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities of such series and coupons, the whole amount then due and payable on such Securities and coupons for principal (and premium, if any) and interest and Additional Amount, with interest upon any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest or Additional Amounts, if any, at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities of such series and collect the moneys adjudged decreed to be payable in the manner provided by law out of the property if the Company or any other obligor upon such Securities of such series, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any related coupons by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. A. Trustee May File Proofs of Claim. In case of the pendency of any -------------------------------- receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of such series, of principal (and premium, if any) and interest and Additional Amounts, if any, owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder of Securities of such series and coupons to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and any predecessor Trustee, their agents and counsel, and any other amounts due the Trustee or any predecessor Trustee under Section 6.6. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or coupon in any such proceeding. A. Trustee May Enforce Claims Without Possession of Securities or Coupons. ---------------------------------------------------------------------- All rights of action and claims under this Indenture or any of the Securities or coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities and coupons in respect of which such judgment has been recovered. A. Application of Money Collected. Any money collected by the Trustee ------------------------------ pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest and any Additional Amounts, upon presentation of the Securities or coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.6; SECOND: To the payment of the amounts then due and unpaid upon the Securities and coupons for principal (and premium, if any) and interest and any Additional Amounts payable, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and coupons for principal (and premium, if any), interest and Additional Amounts, respectively; and THIRD: To the payment of the remainder, if any, to the Company. A. Limitation on Suits. No Holder of any Security of any series or any ------------------- related coupon shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. A. Unconditional Right of Holders to Receive Principal, Premium, if any, --------------------------------------------------------------------- Interest and Additional Amounts. Notwithstanding any other provision in this - ------------------------------- Indenture, the Holder of any Security or coupon shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Sections 3.5 and 3.7) interest on, and any Additional Amounts in respect of, such Security or payment of such coupon on the respective due dates expressed in such Security or coupon (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. A. Restoration of Rights and Remedies. If the Trustee or any Holder of a ---------------------------------- Security or coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, the Company, the Trustee and the Holders of Securities and coupons shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. A. Rights and Remedies Cumulative. Except as otherwise provided with ------------------------------ respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities or coupons is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. A. Delay or Omission Not Waiver. No delay or omission of the Trustee or ---------------------------- of any Holder of any Security or coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities or coupons, as the case may be. A. Control by Holders of Securities. The Holders of not less than a majority -------------------------------- in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unduly prejudicial to the Holders of Securities of such series not joining therein. A. Waiver of Past Defaults. The Holders of not less than a majority in ----------------------- principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series and any related coupons waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on or Additional Amounts payable in respect of any Security of such series or any related coupons, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. A. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the --------------------------------------- extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. A. Undertaking for Costs. All parties to this Indenture agree, and each --------------------- Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of any undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). I. THE TRUSTEE A. Notice of Defaults. Within 90 days after the occurrence of any default ------------------ hereunder with respect to the Securities of any series, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default -------- ------- in the payment of the principal of (or premium, if any) or interest on or any Additional Amounts with respect to any Security of such series, or in the payment of any sinking fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Securities and coupons of such series; and provided further that in the case of any default -------- ------- or breach of the character specified in Section 5.1(4) with respect to the Securities and coupons of such series, no such notice to Holders shall be given until at least 90 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities of such series. A. Certain Rights of Trustee. Subject to the provisions of TIA Section 315(a) ------------------------- through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order (other than delivery of any Security, together with any coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 3.3 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series or any related coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Except during the continuance of an Event of Default, the Trustee undertakes to perform only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. A. Not Responsible for Recitals or Issuance of Securities. The recitals ------------------------------------------------------ contained herein and in the Securities, except the Trustee's certificate of authentication, and in any coupons shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee make no representations as to the validity or sufficiency of this Indenture or of the Securities or coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. A. May Hold Securities. The Trustee, any Paying Agent, Security ------------------- Registrar, Authenticating Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such other agent. A. Money Held in Trust. Money held by the Trustee in trust hereunder need ------------------- not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. A. Compensation and Reimbursement. The Company agrees: ------------------------------ (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse each of the Trustee and any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its own part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(5) or Section 5.1(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium, if any) or interest on particular Securities or any coupons. The provisions of this Section shall survive the termination of this Indenture. A. Corporate Trustee Required; Eligibility; Conflicting Interests. There -------------------------------------------------------------- shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or the requirements of Federal, State, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. If the Trustee has or shall acquire a conflicting interest within the meaning of the TIA, the Trustee shall either eliminate such interest or resign to the extent and in the manner provided by and subject to the provisions of the TIA and this Indenture. A. Resignation and Removal; Appointment of Successor. ------------------------------------------------- 1. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.9. 1. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. 1. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Trustee and to the Company. 1. If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 3.10(b) after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.7 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by or pursuant to a Board Resolution may remove the Trustee and appoint a successor Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. 1. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series). If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner hereinafter provided, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to Securities of such series. 1. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series in the manner provided for notices to the Holders of Securities in Section 1.6. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. 1. Acceptance of Appointment by Successor. In case of the appointment -------------------------------------- hereunder of a successor Trustee with respect to all Securities, every such successor Trustee shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. 1. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto, pursuant to Article Nine hereof, wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. 1. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. 1. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. A. Merger, Conversion, Consolidation or Succession to Business. Any ----------------------------------------------------------- corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities or coupons shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities or coupons so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities or coupons. In case any Securities or coupons shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Securities or coupons, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee. A. Appointment of Authenticating Agent. At any time when any of the ----------------------------------- Securities remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption or repayment thereof, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Any such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of the Trustee, a copy of which instrument shall be promptly furnished to the Company. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a bank or trust company or corporation organized and doing business and in good standing under the laws of the United States of America or of any State or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authorities. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this 56 Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent for any series of Securities may at any time resign by giving written notice of resignation to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the agency of an Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee for such series may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve in the manner set forth in Section 1.6. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation including reimbursement of its reasonable expenses for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication substantially in the following form: 57 This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. First Trust of New York, N.A., as Trustee By: , as Authenticating Agent By: , Authorized Signatory I. HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY A. Disclosure of Names and Addresses of Holders. Every Holder of -------------------------------------------- Securities or coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any Security Registrar shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders of Securities in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). A. Reports by Trustee. Within 60 days after May 15 of each year commencing ------------------ with the first May 15 after the first issuance of Securities pursuant to this Indenture, the Trustee shall transmit by mail to all Holders of Securities as provided in TIA Section 313(c) a brief report dated as of such May 15 if required by TIA Section 3l3(a). A copy of each such report shall at the time of such transmission to Holders be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and the Company. The Company will notify the Trustee when any securities are listed on any stock exchange. A. Reports by Company. The Company will: ------------------ (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the 58 information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to the Holders of Securities, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in TIA Section 3l3(c), such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. A. Company to Furnish Trustee Names and Addresses of Holders. The Company --------------------------------------------------------- will furnish or cause to be furnished to the Trustee: 1. semi-annually, not later than 15 days after the Regular Record Date for interest for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Registered Securities of such series as of such Regular Record Date, or if there is no Regular Record Date for interest for such series of Securities, semi-annually, upon such dates as are set forth in the Board Resolution or indenture supplemental hereto authorizing such series, and 1. at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that so long as the Trustee is the Security -------- ------- Registrar, no such list shall be required to be furnished. 59 I. CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE A. Consolidations and Mergers of Company and Sales, Leases and Conveyances ----------------------------------------------------------------------- Permitted Subject to Certain Conditions. The Company may consolidate with, or - --------------------------------------- sell, lease or convey all or substantially all of its assets to, or merge with or into any other corporation, provided that in any such case, (i) either the Company shall be the continuing corporation, or the successor corporation shall be a corporation organized and existing under the laws of the United States or a State thereof and such successor corporation shall expressly assume the due and punctual payment of the principal of (and premium, if any) and any interest (including all Additional Amounts, if any, payable pursuant to this Indenture) on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture, complying with Article Nine hereof, satisfactory to the Trustee, executed and delivered to the Trustee by such corporation and (ii) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result thereof as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing. A. Rights and Duties of Successor Corporation. In case of any such ------------------------------------------ consolidation, merger, sale, lease or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the predecessor corporation, except in the event of a lease, shall be relieved of any further obligation under this Indenture and the Securities. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the securities so issued shall in all respects have the same legal rank and benefit under this 60 Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, lease or conveyance, such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. A. Officers' Certificate and Opinion of Counsel. Any consolidation, -------------------------------------------- merger, sale, lease or conveyance permitted under Section 8.1 is also subject to the condition that the Trustee receive an Officers' Certificate and an Opinion of Counsel to the effect that any such consolidation, merger, sale, lease or conveyance, and the assumption by any successor corporation, complies with the provisions of this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. I. SUPPLEMENTAL INDENTURES A. Supplemental Indentures without Consent of Holders. Without the consent of -------------------------------------------------- any Holders of Securities or coupons, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities stating that such Events of Default are expressly being included solely for the benefit of such series); provided, however, that in respect of any such -------- ------- additional Events of Default such supplemental Indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other 61 defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of that or those series of Securities to which such additional Events of Default apply or waive such default; or (4) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal or any premium or interest on Bearer Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be issued in exchange for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form, provided that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to secure the Securities; or (7) to establish the form or terms of Securities of any series and any related coupons as permitted by Sections 2.1 and 3.1, including the provisions and procedures relating to Securities convertible into Common Stock or Preferred Stock, as the case may be; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such provisions shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (10) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any 62 series of Securities pursuant to Sections 4.1, 14.2 and 14.3; provided that -------- any such action shall not adversely affect the interests of the Holders of Securities of such series and any related coupons or any other series of Securities in any material respect. A. Supplemental Indentures with Consent of Holders. With the consent of ----------------------------------------------- the Holders of not less than a majority in principal amount of all Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities and any related coupons under this Indenture; provided, however, that no such -------- ------- supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of the principal of (or premium, if any, on) or any installment of principal of or interest on, any Security; or reduce the principal amount thereof or the rate or amount of interest thereon or any Additional Amounts payable in respect thereof, or any premium payable upon the redemption thereof, or change any obligation of the Company to pay Additional Amounts pursuant to Section 10.8 (except as contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce the amount of the principal of an Original Issue Discount Security) that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the amount thereof provable in bankruptcy pursuant to Section 5.4, or adversely affect any right of repayment at the option of the Holder of any Security, or change any Place of Payment where, or the currency or currencies, currency unit or units or composite currency or currencies in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or the Repayment Date, as the case may be), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver with respect to such series (or compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 15.4 for quorum or voting, or 63 (3) modify any of the provisions of this Section, Section 5.13 or Section 10.8, except to increase the required percentage to effect such action or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. A. Execution of Supplemental Indentures. In executing, or accepting the ------------------------------------ additional trusts created by, any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. A. Effect of Supplemental Indentures. Upon the execution of any supplemental --------------------------------- indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder and of any coupon appertaining thereto shall be bound thereby. A. Conformity with Trust Indenture Act. Every supplemental indenture ----------------------------------- executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. A. Reference in Securities to Supplemental Indentures. Securities of any -------------------------------------------------- series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to 64 any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. I. COVENANTS A. Payment of Principal, Premium, if any, Interest and Additional Amounts. ---------------------------------------------------------------------- The Company covenants and agrees for the benefit of the Holders of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on and any Additional Amounts payable in respect of the Securities of that series in accordance with the terms of such series of Securities, any coupons appertaining thereto and this Indenture. Unless otherwise specified as contemplated by Section 3.1 with respect to any series of Securities, any interest due on and any Additional Amounts payable in respect of Bearer Securities on or before Maturity, other than Additional Amounts, if any, payable as provided in Section 10.8 in respect of principal of (or premium, if any, on) such a Security, shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. Unless otherwise specified with respect to Securities of any series pursuant to Section 3.1, at the option of the Company, all payments of principal may be paid by check to the registered Holder of the Registered Security or other person entitled thereto against surrender of such Security. A. Maintenance of Office or Agency. If Securities of a series are issuable ------------------------------- only as Registered Securities, the Company shall maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment or conversion, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company will maintain: (A) in the Borough of Manhattan, The City of New York, an office or agency where any Registered Securities of that series may be presented or surrendered for payment or conversion, where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange, where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served and where Bearer Securities of that series and related coupons may be presented or surrendered for payment or conversion in the circumstances described in the following paragraph (and not otherwise); (B) subject to any laws or regulations applicable thereto, in a Place of Payment for that series which is located outside the United States, an office or agency where Securities of that series and related coupons may be presented and surrendered 65 for payment (including payment of any Additional Amounts payable on Securities of that series pursuant to Section 10.8) or conversion; provided, however, that -------- ------- if the Securities of that series are listed on the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent for the Securities of that series in Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of that series are listed on such exchange; and (C) subject to any laws or regulations applicable thereto, in a Place of Payment for that series located outside the United States an office or agency where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange and where notices and demand to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of each such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Bearer Securities of that series pursuant to Section 10.8) or conversion at the offices specified in the Security, in London, England, and the Company hereby appoints the same as its agent to receive such presentations, surrenders, notices and demands, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 3.1, no payment of principal, premium or interest on or Additional Amounts in respect of Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, that, if the Securities of a series are payable in -------- ------- Dollars, payment of principal of and any premium and interest on any Bearer Security (including any Additional Amounts payable on Securities of such series pursuant to Section 10.8) shall be made at the office of the Company's Paying Agent in the Borough of Manhattan, The City of New York, if (but only if) payment in Dollars of the full amount of such principal, premium, interest or Additional Amounts, as the case may be, at all offices or agencies outside the United States maintained for the purpose by the Company in accordance with this Indenture, is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; 66 provided, however, that no such designation or rescission shall in any manner - -------- ------- relieve the Company of its obligation to maintain an office or agency in accordance with the requirements set forth above for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Unless otherwise specified with respect to any Securities pursuant to Section 3.1 with respect to a series of Securities, the Company hereby designates as a Place of Payment for each series of Securities the office or agency of the Company in the Borough of Manhattan, The City of New York, and initially appoints the Trustee at its Corporate Trust Office as Paying Agent in such city and as its agent to receive all such presentations, surrenders, notice and demands. Unless otherwise specified with respect to any Securities pursuant to Section 3.1, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of the Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. A. Money for Securities Payments to Be Held in Trust. If the Company shall ------------------------------------------------- at any time act as its own Paying Agent with respect to any series of any Securities and any related coupons, it will, on or before each due date of the principal of (and premium, if any), or interest on or Additional Amounts in respect of, any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) sufficient to pay the principal (and premium, if any) or interest or Additional Amounts so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities and any related coupons, it will, on or before each due date of the principal of (and premium, if any), or interest on or Additional Amounts in respect of, any Securities of that series, deposit with a Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal (and premium, if any) or interest or Additional Amounts, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest or Additional Amounts and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. 67 The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities or Additional Amounts in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any such payment of principal (and premium, if any) or interest or Additional Amounts; and (3) at any time during the continuance of any Event of Default upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Except as otherwise provided in the Securities of any series, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on, or any Additional Amounts in respect of, any Security of any series and remaining unclaimed for two years after such principal (and premium, if any), interest or Additional Amounts has become due and payable shall be paid to the Company upon Company Request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment of such principal of (and premium, if any) or interest on, or any Additional Amounts in respect of, any Security, without interest thereon, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, -------- ------- that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such 68 publication, any unclaimed balance of such money then remaining will be repaid to the Company. A. Existence. Subject to Article Eight, the Company will do or cause to --------- be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises, except to the extent the failure to do so would not have a material adverse effect on the business, assets, financial condition or results of operations of the Company (a "Material Adverse Effect"); provided, however, that the Company shall not be -------- ------- required to preserve any right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company. A. Maintenance of Properties. The Company will cause all of it properties ------------------------- used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, except to the extent the failure to do so would not have a Material Adverse Effect on the Company; provided, however, that the Company shall not be required -------- ------- to continue the operation or maintenance of any such property or be prevented from disposing of such property if the Board of Directors shall determine that such discontinuance or disposal is desirable in the conduct of the business of the Company. A. Payment of Taxes and Other Claims. The Company will pay or discharge --------------------------------- or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon it or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary and have a Material Adverse Effect; provided, however, that the -------- ------- Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. A. Statement as to Compliance. The Company will deliver to the Trustee, -------------------------- within 120 days after the end of each fiscal year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture and, in the event of any noncompliance, specifying such noncompliance and the nature and status thereof. For purposes of this Section 10.7, 69 such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. A. Additional Amounts. If any Securities of a series provide for the ------------------ payment of Additional Amounts, the Company will pay to the Holder of any Security of such series or any coupon appertaining thereto Additional Amounts as may be specified as contemplated by Section 3.1. Whenever in this Indenture there is mentioned, in any context except in the case of Section 5.2(1), the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or payment of any related coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established pursuant to Section 3.1 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. Except as otherwise specified as contemplated by Section 3.1, if the Securities of a series provide for the payment of Additional Amounts, at least 10 days prior to the first Interest Payment Date with respect to that series of Securities or if the Securities of that series will not bear interest prior to Maturity, the first day on which a payment of principal and any premium is made, and at least 10 days prior to each date of payment of principal and any premium or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers' Certificate, the Company will furnish the Trustee and the Company's principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers' Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and any premium or interest on the Securities of that series shall be made to Holders of Securities of that series or any related coupons who are not United States persons without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of the series. If any such withholding shall be required, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities of that series or related coupons and the Company will pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. In the event that the Trustee or any Paying Agent, as the case may be, shall not so receive the above-mentioned certificate, then the Trustee or such Paying Agent shall be entitled (i) to assume that no such withholding or deduction is required with respect to any payment of principal or interest with respect to any Securities of a series or related coupons until it shall have received a certificate advising otherwise and (ii) to make all payments of principal and interest with respect to the Securities of a series or related coupons without withholding or deductions until otherwise advised. The Company 70 covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them or in reliance on any Officers' Certificate furnished pursuant to this Section or in reliance on the Company's not furnishing such an Officers' Certificate. A. Waiver of Certain Covenants. The Company may omit in any particular --------------------------- instance to comply with any term, provision or condition set forth in Sections 10.4 to 10.6, inclusive, if before or after the time for such compliance the Holders of at least a majority in principal amount of all outstanding Securities of such series, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. I. REDEMPTION OF SECURITIES A. Applicability of Article. Securities of any series which are redeemable ------------------------ before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.1 for Securities of any series) in accordance with this Article. A. Election to Redeem; Notice to Trustee. The election of the Company to ------------------------------------- redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 45 days prior to the giving of the notice of redemption in Section 11.4 (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. A. Selection by Trustee of Securities to Be Redeemed. If less than all ------------------------------------------------- the Securities of any series issued on the same day with the same terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to time Redemption Date by the Trustee, from the Outstanding Securities of such series issued on such date with the same terms not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which 71 may provide for the selection for redemption of portions (equal the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorization denomination for Securities of that series. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. A. Notice of Redemption. Notice of redemption shall be given in the -------------------- manner provided in Section 1.6, not less than 30 days nor more than 60 days prior to the Redemption Date, unless a shorter period is specified by the terms of such series established pursuant to Section 3.1, to each Holder of Securities to be redeemed, but failure to give such notice in the manner herein provided to the Holder of any Security designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other such Security or portion thereof. Any notice that is mailed to the Holders of Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. All notices of redemption shall state (1) the Redemption Date, (2) the Redemption Price, accrued interest to the Redemption Date payable as provided in Section 11.6, if any, and Additional Amounts, if any, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the holder will receive, without a charge, a new Security or 72 Securities of authorized denominations for the principal amounts thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price and accrued interest to the Redemption Date payable as provided in Section 11.6, if any, will become due and payable upon each such Security, or the portion thereof, to be redeemed and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the Place or Places of Payment where such Securities, together in the case of Bearer Securities with all coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and accrued interest, if any, or for conversion, (7) that the redemption is for a sinking fund, if such is the case, (8) that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all coupons maturing subsequent to the date fixed for redemption or the amount of any such missing coupon or coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee for such series and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and any Registered Securities of such series are not to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on this Redemption Date pursuant to Section 3.5 or otherwise, the Last date, as determined by the Company, on which such exchanges may be made, (10) the CUSIP number of such Security, if any, and (11) if applicable, that a Holder of Securities who desires to convert Securities for redemption must satisfy the requirements for conversion contained in such Securities, the then existing conversion price or rate, and the date and time when the option to convert shall expire. Notice of redemption of Securities to be redeemed shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. A. Deposit of Redemption Price. At least one Business Day prior to any --------------------------- Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, which it may not do in 73 the case of a sinking fund payment under Article Twelve, segregate and hold in trust as provided in Section 10.3) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) sufficient to pay on the Redemption Date the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. A. Securities Payable on Redemption Date. Notice of redemption having been ------------------------------------- given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest on -------- ------- Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 10.2) and, unless otherwise specified as contemplated by Section 3.1, only upon presentation and surrender of coupons for such interest; and provided further that, except as otherwise provided with -------- ------- respect to Securities convertible into Common Stock or Preferred Stock, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnish to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the 74 amount so deducted; provided, however, that interest represented by coupons -------- ------- shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 10.2) and unless otherwise specified as contemplated by Section 3.1, only upon presentation and surrender of those coupons. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. A. Securities Redeemed in Part. Any Registered Security which is to be --------------------------- redeemed only in part (pursuant to the provisions of this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duty executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge a new Security or Securities of the same series, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. I. SINKING FUNDS A. Applicability of Article. The provisions of this Article shall be ------------------------ applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 3.1 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment." If provided for by the terms of any Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. A. Satisfaction of Sinking Fund Payments with Securities. The Company ----------------------------------------------------- may, in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of a series, (1) deliver Outstanding Securities of such series (other than any previously called for redemption) together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto and (2) 75 apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, as provided for by the terms of such Securities, or which have otherwise been acquired by the Company; provided that such Securities -------- so delivered or applied as a credit have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the applicable Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly. A. Redemption of Securities for Sinking Fund. Not less than 60 days prior ----------------------------------------- to each sinking fund payment date for Securities of any series, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 12.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so delivered and credited. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.6 and 11.7. I. REPAYMENT AT THE OPTION OF HOLDERS A. Applicability of Article. Repayment of Securities of any series before ------------------------ their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities, if any, and (except as otherwise specified by the terms of such series established pursuant to Section 3.1) in accordance with this Article. 76 A. Repayment of Securities. Securities of any series subject to repayment ----------------------- in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that at least one Business Day prior to the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) sufficient to pay the principal (or, if so provided by the terms of the Securities of any series, a percentage of the principal) of, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date. A. Exercise of Option. Securities of any series subject to repayment at ------------------ the option of the Holders thereof will contain an "Option to Elect Repayment" form on the reverse of such Securities. In order for any Security to be repaid at the option of the Holder, the Trustee must receive at the Place of Payment therefor specified in the terms of such Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Securities) not earlier than 60 days nor later than 30 days prior to the Repayment Date (1) the Security so providing for such repayment together with the "Option to Elect Repayment" form on the reverse thereof duly completed by the Holder (or by the Holder's attorney duly authorized in writing) or (2) a telegram, telex, facsimile transmission or a Letter from a member of a national securities exchange, or the National Association of Securities Dealers, Inc. ("NASD"), or a commercial bank or trust company in the United States setting forth the name of the Holder of the Security, the principal amount of the Security, the principal amount of the Security to be repaid, the CUSIP number, if any, or a description of the tenor and terms of the Security, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Security to be repaid, together with the duly completed form entitled "Option to Elect Repayment" on the reverse of the Security, will be received by the Trustee not later than the fifth Business Day after the date of such telegram, telex, facsimile transmission or Letter; provided, however, that such -------- ------- telegram, telex, facsimile transmission or letter shall only be effective if such Security and form duly completed are received by the Trustee by such fifth Business Day. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion for the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any Security providing for repayment at the option of the Holder thereof may not be repaid 77 in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. A. When Securities Presented for Repayment Became Due and Payable. If -------------------------------------------------------------- Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be repaid, except to the extent provided below, shall be void. Upon surrender of any such Security for repayment in accordance with such provisions, together with all coupons, if any, appertaining thereto maturing after the Repayment Date, the principal amount of such Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, however, that coupons -------- ------- whose Stated Maturity is on or prior to the Repayment Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 10.2) and, unless otherwise specified pursuant to Section 3.1, only upon presentation and surrender of such coupons; and provided further that, in the case of Registered Securities, installments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. If any Bearer Security surrendered for repayment shall not be accompanied by all appurtenant coupons maturing after the Repayment Date, such Security may be paid after deducting from the amount payable therefor as provided in Section 13.2 an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made as provided in the preceding sentence, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons -------- ------- shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 10.2) 78 and, unless otherwise specified as contemplated by Section 3.1, only upon presentation and surrender of those coupons. If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such Security. A. Securities Repaid in Part. Upon surrender of any Registered Security ------------------------- which is to be repaid in part only, the company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company a new Registered Security or Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid. I. DEFEASANCE AND COVENANT DEFEASANCE A. Applicability of Article; Company's Option to Effect Defeasance or ------------------------------------------------------------------ Covenant Defeasance. If, pursuant to Section 3.1, provision is made for either - ------------------- or both of (a) defeasance of the Securities of or within a series under Section 14.2 or (b) covenant defeasance of the Securities of or within a series under Section 14.3, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article (with such modifications thereto as may be specified pursuant to Section 3.1 with respect to any Securities), shall be applicable to such Securities and any coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any coupons appertaining thereto, elect to have Section 14.2 (if applicable) or Section 14.3 (if applicable) be applied to such Outstanding Securities and any coupons appertaining thereto upon compliance with the conditions set forth below in this Article. A. Defeasance and Discharge. Upon the Company's exercise of the above ------------------------ option applicable to this Section with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any coupons appertaining thereto on the date the conditions set forth in Section 14.4 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Outstanding Securities and any coupons appertaining thereto, which shall thereafter be deemed to be "Outstanding" 79 only for the purposes of Section 14.5 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all of its other obligations under such Securities and any coupons appertaining thereto and this Indenture insofar as such Securities and any coupons appertaining thereto are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Outstanding Securities and any coupons appertaining thereto to receive, solely from the trust fund described in Section 14.4 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 3.5, 3.6, 10.2 and 10.3 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 10.8, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article. Subject to compliance with this Article Fourteen, the Company may exercise its option under this Section notwithstanding the prior exercise of its option under Section 14.3 with respect to such Securities and any coupons appertaining thereto. A. Covenant Defeasance. Upon the Company's exercise of the ------------------- above option applicable to this Section with respect to any Securities of or within a series, the Company shall be released from its obligations under Sections 10.4 to 10.6, inclusive, and, if specified pursuant to Section 3.1, its obligations under any other covenant, with respect to such Outstanding Securities and any coupons appertaining thereto on and after the date the conditions set forth in Section 14.4 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any coupons appertaining thereto shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with Sections 10.4 to 10.6, inclusive, or such other covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any coupons appertaining thereto, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 5.1(4) or 5.1(8) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities and any coupons appertaining thereto shall be unaffected thereby. 80 A. Conditions to Defeasance or Covenant Defeasance. The ----------------------------------------------- following shall be the conditions to application of Section 14.2 or Section 14.3 to any Outstanding Securities of or within a series and any coupons appertaining thereto: 1. The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.7 who shall agree to comply with the provisions of this Article Fourteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any coupons appertaining thereto, (1) an amount in such currency, currencies or currency unit in which such Securities and any coupons appertaining thereto are then specified as payable at Stated Maturity, or (2) Government Obligations applicable to such Securities and coupons appertaining thereto (determined on the basis of the currency, currencies or currency unit in which such Securities and coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto, money in an amount, or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any) and interest, if any, on such Outstanding Securities and any coupons appertaining thereto on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any coupons appertaining thereto on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any coupons appertaining thereto. 1. Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. 1. No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any coupons appertaining thereto shall have occurred and be continuing on the date of such deposit or, insofar as Sections 5.1(6) and 5.1(7) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). 81 1. In the case of an election under Section 14.2, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such 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 such defeasance had not occurred. 1. In the case of an election under Section 14.3, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any coupons appertaining thereto 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 such covenant defeasance had not occurred. 1. The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance under Section 14.2 or the covenant defeasance under Section 14.3 (as the case may be) have been complied with and an Opinion of Counsel to the effect that either (i) as a result of a deposit pursuant to subsection (a) above and the related exercise of the Company's option under Section 14.2 or Section 14.3 (as the case may be), registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the Trustee for such trust funds or (ii) all necessary registrations under said Act have been effected. 1. Notwithstanding any other provisions of this Section, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.1. A. Deposited Money and Government Obligations to Be Held in -------------------------------------------------------- Trust; Other Miscellaneous Provisions. Subject to the provisions of the last - ------------------------------------- paragraph of Section 10.3, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 14.5, the "Trustee") pursuant to Section 14.4 in respect of any Outstanding Securities of any series and any coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any coupons 82 appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities and any coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest and Additional Amounts, if any, but such money need not be segregated from other funds except to the extent required by law. Unless otherwise specified with respect to any Security pursuant to Section 3.1, if, after a deposit referred to in Section 14.4(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 3.1 or the terms of such Security to receive payment in a currency or currency unit other than that in which the deposit pursuant to Section 14.4(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the currency or currency unit in which the deposit pursuant to Section 14.4(a) has been made, the indebtedness represented by such Security and any coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), and interest, if any, on such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the currency or currency unit in which such Security becomes payable as a result of such election or Conversion Event based on the applicable market exchange rate for such currency or currency unit in effect on the second Business Day prior to each payment date, except, with respect to a Conversion Event, for such currency or currency unit in effect (as nearly as feasible) at the time of the Conversion Event. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 14.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any coupons appertaining thereto. Anything in this Article to the contrary notwithstanding, subject to Section 6.6, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 14.4 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Article. 83 I. SUBORDINATION A. Agreement to Subordinate. The Company agrees, and each ------------------------ Holder of Securities by accepting a Security agrees, that the indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full of all Senior Debt and that the subordination is for the benefit of the holders of Senior Debt. A. Liquidation; Dissolution; Bankruptcy. Upon any distribution ------------------------------------ to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Debt shall be entitled to receive payment in full in cash of the principal of and interest (including interest accruing after the commencement of any such proceeding) to the date of payment on the Senior Debt before Holders of Securities shall be entitled to receive any payment of principal of or interest on Securities; and (2) until the Senior Debt is paid in full in cash, any distribution to which Holders of Securities would be entitled but for this Article shall be made to holders of Senior Debt as their interests may appear, except that Holders of Securities may receive securities that are subordinated to Senior Debt to at least the same extent as the Securities. A. Default on Senior Debt. The Company may not pay principal ---------------------- of or interest on the Securities and may not acquire any Securities for cash or property other than capital stock of the Company if: (1) a default on Senior Debt occurs and is continuing that permits holders of such Senior Debt to accelerate its maturity, and (2) the default is the subject of judicial proceedings or the Company receives a notice of the default from a person who may give it pursuant to Section 15.11. If the Company receives any such notice, a similar notice received within nine months thereafter relating to the same default on the same issue of Senior Debt shall not be effective for purposes of this Section. The Company may resume payments on the Securities and may acquire them when: 84 1. the default is cured or waived, or 2. 120 days pass after the notice is given if the default is not the subject of judicial proceedings, if this Article otherwise permits the payment or acquisition at that time. A. Acceleration of Securities. If payment of the Securities is -------------------------- accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. The Company may pay the Securities when 120 days pass after the acceleration occurs if this Article permits the payment at that time. A. When Distribution Must Be Paid Over. If a distribution is ----------------------------------- made to Holders of Securities that because of this Article should not have been made to them, the Holders of Securities who receive the distribution shall hold it in trust for holders of Senior Debt and pay it over to them as their interests may appear. A. Notice by Company. The Company shall promptly notify the ----------------- Trustee and any Paying Agent of any facts known to the Company that would cause a payment of principal of or interest on Securities to violate this Article. A. Subrogation. After all Senior Debt is paid in full and until ----------- the Securities are paid in full, Holders of Securities shall be subrogated to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Securities have been applied to the payment of Senior Debt. A distribution made under this Article to holders of Senior Debt which otherwise would have been made to Holders of Securities is not, as between the Company and Holders of Securities, a payment by the Company on Senior Debt. A. Relative Rights. This Article defines the relative rights of --------------- Holders of Securities and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Securities, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; (2) affect the relative rights of Holders of Securities and creditors of the Company other than holders of Senior Debt; or (3) prevent the Trustee or any Holders of Securities from exercising its available remedies upon an Event of Default, subject to the rights of holders of Senior Debt to receive distributions otherwise payable to Holders of Securities. 85 If the Company fails because of this Article to pay principal of or interest on a Security on the due date, the failure is still an Event of Default as provided elsewhere herein. A. Subordination May Not Be Impaired by Trust. No right of any ------------------------------------------ holder of Senior Debt to enforce the subordination of the indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. A. Distribution or Notice to Representative. Whenever a ---------------------------------------- distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. A. Rights of Trustee and Paying Agent. The Trustee or any ---------------------------------- Paying Agent may continue to make payments on the Securities until it receives notice of facts that would cause a payment of principal of or interest on the Securities to violate this Article. Only the Company, a Representative or a holder of an issue of Senior Debt that has no Representative may give the notice. * * * * * 86 This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. CAPSTAR HOTEL COMPANY By: Title: Attest: Title: FIRST TRUST OF NEW YORK, N.A., as Trustee By: Title: Attest: Title: 87 ) ) ss: ) On the day of , 199 , before me personally came, to me known, who, being by me duly sworn, did depose and say that he/she resides at, that he/she is of CAPSTAR HOTEL COMPANY, one of the parties described in and which executed the foregoing instrument, and that he/she signed his/her name thereto by authority of the Board of Trustees. Notarial Seal Notary Public COMMISSION EXPIRES ) ) ss: ) On the day of , 199 , before me personally came, to me known, who, being by me duly sworn, did depose and say that he/she resides at , that he/she is of , one of the parties described in and which executed the foregoing instrument, and that he/she signed his/her name thereto by authority of the Board of Trustees. Notarial Seal Notary Public COMMISSION EXPIRES EXHIBIT A FORMS OF CERTIFICATION EXHIBIT A-1 FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE CERTIFICATE Insert title or sufficient description of Securities to be delivered This is to certify that, as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States person(s)"), (ii) are owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in United States Treasury Regulations Section 2.165- 12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise CapStar Hotel Company or its agent that such financial institution will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, in addition, if the owner is a United States or foreign financial institution described in clause (iii) above (whether or not also described in clause (i) or (ii)), this is to further certify that such financial institution has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the above- captioned Securities held by you for our account in accordance with your Operating Procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certificate excepts and does not relate to U.S.$ of such interest in the above-captioned Securities in respect of which we are not able to certify and as to which we understand an exchange for an interest in a Permanent Global Security or an exchange for and delivery of definitive Securities (or, if relevant, collection of any interest) cannot be made until we do certify. We understand that this certificate may be required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Dated: , 19 To be dated no earlier than the 15th day prior to (i) the Exchange Date or (ii) the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable Name of Person Making Certification (Authorized Signatory) Name: Title: EXHIBIT A-2 FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE Insert title or sufficient description of Securities to be delivered This is to certify that, based solely on written certifications that we have received in writing, by tested telex or by electronic transmission from each of the persons appearing in our records as persons entitled to a portion of the principal amount set forth below (our "Member Organizations") substantially in the form attached hereto, as of the date hereof, U.S.$ principal amount of the above-captioned Securities (i) is owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source ("United States person(s)"), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such financial institution has agreed, on its own behalf or through its agent, that we may advise CapStar Hotel Company or its agent that such financial institution will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined In United States Treasury Regulations Section 1.163- 5(c)(2)(i)(D)(7)), and, to the further effect, that financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We further certify that (i) we are not making available herewith for exchange (or, if relevant, collection of any interest) any portion of the temporary global Security representation the above-captioned Securities excepted in the above-referenced certificates of Member Organizations and (ii) as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, collection of any interest) are no longer true and cannot be relied upon as of the date hereof. We understand that this certification is required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Dated: 19 To be dated no earlier than the Exchange Date or the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable By: EX-4.7 6 EXHIBIT 4.7 Exhibit 4.7 OFFICERS' CERTIFICATE We, Paul W. Whetsell, President, Chief Executive Officer and Chairman of the Board, and John Emery, Chief Financial Officer, of CapStar Hotel Company (the "Company"), pursuant to authority granted to the undersigned by the Board of Directors of the Company, hereby establish the terms of the Company's 4.75% Convertible Subordinated Notes due 2004 (the "Notes"), and pursuant to Section 3.1 of the Indenture dated as of October 16, 1997 between the Company and First Trust of New York, National Association, as Trustee (the "Indenture"), hereby certify as follows with respect to the Notes (unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Indenture): 1. The title of the Notes shall be "4.75% Convertible Subordinated Notes due 2004." The Notes constitute a series of Securities as defined in the Indenture. The Notes shall be issuable in fully registered form only in denominations of $1,000 or any integral multiple thereof. 2. The maximum aggregate principal amount of Notes that may be authenticated and delivered under the Indenture shall be $150,000,000 (or $172,500,000 if the over-allotment option (the "Over-Allotment Option") set forth in the Underwriting Agreement dated October 9, 1997 by and between the Company and Lehman Brothers, Inc., BT Alex. Brown Incorporated, Goldman, Sachs & Co., Merrill Lynch & Co., NationsBanc Montgomery Securities, Inc., and Smith Barney Inc. (the "Representatives") is exercised)(except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, other Notes pursuant to Section 3.4, 3.5 or 3.6 of the Indenture). 3. The principal amount of the Notes shall be payable on October 15, 2004, subject to the provisions of the Indenture. 4. Interest on the Notes will accrue from October 16, 1997. The Notes will bear interest at a rate of 4.75% per annum, payable semi-annually on April 15 and October 15, commencing on April 15, 1998, to holders of record at the close of business on the preceding April 1 and October 1, respectively, except (i) that the interest payment upon redemption (unless the date of redemption is an interest payment date) will be payable to the Person to whom principal is payable and (ii) as set forth in the next succeeding sentence. In the case of any Note (or portion thereof) which is converted into Common Stock during the period from (but excluding) a record date to (but excluding) the next succeeding interest payment date either (i) if such Note (or portion thereof) has been called for redemption on a date of redemption which occurs during such period, or is to be redeemed in connection with a Change in Control on a Change in Control Purchase Date (as defined in the Form of Note) which occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) or (ii) if otherwise, any Note (or portion thereof) submitted for conversion during such period shall be accompanied by funds equal to the interest payable on such succeeding interest payment date on the aggregate principal amount so converted. Interest may, at the Company's option, be paid in U.S. Dollars either (i) by check mailed to the address of the Person entitled thereto as it appears in the Note register or (ii) by transfer to an account maintained by such Person located in the United States; provided, however, that payments to The Depository Trust Company, New York, New York ("DTC") will be made by wire transfer of immediately available funds to the account of DTC or its nominee. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months. 5. The Notes are subject to a right of conversion, as set forth herein: Section 5.1. Right to Convert. Subject to and upon compliance with the provisions of the Indenture, the holder of any Note shall have the right, at his or her option, at any time after ninety (90) days following the date of original issuance of the Notes (without taking into account any exercise of the Over-Allotment Option), and prior to the close of business on October 15, 2004 (except that, with respect to any Note or portion of a Note which shall be called for redemption, such right shall terminate, except as provided in Section 5.2, at the close of business on the Business Day next preceding the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount at maturity of any such Note, or any portion of such principal amount at maturity which is $1,000 or an integral multiple thereof, into that number of fully paid and non- assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount at maturity of the Note or portion thereof surrendered for conversion by $1,000 and multiplying the result so obtained by the Conversion Rate in effect at such time, by surrender of the Note so to be converted in whole or in part in the manner provided, together with any required funds, in Section 5.2. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock, and only to the extent such Notes are deemed to have been converted to Common Stock under this Section 5. Section 5.2. Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note in certificated form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to the Indenture, accompanied by the funds, if any, required by the penultimate paragraph of this Section 5.2, and shall give written notice of conversion in the form provided on the Notes (or such other notice which is acceptable to the Company) to the office or agency through which the holder elects to convert such Note or the portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 5.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a Note in global form, the beneficial holder must complete the appropriate instruction form for conversion pursuant to the Depository's book-entry conversion program, deliver by book-entry delivery an interest in such Note in global form, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or conversion agent, and pay the funds, if any, required by this Section 5.2 and any transfer taxes if required pursuant to Section 5.7. 2 As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to the Indenture, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion of such Note or portion thereof in accordance with the provisions of this Section 5 and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 5.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 1, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 5.2 have been satisfied as to such Note (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Rate in effect on the date upon which such Note shall be surrendered. Except as described in this Section 5.2, holders of the Notes will not be entitled to any payment or adjustment on account of accrued and unpaid interest upon conversion of the Notes. The Company's delivery of the fixed number of shares of Common Stock into which the Notes are convertible will be deemed to satisfy the Company's obligation to pay the principal amount at maturity of the Notes and all accrued interest that has not previously been (or is not simultaneously being) paid. The Common Stock is treated as issued first in payment of accrued interest and then in payment of principal. Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding the following interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption during the period from the close of business on such record date to the close of business on the Business Day next preceding the following interest payment date) be accompanied by payment, in New York Clearing House funds or other funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes. Except as provided above in this Section 5.2, no payment or other adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Section 5. 3 Upon the conversion of an interest in a Note in global form, the Trustee, or the Custodian at the direction of the Trustee, shall make a notation on such Note in global form as to the reduction in the principal amount at maturity represented thereby. Section 5.3. Cash Payments in lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount at maturity of the Notes (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment and payment therefor in cash at the current market value thereof to the holder of Notes. The current market value of a share of Common Stock shall be the Closing Price on the first Business Day immediately preceding the day on which the Notes (or specified portions thereof) are deemed to have been converted. Section 5.4. Conversion Rate. The conversion rate shall be as specified in the form of Note (herein called the "Conversion Rate") attached hereto, subject to adjustment as provided in this Section 5. Section 5.5. Adjustment of Conversion Rate. The Conversion Rate shall be adjusted from time to time by the Company as follows: (a) In case the Company shall pay a dividend or make a distribution, in shares of its Common Stock, on its Common Stock, the Conversion Rate in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by multiplying such Conversion Rate by a fraction of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the numerator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 5.5(a) is declared but is not so paid or made and not required to be so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock (as defined in Section 5.5(g) below) at the record date for the determination of stockholders 4 entitled to receive such rights or warrants, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price and the numerator of which shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the record date for the determination of the stockholders entitled to receive such rights or warrants. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. To the extent that shares of Common Stock are not delivered or required to be delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights or warrants are not so issued and not required to be so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such record date for the determination of stockholders entitled to receive such rights or warrants had not been fixed. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than Common Stock) or evidences of its indebtedness or assets (excluding cash dividends or other distributions to the extent paid from retained earnings of the Company) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in Section 5.5(b) above) (any of the foregoing hereinafter in this Section 5.5(d) called the "Distributed Securities"), then in each such case the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect on the record date with respect to such distribution by a fraction of which the denominator shall be the Current Market Price per share of the Common 5 Stock on such record date less the fair market value on such record date (as determined by the Board of Directors of the Company, whose determination shall be conclusive, and described in a certificate filed with the Trustee) of the Distributed Securities applicable to one share of Common Stock and the numerator of which shall be the Current Market Price per share of the Common Stock on the record date for the determination of shareholders entitled to receive such distribution; such adjustment shall become effective immediately prior to the opening of business on the day following such record date. Notwithstanding the foregoing, in the event the then fair market value (as so determined) of the portion of the Distributed Securities applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the relevant record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of Distributed Securities such holder would have received had such holder converted each Note on such record date. In the event that such distribution is not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this subsection (d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock. Notwithstanding the foregoing provisions of this subsection (d), no adjustment shall be made thereunder for any distribution of Distributed Securities if the Company makes proper provision so that each holder of a Note who converts such Note (or any portion thereof) after the record date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of Distributed Securities that such holder would have been entitled to receive if such holder had, immediately prior to such record date, converted such Note into Common Stock, provided that, with respect to any Distributed Securities that are convertible, exchangeable or exercisable, the foregoing provision shall only apply to the extent (and so long as) the Distributed Securities receivable upon conversion of such Note would be convertible, exchangeable or exercisable, as applicable, without any loss of rights or privileges for a period of at least 60 days following conversion of such Note. (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent such preceding quarterly dividend did not require any adjustment of the Conversion Rate pursuant to this Section 5.5(e) (as adjusted to reflect subdivisions or combinations of the Common Stock), and (B) 10% of the average of the last reported sales price of the Common Stock (determined as provided in Section 5.5(g)) during the ten Trading Days (as defined in Section 5.5(g)) next preceding the date of declaration of such dividend and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, unless the Company elects to reserve such cash for distribution to the holders of the Notes upon the conversion of the Notes so that any such holder converting Notes will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount of cash which such holder would have received if such holder had, immediately prior to the record date for such distribution of cash, converted its Notes into Common Stock, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on such record date by a fraction of which the denominator shall be 6 such Current Market Price of the Common Stock on the record date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the numerator of which shall be the Current Market Price of the Common Stock on such record date; such adjustment to be effective immediately prior to the opening of business on the day following the record date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Note on the record date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this subsection (e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this subsection (e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by the Company or any subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such subsidiary of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive, and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be, at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended), that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction of which the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time; such adjustment to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion 7 Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender or exchange offer had not been made. (g) For purposes of this Section 5.5, the following terms shall have the meaning indicated: (i) "Current Market Price" per share of Common Stock at any date shall be deemed to be the average of the last reported sale prices for the ten (10) consecutive Trading Days (as defined below) preceding the day before the record date with respect to any distribution, issuance or other event requiring such computation. (ii) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the Nasdaq National Market or New York Stock Exchange, or, if such security is not listed or admitted to trading on such quotation system or exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (iii) "fair market value" shall mean the amount which a willing buyer under no compulsion to buy would pay a willing seller under no compulsion to sell in an arm's length transaction. (iv) "record date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (v) "Trading Day" shall mean (x) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which 8 banking institutions in the State of New York are authorized or obligated by law or executive order to close. (h) Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable, and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed distributed for purposes of this Section 5.5 until the occurrence of the earliest Trigger Event. In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto, that shall have resulted in an adjustment to the Conversion Rate under this Section 5.5, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of any such rights or warrants all of which shall have expired without exercise by any holder thereof, the Conversion Rate shall be readjusted as if such issuance had not occurred. (i) No adjustment to the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this subsection (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. Anything in this Section 5.5 to the contrary notwithstanding, the Company shall be entitled to make such increases in the Conversion Rate, in addition to those required by this Section 5.5, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or any distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable. To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is so increased, the Company shall mail to Noteholders and file with the Trustee and the conversion agent a notice of the increase. The Company shall mail the notice at least 5 days before the date the increased Conversion Rate takes effect. The notice shall state the increased Conversion Rate and the period it will be in effect. 9 (j) Whenever the Conversion Rate is adjusted, as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to each Noteholder at its last address appearing on the Note register provided for in the Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (k) In any case in which this Section 5.5 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash or additional shares in lieu of any fractional share pursuant to Section 5.3. (l) In case of a tender or exchange offer made by a Person other than the Company or any subsidiary for an amount which increases the offeror's ownership of Common Stock to more than 25% of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the Expiration Time that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and in which, as of the Expiration Time, the Board of Directors is not recommending rejection of the offer, the Conversion Rate shall be increased so that the same shall equal the price determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction of which the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchange shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the numerator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all Purchased Shares and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 5.5(l) shall not be made if, as of the Expiration Time, the offering documents with 10 respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article 8 of the Indenture. Section 5.6. Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 5.5(c) applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided, that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting-share")), then for the purposes of this Section 5.6 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non- electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at his address appearing on the Note register provided for in the Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 5.6 applies to any event or occurrence, Section 5.5 shall not apply. Section 5.7. Taxes on Shares Issued. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Notholder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in 11 any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 5.8. Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that if at any time the Common Stock shall be listed on the Nasdaq National Market, the New York Stock Exchange or any other national securities exchange or automated quotation system the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Notes; provided, however, that if rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Notes into Common Stock in accordance with the provisions of the Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Notes in accordance with the requirements of such exchange or automated quotation system at such time. Section 5.9. Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Subject to 12 the provisions of the Indenture, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 5.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 5.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Article 6 of the Indenture, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 5.10. Notice to Holders Prior to Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 5.5; or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding- up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Note register provided for in the Indenture, as promptly as possible but in any event at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding- up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, 13 distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. 6. The Notes are subject to redemption, as set forth in the form of the Note. 7. The Notes are not subject to a sinking fund or other analogous fund requirement. 8. The Corporate Trust Office of First Trust of New York, National Association is appointed as the principal paying agent, transfer agent, and registrar for the Notes and for the purpose mentioned in Section 10.2 of the Indenture. The Notes may be presented for payment at maturity at such Corporate Trust Office, or at any other agency as may be appointed by the Issuer from time to time in The City of New York. 9. The Notes will be represented by one or more Global Notes as described under the caption "Description of the Notes--Book Entry; Delivery and Form" in the Issuer's Prospectus Supplement dated October __, 1997 with respect to the offering of the Notes. There will be no bearer notes. 10. The Notes shall have such other terms and conditions (including subordination) as are set forth in the form of the Note. The Notes shall be subject to the provisions of the Indenture [, except that the terms of Sections 14.2 and 14.3 of the Indenture shall not apply to the Notes]. 11. The attached form of the Notes is in the form hereby approved by the undersigned pursuant to authority granted by the Board of Directors of the Company. This Certificate is delivered pursuant to the provisions of Sections 2.1, 3.1 and 3.3 of the Indenture. The undersigned hereby certify as follows: (a) we have read each of the Sections of the Indenture referred to above, and the definitions of the Indenture relating thereto; (b) we have examined the Indenture, the form of Notes and such other documents, records and instruments as we have deemed necessary for purposes of giving this Certificate; (c) in our opinion, we have made such examination and investigation as is necessary to enable us to express an informed opinion as to whether the conditions precedent to the issuance of the Notes have been complied with; and (d) in our opinion, the conditions precedent to the issuance of the Notes have been complied with. 14 Dated: October 16, 1997 ---------------------------------- Paul W. Whetsell, President, Chief Executive Officer and Chairman of the Board Dated: October 16, 1997 ---------------------------------- John Emery, Chief Financial Officer 15 FORM OF NOTE UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CAPSTAR HOTEL COMPANY 4.75% CONVERTIBLE SUBORDINATED NOTE DUE 2004 No. ______ CUSIP CapStar Hotel Company, a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company"), which term includes any successor corporation under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of One Hundred Seventy Two Million Five Hundred Thousand Dollars ($172,500,000) on October 15, 2004, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Note, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on April 15 and October 15 of each year, commencing April 15 , 1998, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 4.75% from October 16, 1997 (or from the most recent interest payment date to which interest has been paid or provided for), until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any April 1 or October 1, as the case may be, and before the following April 15 or October 15, this Note shall bear interest from such April 1 or October 1; provided, however, that if the Company shall default in the payment of interest due on such April 15 or October 15, then this Note shall bear interest from the next preceding April 1 or October 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from October 16, 1997. The interest payable on the Note pursuant to the Indenture on any April 15 or October 15, will be paid to the person entitled thereto as it appears in the Note register at the close of business on the record date, which shall be the April 1 or October 1 (whether or not a Business Day) next preceding such April 15 or October 15, as provided in the Indenture; provided, that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal amount at maturity, Issue Price, Redemption Price, Change in Control Purchase Price and interest on the Notes to the prior payment in full of all Senior Indebtedness, as defined in the Indenture, and provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with and governed by the laws of New York, without regard to principles of conflicts of laws. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. CAPSTAR HOTEL COMPANY By: _____________________________ Name: Title: Attest: ____________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named Indenture. Dated: October 16, 1997 __________________________, as Trustee By: ______________________________ Authorized Signatory By: ______________________________ As Authenticating Agent (if different from Trustee) 2 [FORM OF REVERSE OF NOTE] CAPSTAR HOTEL COMPANY 4.75% CONVERTIBLE SUBORDINATED NOTE DUE 2004 This Note is one of a duly authorized issue of Notes of the Company, designated as its 4.75% Convertible Subordinated Notes due 2004 (herein called the "Notes"), limited to the aggregate principal amount at maturity of $172,500,000 all issued or to be issued under and pursuant to an indenture dated as of October 15, 1997 (herein called the "Indenture"), between the Company and First Trust of New York, National Association, as trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the Issue Price, and accrued interest, if any, through the date of declaration on all Notes may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount at maturity of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that as provided in the Indenture, no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount at maturity thereof, or reduce any amount payable on redemption or repurchase thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal amount at maturity thereof or Redemption Price, Change in Control Purchase Price or interest thereon payable in any coin or currency other than that provided in the Note, or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to make redemption of any Note upon the happening of a Change in Control in a manner adverse to the holder of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, as supplemented, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of principal amount at maturity, Redemption Price, Change in Control Purchase Price or interest in respect of any of the Notes or a failure by the Company to convert any Notes into Common Stock of the Company. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitute hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined below) of the Company, whether outstanding at the date of the Indenture or thereafter incurred, and this Note is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney- in-fact for such purpose. No payment shall be made with respect to the principal of, or premium, if any, or interest on the Notes (including the Payment of any Redemption Price or Change in Control Purchase Price (as defined below)), if (i) a default in the payment of principal, premium, if any, interest, rent or other obligations in respect of Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness); or (ii) a default, other than a payment default, on Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Representative or the Company. The Company may and shall resume payments on and distributions in respect of the Notes upon the earlier of: (1) the date upon which the default is cured or waived or ceases to exist, or (2) in the case of a default referred to in clause (ii) above, 179 days after the Payment Blockage Notice is received. No subsequent period of payment blockage may be commenced pursuant to a Payment Blockage Notice unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice, and (B) all scheduled payments of principal amount at maturity, Redemption Price, Change in Control Purchase Price and interest on the Notes that have come due have been paid in full in cash. During any period of payment blockage, any payment that otherwise would have been made during such period will accrue interest, to the extent legally permissible, at the annual rate set forth herein from the date on which such payment was required under the terms of the Indenture until the date of payment. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. For purposes of the Notes, the term "Senior Indebtedness" means the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness (as defined below) of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is "pari passu" with or "junior" to the Notes. Notwithstanding the foregoing, the term Senior Indebtedness shall not include any Indebtedness of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the 2 reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return. The term "Indebtedness" means, with respect to any Person, and without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof) (other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services), (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers' acceptances, (c) all obligations and liabilities (contingent or otherwise) in respect of leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property, (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement, (e) all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d), (f) any indebtedness or other obligations described in clauses (a) through (d) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person and (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). The term "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). If any payment made to any holder of any Designated Senior Indebtedness or its Representative with respect to such Designated Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Designated Senior Indebtedness effective as of the date of such rescission or return. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal amount at maturity, Issue Price, Redemption Price, Change in Control Purchase Price and 3 interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a year of a 360-day year or twelve 30-day months. In the case of any Note (or portion thereof) which is converted into Common Stock of the Company during the period from (but excluding) a recorded date to (but excluding) the next succeeding interest payment date either (i) if such Note (or portion thereof) has been called for redemption on a redemption date which occurs during such period, or is to be redeemed in connection with a Change in Control Purchase Date which occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) or (ii) if otherwise, any Note (or portion thereof) submitted for conversion during such period shall be accompanied by funds equal to the interest payable on such succeeding interest payment date on the aggregate principal amount at maturity so converted. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount at maturity and any integral multiple thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, but without payment of any service charge (but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes), Notes may be exchanged for a like aggregate principal amount at maturity of Notes of other authorized denominations. The Notes will not be redeemable at the option of the Company prior to October 15, 2000. At any time on or after October 15, 2000, and prior to maturity, the Notes may be redeemed at the option of the Company as a whole, or from time to time in part, upon mailing a notice of such redemption not less than 30 days and not more than 60 days before the date fixed for redemption to the holders of Notes at their last registered addresses, all as provided in the Indenture, at the following Redemption Prices per $1,000 principal amount at maturity, together in each case with accrued interest to the date fixed for redemption. Redemption Date Redemption Price - ---------------- ---------------- October 15, 2000 102.71% October 15, 2001 102.04% October 15, 2002 101.36% October 15, 2003 100.68% October 15, 2004 100.00% Notwithstanding the foregoing, if the date fixed for redemption is an April 15 or October 15, then the interest payable on such date shall be paid to the holder of record on the next preceding April 1 or October 1. The Notes are not subject to redemption through the operation of any sinking fund. 4 In the event of a Change in Control, each holder will have the option, subject to the terms and conditions of the Indenture (including, without limitation, the redemption provisions thereof), to require the Company to repurchase all or any part (provided that the principal amount must be $1,000 or an integral multiple thereof) of the holder's Notes as of the date that is 30 Business Days after the date of the Company's notice of the occurrence of such Change in Control (the "Change in Control Purchase Date") for a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest up to but not including the Change in Control Purchase Date (the "Change in Control Purchase Price"); provided that any semi-annual payment of interest becoming due on the Change in Control Purchase Date shall be payable to the holders of record on the relevant record date of the Notes being repurchased. The payment of the Change in Control Purchase Price shall be made on the fifth full business day following the Change in Control Purchase Date. Within ten Business Days after the occurrence of a Change in Control, the company is required to mail to each holder and to the Trustee a written notice of the occurrence of such Change in Control, setting forth, among other things, the terms and conditions of, and the procedures required for exercise of, the Holder's right to require the repurchase of such holder's Notes. To exercise the repurchase right upon a Change in Control, a holder must deliver written notice of such exercise to the Trustee at any time prior to the close of business on the Change in Control Purchase Date, specifying the Notes with respect to which the repurchase right is being exercised. Such notice of exercise may be withdrawn by the holder by a written notice of withdrawal delivered to the Trustee at any time prior to the close of business on the Change in Control Purchase Date. A Change in Control shall be deemed to have occurred if any of the following occurs after the original issuance of the Notes: (i) the acquisition by any Person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) or 14(d)(2) of the Exchange Act or a successor provision) of beneficial ownership, directly or indirectly, through a purchase, merger, or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise more than 50% of the total voting power of all shares of capital stock of the Company entitling the holders thereof to vote generally in elections of directors; or (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale, lease, or exchange in one transaction or a series of related transactions, of all or substantially all of the property and assets of the Company to another Person (other than (a) any such transaction pursuant to which the holders of 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors immediately prior to such transaction have, directly or indirectly, at least 50% or more of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in elections of directors of the continuing or surviving corporation immediately after such transaction, and (b) a merger which (1) does not result in any reclassification, conversion, exchange, or cancellation of outstanding shares of capital stock of the Company or (2) is effected primarily to change the jurisdiction of incorporation of the Company and results in reclassification, conversion, or exchange of outstanding shares of Common Stock solely into shares of Common Stock of the surviving entity); provided, however, that a Change in Control shall not be deemed to have occurred if the closing price per share of the Common Stock for any 10 trading days within the period of 20 consecutive trading days ending immediately before the occurrence of the event that would otherwise constitute a Change in Control shall equal or exceed 105% of the Conversion Price of the Notes in effect on each such trading day. 5 A "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on the date of execution of the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 90 days following the date of original issuance of the Notes and prior to the close of business on October 15, 2004, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day immediately preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal which is $1,000 principal amount at maturity or an integral multiple thereof, into that number of fully paid and nonassessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount at maturity of this Note or portion thereof to be converted by $1,000 and multiplying the result so obtained by 23.2558 (the "Conversion Rate") or such Conversion Rate as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at the option of such holder, the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of accrued interest or dividends will be made upon any conversion; provided, however, that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date, this Note (unless it or the portion being converted shall have been called for redemption during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date) must be accompanied by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount at maturity being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. Any Notes called for redemption, unless surrendered for conversion on or before the close of business on the date fixed for redemption, may be deemed to be purchased from the holder of such Notes at an amount equal to the applicable Redemption Price, together with accrued interest to the date fixed for redemption, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Notes from the holders thereof and convert them into Common Stock of the Company and to make payment for such Notes as aforesaid to the Trustee in trust for such holders. Upon due presentment for registration of transfer of this Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Note, at the Corporate Trust Office, a new Note or Notes of authorized denominations for an equal aggregate principal amount at maturity will be issued to the transferee in exchange thereof, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any 6 other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal amount at maturity, Issue Price, Redemption Price, Change in Control Purchase Price or any interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York, without regard to principles of conflicts of laws. Terms used in this Note and defined in the Indenture are used herein as therein defined. 7 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in UNIF GIFT MIN ACT -- common TEN ENT -- as tenants by the _________________ Custodian entireties (Cust) JT TEN -- as joint tenants _____________________ under with right of survivorship and (Minor) not as tenants in common Uniform Gifts to Minors Act ____________________(State) Additional abbreviations may also be used though not in the above list. 8 CONVERSION NOTICE To: CAPSTAR HOTEL COMPANY The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 principal amount at maturity or an integral multiple thereof) below designated, into shares of Common Stock of CapStar Hotel Company in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated: * Sign exactly as name appears on the other side of the Note: --------------------------------------- Signature(s) --------------------------------------- Signature Guarantee Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: - --------------------------------------- (Name) - --------------------------------------- (Street Address) - --------------------------------------- (City, State and Zip Code) Please print name and address Principal amount at maturity to be converted (if less than all): $___________ ------------------------------------------- Social Security or Other Taxpayer Identification Number ASSIGNMENT For value received _____________________ hereby sell(s), assign(s) and transfer(s) unto ______________________ (Please insert social security or other Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints ____________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. OPTION TO ELECT REPAYMENT UPON A CHANGE IN CONTROL TO: CAPSTAR HOTEL COMPANY The undersigned registered owner of this Note hereby acknowledges receipt of a notice from CapStar Hotel Company (the "Company") as to the occurrence of a Change in Control with respect to the Company and requests and instructs the Company to repay the entire principal amount at maturity of this Note, or the portion thereof (which is $1,000 principal amount at maturity or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note at the redemption price, together with accrued interest to, but excluding, such date, to the registered holder hereof. Dated: -------------------------------------- -------------------------------------- Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. Principal amount at maturity to be repaid (if less than all): $_______________ _________________________________ Social Security or Other Taxpayer Identification Number EX-4.8 7 EXHIBIT 4.8 EXHIBIT 4.8 MERISTAR HOSPITALITY CORPORATION TO U.S. BANK TRUST NATIONAL ASSOCIATION Trustee FIRST SUPPLEMENTAL INDENTURE Dated as of August 3, 1998 1 FIRST SUPPLEMENTAL INDENTURE, dated as of August 3, 1998 between MeriStar Hospitality Corporation, a Maryland corporation, having its principal office at 1010 Wisconsin Avenue, N.W., Suite 650, Washington, D.C. 20007 and U.S. Bank Trust National Association (f/k/a First Trust of New York, N.A.), a national banking association, duly organized under the laws of the United States of America, as Trustee under the Indenture referred to below (herein called the "Trustee"). RECITALS OF THE COMPANY WHEREAS, CapStar Hotel Company, a Delaware corporation ("CapStar") has heretofore executed and delivered to the Trustee a certain indenture, dated as of October 16, 1997 (the "Indenture"), pursuant to which subordinated debt securities of CapStar (herein called the "Securities") were issued. All terms used in this First Supplemental Indenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture; WHEREAS, CapStar and American General Hospitality Corporation, a Maryland corporation ("AGH") have entered into an Agreement and Plan of Merger, dated as of March 15, 1998 (the "Merger Agreement"), whereby CapStar will merge with and into AGH (the "Merger"), with the result that AGH will be the surviving corporation operating under the name MeriStar Hospitality Corporation (herein called the "Company"); WHEREAS, Section 8.2 of the Indenture provides that CapStar shall not enter the Merger unless the Company assumes all the obligations of CapStar under the Securities and the Indenture pursuant to a supplemental indenture; WHEREAS, Section 9.1(1) of the Indenture provides that without the written consent of any Holder, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may enter into an indenture supplemental to the Indenture to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company in the Indenture and in the Securities; WHEREAS, the Company pursuant to the foregoing authority, proposes in and by this First Supplemental Indenture to amend the Indenture upon the Merger to reflect the assumption by the Company of all the obligations of CapStar under the Securities and the Indenture; and 2 WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement of the Company and the Trustee and a valid amendment of and supplement to the Indenture have been done. 3 NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities as follows: ARTICLE ONE PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Assumption of Obligations. The Company assumes the due and ------------------------- punctual payment of the principal of (and premium, if any) and any interest (including all Additional Amounts, if any, payable pursuant to this Indenture) on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by CapStar. The Company also represents and warrants (i) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of CapStar or any Subsidiary as a result thereof as having been incurred by CapStar or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and (ii) all conditions precedent in the Indenture to the Company's assumption of CapStar's obligations have been complied with. ARTICLE TWO MISCELLANEOUS SECTION 2.1 Incorporation of Indenture. All the provisions of this First -------------------------- Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture; and the Indenture, as supplemented and amended by this First Supplemental Indenture, shall be read, taken and construed as one and the same instrument. SECTION 2.2 Application of First Supplemental Indenture. The provisions ------------------------------------------- and benefit of this First Supplemental Indenture shall be effective with respect to Securities outstanding prior to and after the execution hereof. SECTION 2.3 Headings. The headings of the Articles and Sections of the -------- First Supplemental Indenture are inserted for convenience of reference and shall not be deemed to be a part thereof. 4 SECTION 2.4 Counterparts. This First Supplemental Indenture may be ------------ executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 2.5 Conflict with Trust Indenture Act. If any provision hereof --------------------------------- limits, qualifies or conflicts with another provision hereof which is required to be included in this First Supplemental Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. SECTION 2.6 Successors and Assigns. All covenants and agreements in this ---------------------- First Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. A. SECTION 2.7 Separability Clause. In case any provision in this First ------------------- Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. A. SECTION 2.8 Governing Law. The internal law of the State of New York ------------- shall govern and be used to construe this First Supplemental Indenture. 5 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. 6 STATE OF ) ) ss.: COUNTY OF ) On the day of , 1998, before me personally came, to me known, who, being by me duly sworn, did depose and say that he is of MERISTAR HOSPITALITY CORPORATION, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. ___________________________________ Notary Public [NOTARIAL SEAL] My Commission Expires: STATE OF ) ) ss.: COUNTY OF ) On the day of , 1998, before me personally came, to me known, who, being by me duly sworn, did depose and say that he is of U.S. BANK TRUST NATIONAL ASSOCIATION, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. ___________________________________ Notary Public [NOTARIAL SEAL] My Commission Expires: EX-10.13 8 EXHIBIT 10.13 Exhibit 10.13 THE BORROWERS NAMED HEREIN and LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC. __________________________ LOAN AGREEMENT __________________________ Dated: As of August 12, 1999 THIS LOAN AGREEMENT made as of the 12th day of August, 1999 between the undersigned borrowers listed on the signature pages hereto, (hereinafter referred to, individually and collectively, as the context may require, as a "Borrower" or "Borrowers"), each of the foregoing having an office at 1010 -------- --------- Wisconsin Avenue, N.W., Washington, D.C. 20007 and LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation, having an office at Three World Financial Center, New York, New York 10285 (hereinafter referred to, together with its successors and/or assigns, as "Lender"); ------ W I T N E S S E T H : WHEREAS, at the request of Borrower, Lender has agreed to fund to Borrower a loan in the principal amount of $330,000,000 (the "Loan") pursuant to ---- the terms of this Agreement; WHEREAS, the Loan is evidenced by that certain note of even date herewith in the original principal amount of $301,250,000 ("Note One"), made by certain of the Borrowers, as set forth on Schedule 1 attached hereto (the "Note One Borrowers"), to Lender, and that certain note of even date herewith in the original principal amount of $28,750,000 ("Note Two"), made by certain of the Borrowers, as set forth on Schedule 2 attached hereto (the "Note Two Borrowers"), to Lender (Note One and Note Two, collectively, together with all extensions, renewals, substitutions, modifications, amendments and restatements thereof, the "Note"); ---- WHEREAS, Note Two is secured by, among other things, two (2) mortgages, deeds of trust, deeds to secure debt and other real estate security instruments, as the case may be, each of even date herewith, made by the Note Two Borrowers to and for the benefit of Lender (the "Note Two Security Instruments"), but not by the Note One Security Instruments (defined below); and Note One is secured by, among other things, (i) the Note Two Security Instruments and (ii) seventeen (17) mortgages, deeds of trust, deeds to secure debt and other real estate security instruments, as the case may be, each of even date herewith, made by the Note One Borrowers to and for the benefit of Lender (the "Note One Security Instruments" and, together with the Note Two ----------------------------- Security Instruments, collectively, the "Security Instruments"); -------------------- NOW, THEREFORE, in consideration of ten dollars ($10) and other good and valuable consideration, the receipt of which is hereby acknowledged, Lender and Borrower hereby covenant and agree as follows: 1. The Note and the Security Instruments. The indebtedness of Borrower shall ------------------------------------- be: (i) evidenced by the Note, and (ii) secured by, among other things, (a) the Security Instruments covering the fee interest of the applicable Borrower in the property described therein (individually, a "Property" and -------- collectively, the "Properties"), (b) assignments of leases and rents each ---------- given by Borrower to Lender dated the date hereof and covering the Properties (the "Assignments of Rents"), (c) the Assignments of -------------------- Agreements, Permits and Contracts given by Borrower to Lender dated the date hereof and (d) the Conditional Assignment of Management Agreement and Subordination of Management Fees dated the date hereof given by Borrower and the Manager to Lender (as defined in the Security Instrument). 0 2. Loan Documents. The term "Loan Documents" as used in this Agreement shall -------------- -------------- collectively mean the Note, the Security Instruments, the Assignments of Rents, the Assignments of Agreements, Permits and Contracts, the Environmental Indemnity Agreement, and the Conditional Assignment of Management Agreement and Subordination of Management Fees, the Guaranty of Recourse Obligations, the Subordination, Non-Disturbance and Attornment Agreements, each dated the date hereof, this Agreement and all other documents and instruments of any nature whatsoever executed or delivered in connection with the Loan. 3. Loan Repayment and Defeasance ----------------------------- 3.1 Prepayment and Repayment. Borrower shall repay any outstanding ------------------------ principal indebtedness of the Loan in full on the Maturity Date (as defined in the Note) of the Loan, together with all accrued and unpaid interest thereon to (but excluding) the date of repayment and all other amounts due to Lender in connection with the Loan. Other than as required or permitted pursuant hereto in connection with a casualty or condemnation, Borrower shall have no right to prepay all or any portion of Loan. 3.2 Voluntary Defeasance of the Note. -------------------------------- (a) On or after the Optional Defeasance Date (defined below) subject to the terms and conditions set forth in this Section 3.2, Borrower may defease all or any portion of the Loan evidenced by the Note (a "Defeasance") with ---------- Defeasance Collateral (defined below); provided that a partial defeasance of the Note shall be permitted only in connection with the release of one or more Properties in accordance with Section 4. Defeasance shall be subject, in each case, to the satisfaction of the following conditions precedent: (1) Borrower shall provide not less than thirty (30) days' prior written notice to Lender specifying the date (the "Defeasance ---------- Date") on which the Defeasance Collateral is to be delivered and ---- on which the Defeasance is to occur, as well as the anticipated outstanding principal balance of the Note as of the Defeasance Date. (2) Borrower shall pay to Lender all accrued and unpaid interest on the principal balance of the Note to but not including the Defeasance Date (and if the Defeasance Date is not a Payment Date, the Defeasance Collateral shall take into account the interest that would have accrued on the Note to but not including the next Payment Date). (3) Borrower shall pay to Lender all other sums, not including scheduled interest or principal payments, then due and payable under the Loan Documents. (4) No Event of Default shall exist on the Defeasance Date, except in the event of (A) a Defeasance of the entire outstanding principal balance of the Note prior to the Maturity Date or (B) an for an Event of Default relating solely to a Property that will be released from the lien of the Security Instrument thereon pursuant to Section 4 hereof in connection with such Defeasance. 1 (5) Borrower shall deliver to Lender on the Defeasance Date the required Defeasance Collateral for the Defeasance, which Lender shall hold as security for the defeased portion of the Loan in accordance with the terms of this Agreement. (6) Borrower shall execute and deliver one or more security agreements, in form and substance satisfactory to Lender (in its reasonable judgment), creating a first priority lien on the Defeasance Collateral in accordance with the provisions of this Section 3.2 (the "Security Agreement"). ------------------ (7) Borrower shall deliver to Lender an opinion of counsel for Borrower in form and substance satisfactory to Lender (in its reasonable discretion) stating, among other things, that Lender has a perfected first priority security interest in the Defeasance Collateral. (8) If a Securitization has occurred, Borrower shall deliver to Lender an opinion of counsel for Borrower in form and substance satisfactory to Lender (in its reasonable discretion) and the applicable Rating Agency (in their sole discretion) that the transfer of the Defeasance Collateral in exchange for a release of the Lien on the Property or Properties securing the Note does not constitute a "significant modification" of the Loan under Section 1001 of the Code or cause the REMIC Trust to fail to qualify as a REMIC or otherwise cause a tax to be imposed on the REMIC Trust and that such transfer will not adversely affect the continued availability of any exemption relied upon in connection with the securitization from the prohibited transaction rules of ERISA and section 4975 of the Code. (9) Borrower shall deliver or cause to be delivered a nonconsolidation opinion with respect to the Successor Borrower (defined below), if any, in form and substance reasonably satisfactory to Lender and satisfactory to the applicable Rating Agency in their sole discretion. (10) Borrower shall deliver to Lender an Officer's Certificate certifying that the requirements set forth in this Section 3.2 have been satisfied. (11) Borrower shall deliver such other certificates, documents or instruments as Lender may reasonably request in connection with the satisfaction of the terms and conditions of this Section 3.2. (12) Borrower shall pay all revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of the Note, the creation of one or more Defeased Notes and Undefeased Notes, the transfer of one or more Defeased Notes or Undefeased Notes, or otherwise required to accomplish the Defeasance, together with all reasonable costs and expenses of Lender incurred in connection with the Defeasance, including any costs and expenses associated with the release of one or more Liens as provided in Section 4 hereof and reasonable attorneys' fees and expenses. 2 (13) Borrower shall deliver to Lender a confirmation, in form and substance reasonably satisfactory to Lender, by a "Big Five" independent certified public accounting firm selected by Borrower, that the Defeasance Collateral shall generate monthly amounts sufficient to pay all Scheduled Defeasance Payments (defined below) and other amounts required to be paid by the Borrower hereunder in connection with the proposed Defeasance. (14) Borrower shall deliver to Lender a Rating Confirmation (defined below) with respect to such Defeasance. (15) In the event only a portion of the Loan evidenced by the Note is the subject of the Defeasance in connection with the release of any Lien of any Security Instrument on one or more Properties in accordance with the terms of Section 4 below (including, without, limitation, delivery of Defeasance Collateral sufficient to defease such Property or Properties based on the Release Amount of 125% of the Allocated Loan Amount for such Property or Properties) Borrower shall execute and deliver all necessary documents to amend and restate such Note and issue two substitute notes for each Note: one note having a principal balance equal to the defeased portion of the original Note (the "Defeased Note") ------------- and one note having a principal balance equal to the undefeased portion of the original Note (the "Undefeased Note"). The --------------- Defeased Note and the Undefeased Note shall have identical terms as the original of each Note (and the Defeased Note or Defeased Notes and the Undefeased Note or Undefeased Notes shall be cross- defaulted with each other), except for the principal balance. A Defeased Note cannot be the subject of any further Defeasance. An Undefeased Note may be the subject of a further Defeasance in accordance with the terms of this clause (xv) (the term "Note", as used above in this clause (xv) for these purposes, being deemed to refer to the Undefeased Note that is the subject of further defeasance) and the other provisions of this Section 3.2; provided, however, that no such partial defeasance shall take place unless the conditions outlined in Section 4 are satisfied. (b) The Defeasance Collateral shall generate payments on or prior to, but as close as possible to, all successive Payment Dates after the Defeasance Date (including the Maturity Date) including the outstanding principal balance of either the Loan or the Defeased Note or Defeased Notes on the Maturity Date, and in amounts equal to the Debt Service due on such dates under the Note or Notes or Defeased Note or Defeased Notes, as applicable (the "Scheduled --------- Defeasance Payments"). Each of the obligations of the United States of America - ------------------- that is part of the Defeasance Collateral shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance wholly satisfactory to Lender (including, without limitation, such instruments as may be required by the depository institution holding such securities or by the issuer thereof, as the case may be, to effectuate book-entry transfers and pledges through the book-entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Collateral a first priority security interest therein in favor of the Lender in conformity with all applicable state and federal laws governing the granting of such security interests. Borrower, pursuant to the Security Agreement or other appropriate document, shall irrevocably authorize and direct that the payments received from the Defeasance Collateral shall be made 3 directly to Lender and applied to satisfy the obligations of Borrower under the Note or Notes or Defeased Note or Defeased Notes, as applicable. (c) Upon compliance with the requirements of this Section 3.2, Lender shall designate a successor entity (other than Lender or an affiliate of Borrower) (the "Successor Borrower") to which Borrower shall transfer and assign ------------------ all obligations, rights and duties under and to the Note or Notes or, with respect to the portion of the Note subject to such Defeasance, the Defeased Note, with respect to the together with the pledged Defeasance Collateral (and the obligation of the Lender named herein to designate a Successor Borrower shall be retained by such Person notwithstanding the sale or transfer of the Loan unless such obligation is specifically assumed by a transferee of the Loan). The Successor Borrower shall assume the obligations under the Note or Notes or, as applicable, the Defeased Note and the Security Agreement. The Borrower shall pay $1,000 to any such Successor Borrower as consideration for assuming the obligations under the Note or Notes or, as applicable, the Defeased Note and the Security Agreement. Notwithstanding anything herein or in the Loan Documents that may be construed to the contrary, no other assumption fee shall be payable to the Successor Borrower upon or in consideration for its assumption of the Note or Notes or, as applicable, the Defeased Note and the Security Agreement in accordance with this a Defeasance hereunder, but Borrower shall pay all reasonable out-of-pocket costs and expenses incurred by Lender, including Lender's reasonable attorneys' fees and expenses, incurred in connection therewith. 3.3 Default Prepayment. If all or any part of the principal amount of the ------------------ Loan is prepaid upon acceleration of the Loan following the occurrence of an Event of Default at any time prior to the Maturity Date, Borrower shall be required to make a payment (the "Yield Maintenance Payments") in an amount equal -------------------------- to the greater of (a) three (3%) of such prepaid principal balance and (b) the excess, if any, of (i) the sum of (A) the aggregate respective present values of all scheduled interest payments in respect of the Loan (or the portion of all such interest payments corresponding to the portion of the principal of the Loan to be prepaid upon acceleration) for the period from the date of such prepayment upon acceleration to (and including) the Maturity Date, discounted monthly at a rate equal to the Treasury Constant Yield, such yield equivalent to a percentage expressed on the basis of a 360 day year of twelve 30 day months and (B) the aggregate respective present values of all scheduled principal payments in respect of the Loan (or the then unpaid portion thereof to be prepaid upon acceleration), assuming for these purposes that the entire outstanding scheduled principal amount of the Loan as of the Maturity Date were to be paid in full on such Payment Date, discounted monthly at a rate equal to the Treasury Constant Yield, such yield equivalent to a percentage expressed on the basis of a 360 day year of twelve 30 day months over (ii) the then current outstanding principal amount of the Loan (or the then unpaid portion thereof to be prepaid upon acceleration). If the Yield Maintenance Payments as calculated pursuant to this clause (b) would not be a positive number, then the number yielded by such calculation shall be zero. For purposes of this Section 3.3, the amount of the Loan on the date of prepayment shall be determined after giving effect to any payment of scheduled amortization made on such date. The determination of the Yield Maintenance Payments by Lender shall be conclusive and binding on Borrower in the absence of manifest error. 3.4 Involuntary Prepayment. Following a casualty or condemnation, in the ---------------------- event that Lender elects, pursuant to the terms of the Loan Documents, to apply casualty proceeds or a condemnation award to the Debt, no prepayment premium shall be due in connection therewith, provided that (i) no Event of Default exists, (ii) no other sums (including interest) are due hereunder 4 or under any of the other Loan Documents and (iii) no amount may be prepaid in excess of the amount of casualty proceeds or condemnation award, as the case may be. Any proceeds or awards applied pursuant to this Section 3.4 shall be applied to the reduction of the then outstanding principal balance of the Note in the inverse order in which principal payments are due thereunder. 4. Release of the Property. ----------------------- 4.1 No Release. Except as set forth in this Section 4, no repayment, ---------- prepayment or Defeasance of all or any portion of any Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of any Security Instrument on any of the Properties. 4.2 Release of all Properties. (a) If Borrower has elected to defease ------------------------- the Note in its entirety, and the requirements of Section 3 have been satisfied, all of the Properties shall be released from the Liens of their respective Security Instruments and the Defeasance Collateral, pledged pursuant to the Security Agreement, shall be the sole source of collateral securing the Notes and Borrower and the Guarantors shall be released from their obligations under the Loan Documents (other than those arising under the Environmental Indemnity, the Cooperation Agreement or which otherwise survive by their express terms). (b) In connection with the release of the Liens contemplated in this Section 4, Borrower shall submit to Lender, not less than fifteen (15) days prior to the Defeasance Date, a release of Liens (and related Loan Documents) for each Property (for execution by Lender) in a form appropriate in the applicable state and otherwise satisfactory to Lender in its reasonable discretion and all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release (collectively, "Release Instruments"), together with an Officer's Certificate certifying that such documentation is in compliance with all Legal Requirements. Lender shall execute such Release Instruments on or prior to the Defeasance Date if all of the conditions herein to such release of Liens have been satisfied, and promptly upon such Defeasance, Lender shall transfer to Borrower any funds in the Collateral Accounts with respect the Property or Properties which are the subject of such Defeasance. 4.3 Partial Releases. In connection with a Defeasance of a portion but ---------------- less than all of the Note, and subject to the terms and conditions set forth herein, Borrower shall have the right, from time to time, on any Payment Date (as defined in the Note), or on any Business Day (as defined in the Note), to obtain a release (a "Property Release") of a Property from the lien on the ---------------- related Security Instrument provided that (I) no default under this Agreement, the Note, the Security Instruments or any other Loan Document has occurred and is continuing (except for a default which relates solely and specifically to the Property or Properties proposed to be released, and which release would cure such default in respect of the Loan) and (II) subject to compliance with the provisions set forth below in this Section 4.3, legal, record, economic and beneficial ownership of the Property for which a Property Release is being requested (the "Release Premises") is simultaneously with the granting of the ---------------- Property Release transferred (a "Release Premises Transfer") to and shall be ------------------------- owned immediately after such Property Release by a person(s), party(ies) or entity(ies) other than Borrower, or, except as provided below, any Affiliate of Borrower ("Release Premises Transferee"). In the event that the Borrower seeks --------------------------- to release a Property from the lien of the related Security Instrument, Lender shall release such Property from the lien of the related Security Instrument and the Loan Documents, but only compliance with the following conditions: 5 (a) Borrower shall (on or after the Optional Defeasance Date), defease the portion of the Note equal to the Release Amount (defined below) of the Property being released (together with all accrued and unpaid interest on the principal amount being so defeased), and such defeasance shall be undertaken pursuant to the terms and conditions of Section 3, and all of such terms and conditions shall be satisfied, including, without limitation, Section 3.2(a) (xv) and Section 3.2(c). (b) Borrower shall submit to Lender, not less than twenty (20) days prior to the date of such release, all the Release Instruments together with an Officer's Certificate certifying that such documentation (i) is in compliance with all Legal Requirements and (ii) will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Properties subject to the Loan Documents not being released). In the event that an Affiliate of Borrower is to be the Release Premises Transferee, such Officer's Certificate shall also certify that the aggregate Allocated Loan Amounts applicable to the total number of Release Premises which have been transferred to Affiliates of Borrower (including the proposed transfer) shall not exceed 30% of the original principal balance of the Note. (c) With respect to any release of one or more Properties, after giving effect to such release, the Debt Service Coverage Ratio for all of the Properties then remaining subject to the Liens of the Security Instruments shall be not less than the greater of (x) the Debt Service Coverage Ratio immediately preceding the proposed release of a Property (for purposes of this calculation, the income derived from the Defeasance Collateral delivered to Lender in connection with a partial Defeasance occurring prior to the partial Defeasance in question shall be included in the numerator of the Debt Service Coverage Ratio to the extent that the amount of the income derived from such Defeasance Collateral exceeds the debt service with respect to the applicable Defeased Note) and (y) the Origination Debt Service Coverage Ratio; provided, however, that in order to meet the test set forth in this clause (c), Borrower shall be permitted to defease that portion of the Loan in addition to the applicable Release Amount sufficient to increase the Debt Service Coverage Ratio to the required level. (d) If the Operating Lease (as defined in the Security Instruments) for the Release Premises proposed to be released has been terminated pursuant to Section 36.1 of the Operating Lease, and, after giving effect to such release, the Borrower that owned the Release Premises prior thereto (the "Release ------- Premises Transferor") is the owner of a Property that remains encumbered by the - ------------------- lien of the Security Instruments, Borrower shall deliver an estoppel certificate from the Operating Tenant (as defined in the Security Instrument) in form satisfactory to Lender stating that the Operating Lease has been terminated and that the Operating Tenant has released the Release Premises Transferor from all liability and obligation to the Operating Tenant in connection with the Operating Lease and that the Release Premises Transferor has no further liability or obligation in connection with said Operating Lease or, if the Operating Lease on the Release Premises has not been terminated, Borrower shall deliver an estoppel certificate from the Operating Tenant in form satisfactory to Lender that such Operating Lease, as it relates to the Release Premises, is and will remain in full force and effect following the Release Premises Transfer and that the Release Premises Transferor has no liability or obligation to the Operating Tenant in connection with the Operating Lease. 6 (e) The Property located in Philadelphia, Pennsylvania (the "Philadelphia Property") may not be the subject of a Property Release unless either (i) the Property located in Austin, Texas (the "Austin Property") is released simultaneously pursuant to and in compliance with this Section 4.3, including the requirement to deliver Defeasance Collateral, or (ii) the interest in BA Parkway Associates II. L.P. held by CapStar AP Partners, L.P. is simultaneously transferred to an entity other than one of the Borrowers. The Property located in Madison, Wisconsin (the "Madison Property") may not be the subject of a Property Release unless either (i) all of the Properties owned by Meristar Secured Holdings LLC are released simultaneously pursuant to and in compliance with this Section 4.3, including the requirement to deliver Defeasance Collateral, or (ii) the interest in the Borrower which owns the Madison Property held by Meristar Secured Holdings LLC is simultaneously transferred to an entity other than one of the Borrowers. 4.4 Release of Lien. Lender shall, upon the written request and at the --------------- expense of Borrower, upon payment in full of all of the Debt in accordance with the terms of the Loan Documents, release the Liens of the Security Instruments and other Loan Documents not theretofore released and transfer to Borrower all sums then on deposit in the Collateral Accounts. 4.5 Disclosed Partial Releases. Notwithstanding anything to the contrary -------------------------- contained in this Section 4 and provided that no default under this Agreement, the Note, the Security Instruments or any other Loan Document has occurred and is continuing, Borrower may request a release of a portion of the Mortgaged Property upon which no improvements have been erected from the lien of the Security Instrument for the Mortgaged Property (the "San Jose Security Instrument") known as the Crowne Plaza, San Jose, California (the "San Jose Crowne Plaza") upon the following terms and conditions: (a) the term "Release Parcel" as used in this Subsection shall mean that portion of unimproved land which Borrower may seek to release from the lien of the San Jose Security Instrument pursuant to this Section as more particularly described on Schedule 3 attached hereto; (b) Borrower shall submit to Lender not less than 15 days prior to the date of such release along with that notice attached hereto as Exhibit A an Officer's Certificate certifying to Lender that (A) the balance of the Property shall continue to be subject to the lien of the San Jose Security Instrument and will not be divided or affected in any way which would have a materially adverse effect on the operation, use or value of the San Jose Crowne Plaza or on the Borrowers ability to timely pay the Debt or adversely affect the security position of Lender under the San Jose Security Instrument, (B) ingress and egress to and from the portion of the San Jose Crowne Plaza remaining subject to the lien of the San Jose Security Instrument will not be terminated or restricted as a result of any such release, (C) such release shall not cause or result in a violation of any of the other provisions of the San Jose Security Instrument or any other Loan Documents, and (D) any parking spaces that are lost will promptly be replaced if necessary to comply with the requirements of any applicable laws or agreements pertaining to the San Jose Crowne Plaza; (c) if requested by Lender, Borrower shall provide Lender with an endorsement to Lender's title insurance policy insuring that the priority of the lien of the San Jose Security Instrument is unaffected as to the San Jose Crowne Plaza remaining encumbered by the lien 7 of the San Jose Security Instrument by reason of the fact that the Release Parcel has been released from the lien hereof, and Borrower shall pay for the cost of such endorsement; (d) all instruments of release shall contain such covenants, conditions and restrictions and shall reserve such rights and easements with respect to the Release Parcel as are necessary to protect and preserve Lender's interests in the portion of the San Jose Crowne Plaza remaining subject to the lien of such Security Instrument after any such release; (e) Borrower shall provide Lender with such surveys, descriptions, title insurance endorsements, computations of acreage and other information as Lender may in its reasonable discretion require in connection with any release made pursuant to this Subsection; (f) Borrower shall obtain all subdivisions and zoning approvals with respect to the Release Parcel and the portion of the San Jose Crowne Plaza remaining subject to the lien of the San Jose Security Instrument as may reasonably be required by Lender to insure that the Release Parcel and the portion of the San Jose Crowne Plaza remaining subject to the lien of such Security Instrument shall be independent of each other for all zoning, subdivision and taxing purposes and to insure that the ability of Lender to foreclose the San Jose Security Instrument shall not be hindered or compromised in any manner whatsoever as a result of any such release; (g) Borrower shall pay all of Lender's reasonable costs and expenses, including reasonable counsel fees and disbursements incurred in connection with the release of the Release Parcel from the lien of the San Jose Security Instrument, the review and approval of the documents and information required to be delivered in connection therewith and all recording fees and title charges; (h) Borrower shall certify to Lender that the release of the Release Parcel shall have no adverse effect on either the then current Debt Service Coverage Ratio or the then current NOI; and (i) Borrower shall provide evidence reasonably satisfactory to Lender that title to the Release Parcel has been transferred to a Release Premises Transferee excluding an Affiliate of Borrower. 5. Substitution of Properties. Prior to the ninth anniversary of the date -------------------------- hereof, provided that no Event of Default has occurred and is continuing, Borrower shall have the right to obtain a release of one or more of the Properties from the lien of the related Security Instrument and Loan Documents (a "Substitution Release") upon (i) substitution (a -------------------- "Substitution") of another fully licensed and operating hospitality ------------ property of comparable type and quality as the Property being released in the place of the Release Premises (a "Substitute Property") owned in fee ------------------- simple (or leasehold) by a Borrower and leased to the Operating Tenant pursuant to an operating lease, substantially in the same form and content as the Operating Lease, which Substitute Property is subjected to the lien of a new mortgage, deed of trust, deed to secure debt or similar security instruments, in the same form and substance as the Security Instruments ("Substitute Security Instrument") and to the lien of the Loan Documents, ------------------------------ as a first lien thereon and managed by Manager (or an affiliate of Manager as provided for in the 8 Management Agreement) pursuant to the terms of the Management Agreement or a Replacement Management Agreement (as defined in the Security Instruments) and, subject to a Franchise Agreement in compliance with the terms and conditions of Section 3.13 of the Security Instruments and (ii) compliance with and subject to the conditions set forth in this Section 5; provided, however, that Borrower's rights to such release and substitution shall be conditioned on receipt by Lender of the following: (1) receipt of a copy of a deed conveying all of the applicable Borrower's right, title and interest in and to the Substitute Property to a Release Premises Transferee and a letter from such Borrower countersigned by a title insurance company acknowledging receipt by such title insurance company of such deed of assignment and assumption, as applicable, and agreeing to record such deed or assignment and assumption, as applicable, in the real estate records for the county in which the Substitute Property is located. (2) evidence which would be satisfactory to a prudent institutional mortgage lender that (i) the Substitute Property is fully operational and is of similar or higher quality and value (including, without limitation, with respect to physical condition and amenities) to the Release Premises and (ii) the Properties, including the Substitute Property, will comply with both the Geographic Diversity Threshold and the Franchise Diversity Threshold (each as defined on Schedule 4 attached hereto). (3) a current Appraisal of the Substitute Property prepared by an MAI appraiser acceptable to Lender and to the Rating Agency within sixty (60) days prior to the release and substitution (1) showing an appraised value equal to or greater than the appraised value of the Release Premises as of the date hereof; and (2) which supports an aggregate loan-to-value ratio with respect to the Substitute Property and the Properties remaining subject to the lien of the Security Instruments after the Substitution Release not greater than the ratio equal to the lesser of (A) the aggregate loan-to-value ratio as of the date hereof with respect to the Properties as set forth on Schedule A attached hereto and (B) the aggregate loan-to-value ratio with respect to the Properties remaining subject to the lien of the Security Instruments immediately prior to the proposed Substitution Release. (4) an opinion or opinions, as necessary, of the related Borrower's counsel which would be satisfactory to a prudent institutional mortgage lender that (i) the Substitute Security Instrument and the Loan Documents by which the Substitute Property will be encumbered have been duly authorized, executed and delivered by such Borrower and are valid and enforceable in accordance with their terms, including, without limitation, with respect to the remedies available to Lender by virtue of the cross-collateralization of the Loans, subject to bankruptcy and equitable principles, (ii) the related Borrower and Operating Tenant are qualified to do business and in good standing under the laws of the jurisdiction where the Substitute Property is located, or that such Borrower, are not required by any Legal Requirement to qualify to do business in such jurisdiction, (iii) based on a certificate of the related Borrower the encumbrance of the Substitute Property with the lien of the Substitute Security Instrument and the Loan Documents shall not cause a breach of, or a default under any agreement, document or instrument to which such Borrower is a party or to which it or its properties are bound or affected, (iv) the Substitution (including such Substitute Borrower and Substitute Property) does not affect the opinions or assumptions set forth in the non-consolidation opinion delivered in connection with the closing of the Loan; (v) if a Securitization has occurred, the Substitution does not constitute a "significant modification" of the Loan under Section 1001 of the Code or cause the REMIC Trust to fail to qualify as a REMIC or otherwise cause a tax to be imposed on the REMIC Trust; and (vi) if a Securitization has occurred, the Substitution will not 9 adversely affect the continued availability of any exemption relied upon in connection with the Securitization from the prohibited transaction rules of ERISA and section 4975 of the Code. (5) a certification by the related Borrower that (x) the certificates, opinions and other instruments which have been or are therewith delivered to or deposited with Lender in connection with such release and substitution conform to the requirements of this Agreement and the Security Instruments, (y) all conditions precedent herein have been complied with and (z) all conditions precedent to the delivery of the Substitute Security Instrument and Loan Documents contained in this Agreement have been fulfilled. (6) original executed counterparts of the Substitute Security Instrument and the Loan Documents encumbering the Substitute Property and the related operating lease and related collateral, including without limitation, any financing statements or other documents necessary to grant or perfect Lender's first priority security interest in the Personal Property (defined in the Security Instruments) located thereon and the Rents and Accounts Receivable derived therefrom; the principal amount of such Substitute Security Instrument shall equal the face amount of the Note, provided that in the event that the jurisdiction in which the Substitute Property is located imposes a mortgage recording intangibles or similar tax, and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, the principal amount of such Substitute Security Instrument shall equal 125% of the Substitute Allocated Loan Amount (defined below). (7) a title insurance policy issued by a title insurance company satisfactory to the Rating Agency (or, if a Securitization has not occurred, to Lender) insuring the lien of the Substitute Security Instrument on the Substitute Property(ies), in form and substance which would be satisfactory to a prudent institutional mortgage lender insuring that the Substitute Security Instrument is a valid and enforceable first lien on the good and marketable fee simple or leasehold estate, title of the related Borrower to the Substitute Property in an amount equal to the amount of the Loan allocated to the Substitute Property (the "Substitute Allocated Loan Amount"), subject only to -------------------------------- standard and customary exceptions and such other exceptions that would be approved by a prudent institutional mortgage lender, together with such affirmative insurance and other endorsements customarily required by a prudent institutional mortgage lender, including, without limitation, a "tie-in" and first loss endorsement satisfactory to Lender, or, if such endorsement is not available in the state in which the Substitute Property is located, insurance in an amount equal to the greater of one hundred twenty five percent (125%) of the Substitute Allocated Loan Amount or the amount on which mortgage or intangibles tax was paid with respect to the Security Instrument for the Substitute Property, together with a "last dollar endorsement". Such title insurance policy shall not contain any exception for any state of facts that an accurate survey might show or that a survey made after the date of the survey referred to in Section 5(l) might show. (8) If the Operating Lease for the Release Premises has been terminated pursuant to Section 36.1 of the Operating Lease, and, after giving effect to such Release, the Release Premises Transferor is the owner of a Property that remains encumbered by the lien of the Security Instruments, an estoppel certificate from the Operating Tenant in form satisfactory to Lender stating that the Operating Lease has been terminated and that the Operating Tenant has released the Release Premises Transferor from all liability for the payment of any and all termination payments or any other payments due to the Operating Tenant pursuant to the terms of the Operating Lease and that the Release Premises Transferor has no further liability or obligation in connection with said Operating Lease or, if the Operating Lease on the Release Premises has not been terminated, an estoppel 10 certificate from the Operating Tenant in form satisfactory to Lender that such Operating Lease, as it relates to the Release Premises, is and will remain in full force and effect following the Substitution Release and that the Release Premises Transferor has no liability for the payment of any termination payments or any other payments due to the Operating Tenant pursuant to the terms of the Operating Lease and that the Release Premises Transferor has no further liability or obligation in connection with said Operating Lease. (9) evidence which would be satisfactory to a prudent institutional mortgage lender that the Substitute Property and the use thereof are in substantial compliance with the applicable zoning, subdivision, and all other applicable federal, state or local laws and ordinances affecting the Substitute Property, and that all material building and operating licenses and permits necessary for the use and occupancy of the Substitute Property as a hospitality property or hotel including, but not limited to, valid certificates of occupancy, have been obtained and are in full force and effect. (10) an environmental report dated within six (6) months prior to delivery which states that the applicable Substitute Property (A) does not contain any Hazardous Materials (1) in material violation of Environmental Laws, (2) reasonably anticipated to give rise to Remedial Work (as defined in the Environmental Indemnity Agreement) or (3) reasonably anticipated to cause diminution in value of the Substitute Property, and (B) is not subject to any risk of material contamination from any off-site Hazardous Material. (11) evidence of payment of all costs and expenses incurred by Lender including reasonable counsel fees and disbursements in connection with the release of any Release Premises and the inclusion of the Substitute Property as collateral, all recording charges, filing fees, taxes, or other expenses, including but not limited to intangibles taxes and documentary stamp taxes in connection with the recording of the Substitute Security Instruments and the lien necessary to grant and perfect Lender a first priority lien on and security interest in the Substitute Property, the Personal Property located therein and the Rents derived therefrom. (12) a recent survey of the Substitute Property(ies) prepared by a land surveyor licensed in the state where the Substitute Property is located pursuant to the then current American Land Title Association/American Congress of Surveying and Mapping standards for title surveys and which would be otherwise satisfactory to a prudent institutional mortgage lender, provided that no structural additions to the improvements shown on such survey or new structures have been made or built since the date of such survey and that there has been no change in the legal description of the Substitute Property since the date of such survey, whether due to sales, transfers, condemnation or otherwise. (13) evidence indicating whether the Substitute Property is located within a flood plain. (14) a property inspection report dated within six (6) months of delivery prepared by an independent licensed engineer approved by Lender, prepared in accordance with standards employed by prudent institutional mortgage lenders stating, among other things, that the Substitute Property is in good condition and repair and free of material damage or waste and complies in all material respects with the Americans with Disabilities Act, or which otherwise reveals a state of fact that would be satisfactory to a prudent institutional mortgage lender and provided that adequate reserves satisfactory to Lender and the Rating Agency are established. 11 (15) annual operating statements and occupancy statements for the Substitute Property for the most recent fiscal year of the owner thereof, together with a year to date operating statement, current occupancy statements, and a budget for the current fiscal year, each certified by the related Borrower, and a certificate of no adverse change since the date thereof executed by the related Borrower, in each case in a form and substance which would be satisfactory to a prudent institutional mortgage lender. (16) original certificates and copies of policies of insurance required by Lender under the terms of the Substitute Security Instrument for the Substitute Property. (17) evidence of the qualification and good standing of the related Borrower and Operating Tenant (and the principals, if necessary) in the state where the Substitute Property is located unless such qualification is not required in such state by any Legal Requirement. (18) certified copies of all Leases (as defined in the Substitute Security Instrument) with respect to the Substitute Property and tenant estoppel certificates from tenants under Material Leases, as required by Lender, all in a form and substance which would be satisfactory to a prudent institutional mortgage lender. (19) certified copies of all material contracts and agreements relating to the management, leasing and operation of the Substitute Property, including, without limitation, the Franchise Agreement, each of which shall be in a form and substance which would be satisfactory to a prudent institutional mortgage lender in a transaction of similar type. (20) certified copies of all material consents, licenses and approvals, if any, required in connection with the substitution of a Substitute Property, including liquor licenses and evidence that such consents, licenses and approvals are in full force and effect or, in the event that a liquor license cannot be issued to Borrower until Borrower has acquired title to the Substitute Property or to the Operating Tenant until the Operating Tenant has taken possession of the Substitute Property under the related Operating Lease, certified copies of a temporary liquor license or concession arrangement that is in full force and effect that permits the sale and consumption of liquor and alcoholic beverages at the Substitute Property. (21) a certificate by the related Borrower and the other Borrowers certifying that all of the representations and warranties contained in the Security Instruments and in the other Loan Documents, after giving effect to the substitution of the Substitute Property, are true, accurate and correct in all respects with respect to the Substitute Property and that there is no Event of Default hereunder. (22) a certificate of the related Borrower and the other Borrowers certifying, together with other evidence that would be satisfactory to a prudent institutional mortgage lender that, after the substitution of a Substitute Property and the release of the Release Premises, (i) the Debt Service Coverage Ratio for the Properties for the twelve (12) month period immediately preceding the second calendar month prior to the date of the Substitution Release with respect to all Properties remaining subject to the lien of the Security Instruments shall be equal to or greater than the greater of (A) the Origination Debt Service Coverage Ratio, and (B) the Debt Service Coverage Ratio immediately prior to the Substitution and (ii) the Debt Service Coverage Ratio for the twelve month period immediately preceding the second calendar month prior to the Substitution Release with respect to the Substitute 12 Property is equal to or greater than the greater of (A) the Debt Service Coverage Ratio at origination with respect to the Release Premises being replaced by the Substitute Property and (B) the Debt Service Coverage Ratio immediately prior to the Substitution with respect to the Release Premises being replaced by the Substitute Property. (23) current UCC, judgment, bankruptcy and pending litigation searches with respect to the Substitute Property and the related Borrower in the state where the Substitute Property is located and the jurisdictions where such person has its principal place of business. (24) a franchisor estoppel and recognition letter from the franchisor under the Franchise Agreement for the Substitute Property in a form and substance which would be satisfactory to a prudent institutional mortgage lender. (25) a certified copy of (i) the operating lease for the Substitute Property between the related Borrower and Operating Tenant or (ii) an amendment to the Operating Lease to include the Substitute Property, in either case in a form and substance which would be satisfactory to a prudent institutional mortgage lender, together with a Subordination, Non-Disturbance and Attornment Agreement with respect to such operating lease. (26) a certified copy of (i) the management agreement for the Substitute Property between Operating Tenant and Manager or (ii) an amendment to the Management Agreement to include the Substitute Property, in either case in a form and substance which would be satisfactory to a prudent institutional mortgage lender together with an Assignment of Management Agreement and Subordination of Management Fees in the same form and substance as with respect to the Release Premises and which comply with the terms of Section 3.13 of the Security Instruments. (27) a certificate of the related Borrower dated the date of the substitution, certifying (i) the names and true signatures of the incumbent officers of such person authorized to sign the applicable Loan Documents, (ii) the by-laws of such person as in effect on the date of the substitution of the Substitute Property, (iii) the resolutions of such person's board of directors approving and authorizing the execution, delivery and performance of all Loan Documents executed by such person, and (iv) that there have been no changes in the certificate of incorporation of such person since the date of the most recent certification thereof by the appropriate Secretary of State. (28) certified copies of the most recent quality assurance reports or similar reports of inspection or compliance from the franchisor under any Franchise Agreement or Management Agreement (the "Quality Assurance Reports"), ------------------------- if any. (29) if the related Borrower owns a leasehold estate in the Substitute Property, (i) a certified copy of the ground lease for the Substitute Property, together with all amendments and modifications thereto and a recorded memorandum thereof, which would be satisfactory to a prudent institutional mortgage lender and which contains customary leasehold mortgagee provisions and protections, and which shall provide, among other things, (A) for a remaining term of no less than 25 years from the Maturity Date, (B) that the ground lease shall not be terminated until Lender has received notice of a default thereunder and has had a reasonable opportunity to cure or complete foreclosure, and fails to do so in a diligent manner, (C) for a new lease on the same terms to the Lender as tenant if the ground lease is terminated for any reason, (D) the non-merger of fee and leasehold interests, and (E) that insurance proceeds and condemnation awards (from the fee interest 13 as well as the leasehold interest) will be applied pursuant to the terms of the Substitute Security Instrument, and (ii) a ground lease estoppel executed by the fee owner and ground lessor of the Substitute Property, acceptable to Lender. (30) such other certificates, opinions, documents and instruments relating to the substitution reasonably requested by Lender, its counsel or the Rating Agency, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the substitution shall be satisfactory in form and substance to Lender in its reasonable discretion. (31) if a Securitization has occurred, a Rating Confirmation. (32) an Officer's Certificate certifying that the aggregate Allocated Loan Amounts applicable to the total number of Release Premises which shall be the subject of any Substitution Release pursuant to this Section shall not exceed 30% of the original principal balance of the Note. (33) if a Low NOI Period exists, evidence satisfactory to Lender in its sole discretion that, on the first Payment Date after giving effect to the Substitution (the "Substitution Date"), the aggregate NOI and the Debt Service Coverage Ratio would be greater than they were prior to such Substitution. (34) if Borrower owns a leasehold rather than fee interest in the Substitute Property, evidence of compliance with Lender's customary terms with respect to leasehold mortgages, including, without limitation, the inclusion of ground rents in the Escrow Fund pursuant to Section 3.5 of the Security Instruments, which shall be incorporated into the Security Instrument encumbering such Substitute Property. (35) in the event that the jurisdiction in which a Substitute Property is located imposes a mortgage recording, intangibles or similar tax and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, confirmation that the Note and other Loan Documents shall be modified to reflect that the Loan shall be fully recourse to the Borrower owning such Substitute Property. (36) if, as a result of a Substitution, the Philadelphia Property will be released from the lien of the applicable Security Instrument, evidence that (i) the Austin Property must be released simultaneously from the lien of the applicable Security Instrument (in accordance with the terms of Section 4.3 or Section 5 hereof, as applicable) or (ii) the interest in BA Parkway Associates II. L.P. held by CapStar AP Partners, L.P. must be simultaneously transferred to an entity other than one of the Borrowers. (37) if, as a result of a Substitution, the Madison Property will be released from the lien of the applicable Security Instrument, evidence that (i) all of the Properties owned by Meristar Secured Holdings LLC must be released simultaneously from the lien of the applicable Security Instrument (in accordance with the terms and subject to compliance with the requirements of Section 5 hereof, as applicable) or (ii) the interest in the Borrower which owns Madison Property held by Meristar Secured Holdings LLC must be simultaneously transferred to an entity other than one of the Borrowers. 14 Simultaneously with compliance of the conditions set forth above in this Section 5, Lender shall (i) release the lien of the related Security Instrument with respect to the Release Premises being replaced with the Substitute Property, and (ii) adjust the Allocated Loan Amounts as Lender deems reasonably necessary to incorporate the Substitute Allocated Loan Amount. Upon the substitution of a Substitute Property in accordance with the terms and conditions of this Section 5, such Substitute Property shall be deemed a Property, and the Substitute Allocated Loan Amount shall be deemed an Allocated Loan Amount for all purposes under this Agreement. 6. Accounts and Reserves; Letter of Credit. --------------------------------------- 6.1 Property Accounts ----------------- (1) Operating Tenant shall establish and maintain with respect to each Property, an account or accounts for the receipt of all cash, receivables, including without limitation credit card receivables and other revenues of any kind derived from the operation of the Property (each, a "Property Account"). ---------------- Each Property Account shall be an Eligible Account (defined below) in the name of Operating Tenant as debtor and Borrower as secured party pursuant to the Operating Lease Security Agreement (as defined in the Security Instruments). Operating Tenant shall cause such depository institutions to deliver to Lender quarterly statements of such accounts to Lender. Funds in the Property Accounts shall not be commingled with any other monies at any time. (2) So long as no default exists under the Operating Lease, the Property Accounts shall be under the sole dominion and control of the Operating Tenants which may use the same in its sole discretion. (3) Pursuant to the Security Instruments, Borrower has pledged and/or assigned to Lender, as additional security for the Loan, all of its right, title and interest in and to the Property Accounts and the Operating Lease Security Agreement. (e) In the event that an Operating Lease is terminated for any reason whatsoever and not immediately replaced with a Replacement Operating Lease (as defined in the Security Instruments), in accordance with the terms of Section 3.7 of the Security Instruments, the Borrowers shall immediately establish and maintain with respect to each Property, an account for the receipt of all cash, receivables, including without limitation credit card receivables and other revenues of any kind derived from the operation of the Property (each, a " Post- ----- Termination Property Account"). Each Post-Termination Property Account shall be - ---------------------------- an Eligible Account in the name of Lender as secured party. Borrower hereby covenants and agrees that it shall (i) immediately upon the termination of the Operating Lease, issue direction letters to all tenants, credit card companies and other accounts receivable counterparties to make all payments directly to the Deposit Account (ii) direct the Manager of the Property to immediately transfer to the Post-Termination Property Account any funds received by Manager in respect of the Property (iii) immediately transfer to the Post-Termination Property Account any funds received by Borrower in respect of the Property and (iv) on the last Business Day of each month, transfer all funds on deposit in the Post-Termination Property Accounts to the Deposit Account. 6.2 Deposit Account. --------------- 15 (1) Borrower shall establish and thereafter maintain with a financial institution reasonably acceptable to Lender (the "Deposit Account Bank") an -------------------- operating account (the "Deposit Account"), which shall be an Eligible Account in --------------- the name of Lender as secured party and under the sole dominion and control of Lender. Borrower shall have no right to make withdrawals from the Deposit Account. The Deposit Account Bank and Borrower shall execute and deliver to Lender on the Closing Date a Deposit Account Agreement which provides, inter alia, that no party other than Lender shall have the right to withdraw funds from the Deposit Account. (2) (i) Borrower and Operating Tenant hereby acknowledge and agree that, without prior written direction from Lender to the contrary, all rents and other sums due under the Operating Lease shall be paid by Operating Tenant directly to the Deposit Account. (ii) Borrower hereby acknowledges that Lender shall transfer, on a daily basis or otherwise in Lender's sole discretion, all sums on deposit in the Post-Termination Property Accounts to the Deposit Account. (3) On each Payment Date (as defined in the Note) or on such prior date as the Deposit Account contains the sum applicable to such month of the amounts set forth in subsections (i) through (x) below (any such prior date, an "Early ----- Payment Date"), provided no Event of Default has occurred and is continuing, - ------------ Lender shall transfer from the Deposit Account, to the extent available therein, the following payments in the following order of priority (the "Waterfall --------- Payments"); and provided, further, that any sums on deposit in the Deposit - -------- Account from the Early Payment Date up to but not including the next succeeding Payment Date, after the Waterfall Payments are made, shall be distributed on a daily basis to Borrower, provided no Event of Default has occurred and is continuing and provided that a Low NOI Period does not exist (in which case such amounts shall be distributed to the Reserve Account): (2) to the Tax, Insurance and Ground Rents Escrow Account, the amounts then required to be reserved pursuant to Section 3.5 of the Security Instruments; (3) to Lender, the Monthly Debt Service Payment Amount (as defined in the Note); (4) in the event that an Operating Lease is terminated, canceled or surrendered and is not replaced with a Replacement Operating Lease in accordance with the terms of Section 3.7 of the Security Instruments, or in the event that the Operating Tenant is in default under an Operating Lease and so long as a Low NOI Period exists, to Borrower, an amount equal to the operating expenditures approved by Lender in the applicable Annual Budget (the "Budget Operating Amount") for the month immediately prior ----------------------- to the month in which such Payment Date occurs, exclusive of any Management Fees and Franchise Fees payable to Affiliates of the REIT, but inclusive of amounts necessary to reimburse actual third-party costs of such Property Managers, provided that (a) no claims are then outstanding against any Borrower for the payment of money which are delinquent for more than 60 days (in the event that such claims are outstanding, Lender shall not be obligated to disburse to Borrower the Budget Operating Amount)(except for claims such Borrower is both contesting in good faith and as to which such Borrower has escrowed 125% 16 of the amount thereof with Lender), and (b) the amounts disbursed to a Borrower pursuant to this clause (iii) shall be used by such Borrower solely to pay operating expenses properly allocable to such month (the receipt by a Borrower on a Payment Date of funds pursuant to this clause (iii) shall constitute a representation and covenant by Borrower that the foregoing subclauses (a) and (b) are true, accurate and complete, unless Borrower shall have notified Lender of any inaccuracy therein prior to such Payment Date). Cost savings from one line item in such Annual Budget may be reallocated to other line items in such budget, provided that without the consent of Lender, no such reallocation shall cause an overall variance in the budget of more than 5%; (5) in the event that an Operating Lease is terminated, canceled or surrendered and is not replaced with a Replacement Operating Lease in accordance with the terms of Section 3.7 of the Security Instruments, or in the event that the Operating Tenant is in default under an Operating Lease and so long as a Low NOI Period exists, to Borrower, an amount equal to the Capital Expenditures (as approved by Lender in the Annual Budget) for the month immediately prior to the month in which such Payment Date occurs (the "Budget Capital Amount"), to the extent that such Capital --------------------- Expenditures exceed amounts required then to be on deposit in the FF&E Reserve Account pursuant to Section 6(e) hereof, provided that (a) no claims are then outstanding against a Borrower for the payment of money which are delinquent for more than 60 days (in the event that such claims are outstanding, Lender shall not be obligated to disburse to Borrower the Budget Capital Amount)(except for claims such Borrower is both contesting in good faith and as to which such Borrower has escrowed 125% of the amount thereof with Lender), and (b) the amounts disbursed to a Borrower pursuant to this clause (iv) shall be used by such Borrower solely to pay Capital Expenditures properly allocable to such month (the receipt by such Borrower on a Payment Date of funds pursuant to this clause (iv) shall constitute a representation and covenant by Borrower that the foregoing subclauses (a) and (b) are true, accurate and complete, unless Borrower shall have notified Lender of any inaccuracy therein prior to such Payment Date). Cost savings from one line item in such budget may be reallocated to other line items in such budget, provided that without the consent of Lender, no such reallocation shall cause an overall variance in the budget of more than 5%; (6) to the FF&E Reserve Account, the amount described in Section 6.5; (7) following the occurrence of any earthquake with respect to any Property or Properties for which earthquake insurance is carried pursuant to Article 3 of the Security Instruments, to the Earthquake Deductible Account, an amount equal to the deductible on such insurance policies applicable to such Property or Properties; (8) to Lender, an amount equal to all interest, costs, expenses, fees and other amounts then due and payable under the Loan Documents, other than amounts 17 paid to Lender pursuant to clause (ii) above or which would be payable to Lender pursuant to clause (x) below; (9) to any Property Managers which are not Affiliates of the REIT an amount equal to the Management Fee then payable to each such Manager, unless the payment of such Management Fee is the obligation of the Operating Tenant; (10) so long as no Event of Default exists, but if a Low NOI Period exists, to the Reserve Account; (11) so long as an Event of Default exists, to Lender, an amount equal to interest accrued and unpaid under the Note at the excess of the Default Rate over the Interest Rate; (12) so long as no Event of Default or Low NOI Period exists, to a single account of Borrower as Borrower may direct, from which account Borrower shall first make payments to any Property Managers which are Affiliates of the REIT, in an amount equal to the Management Fee then payable to each such Property Manager and to any Franchisors which are Affiliates of the REIT, in an amount equal to the Franchise Fee then payable to each such Franchisor. Notwithstanding anything herein to the contrary, the failure of Borrower to make any of the payments required hereunder shall constitute an Event of Default. In the event that on any Payment Date the amount in the Deposit Account shall be insufficient to make all of the transfers described in Section 6.2(c)(i)-(x) above, Borrower shall deposit into the Deposit Account on such Payment Date the amount of such deficiency (without the need for any notice or demand from Lender), and if Borrower shall fail to make such deposit, the same shall constitute an Event of Default and, in addition to all other rights and remedies provided for under the Loan Documents, Lender may disburse and apply the amounts in the Deposit Account in such manner as Lender may determine. If on any Payment Date the amount in the Deposit Account shall be sufficient to make all of the transfers described in Section 6.2(c)(i)-(x), Borrower shall be deemed to have paid such amounts on such Payment Date unless Lender is legally constrained from transferring such amounts in accordance with such Section by reason of any insolvency related to Borrower or any other event. (d) Lender shall have the right to replace the Deposit Account Bank with any other financial institution reasonably satisfactory to Borrower which will promptly execute and deliver to Lender a Deposit Account Agreement (and Borrower shall cooperate with Lender in connection with such transfer) in the event that (i) at any time the short-term debt obligations of the Deposit Account Bank are rated below "A-1" (or the equivalent) by any of the Rating Agencies or the long- term debt obligations of the Deposit Account Bank are rated below "AA" by any of the Rating Agencies, (ii) Lender reasonably determines that use of another financial institution as the Deposit Account Bank would be advisable or convenient in connection with a Securitization, or (iii) the Deposit Account Bank fails to execute and deliver, or to comply with, the Deposit Account Agreement. 6.3 Reserve Account. --------------- 18 (1) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Deposit Account Bank an account (the "Reserve ------- Account") which shall be an Eligible Account in the name of Lender as secured - ------- party and under the sole dominion and control of Lender for the deposit of amounts required to be deposited therein in accordance herewith. Borrower shall have no right to make withdrawals from the Reserve Account. Funds in the Reserve Account shall not be commingled with any other monies at any time. (2) Lender shall release to the Deposit Account all amounts contained in the Reserve Account on the first Payment Date after Borrower delivers to Lender evidence reasonably satisfactory to Lender establishing that a Low NOI Period no longer exists. 6.4 Tax, Insurance and Ground Rents Escrow Account. ---------------------------------------------- The provisions concerning the Escrow Fund (as defined in Section 3.5 of the Security Instruments) for taxes, insurance and, if applicable, ground rents, are set forth in such Section 3.5 of the Security Instruments. 6.5 FF&E Reserve Account. -------------------- (1) Borrower shall establish and thereafter maintain with the Deposit Account Bank an account (the "FF&E Reserve Account") which shall be an Eligible -------------------- Account in the name of Lender as secured party and under the sole dominion and control of Lender and into which Borrower shall (A) deposit on the Closing Date, from the proceeds of the Loan or otherwise, an amount equal to the initial FF&E Required Reserve Amount and (B) maintain thereafter, an amount equal to the applicable FF&E Required Reserve Amount in each case as determined in accordance with Section 6.5(b). In no event shall the amount on deposit in the FF&E Reserve Account be less than the then applicable FF&E Required Reserve Amount at any time during the term of the Loan. (2) The FF&E Required Reserve Amount shall be reset on each Reference Date. Beginning on each Reference Date, Borrower shall, to the extent the amount on deposit in the FF&E Reserve Account is less than the then applicable FF&E Required Reserve Amount, deposit into the FF&E Reserve Account an amount equal to the positive difference between the then applicable FF&E Required Reserve Amount and the FF&E Required Reserve Amount relating to the prior Reference Date. To the extent the amount on deposit in the FF&E Reserve Account exceeds the then applicable FF&E Required Reserve Amount, such excess shall be advanced to Borrower to pay the costs of FF&E Expenditures for the subsequent Quarterly Period, upon delivery by Borrower to Lender of an Officer's Certificate certifying as to the amount of FF&E Expenditures (with, upon Lender's request, copies of invoices and receipts attached to such certification) actually paid during the previous Quarterly Period and that the FF&E Items and Work (defined below) for which prior Quarterly FF&E Shortfall Amounts have been deposited into the FF&E Reserve Account has been completed or can be completed with the funds (not inclusive of the then applicable FF&E Required Reserve Amount) which remain in the FF&E Reserve Account. (3) (i) During each Quarterly Period, Borrower shall be required to (i) make FF&E Expenditures in respect of the items and work (the "FF&E Items and Work") generally described in the Annual Budget ------------------- applicable to the calendar year containing such Quarterly Period in an amount at least equal to the then applicable Quarterly FF&E Reserve Amount less the FF&E Credit Amount, 19 if any, and (ii) deliver an Officer's Certificate to Lender no later than the last day of such Quarterly Period certifying as to (a) the amount of FF&E Expenditures (with copies of invoices and receipts, with respect to invoices in excess of $25,000 from any single contractor or trade, attached to such certification) actually paid during such Quarterly Period and (b) the amount of any Quarterly FF&E Credit Amount or any Quarterly FF&E Shortfall Amount, as applicable, relating to such Quarterly Period. (ii) To the extent there is a Quarterly FF&E Shortfall Amount with respect to a Quarterly Period, then, beginning on the Payment Date immediately following such Quarterly Period, Borrower shall deposit into the FF&E Reserve Account an amount equal to such Quarterly FF&E Shortfall Amount. (iii) Borrower shall have no right to make withdrawals from the FF&E Reserve Account. Funds in the FF&E Reserve Account shall not be commingled with any other monies at any time. (4) Borrower hereby agrees that the items and work described on Schedule 5 attached hereto shall be completed within the time periods set forth on such schedule as part of the FF&E Items and Work for such time periods. 6.6 Deferred Maintenance and Environmental Compliance Reserve Account. ----------------------------------------------------------------- (1) Borrower shall establish and thereafter maintain with the Deposit Account Bank an account (the "Deferred Maintenance and Environmental Compliance ------------------------------------------------- Reserve Account") which shall be an Eligible Account in the name of Lender as - --------------- secured party and under the sole dominion and control of Lender and into which Borrower shall deposit on the Closing Date, from the proceeds of the Loan, an amount equal to the Deferred Maintenance and Environmental Compliance Reserve Amount. Borrower shall have no right to make withdrawals from the Deferred Maintenance and Environmental Compliance Reserve Account. Funds in such Account shall not be commingled with any other monies at any time. (2) Borrower shall have the right to obtain disbursements from time to time (but no more than once per calendar month) from the Deferred Maintenance and Environmental Compliance Reserve Account, to reimburse Borrower for, or to pay expenses incurred by any Borrower in remediating any Deferred Maintenance Condition or Environmental Compliance, in each case on the following terms and conditions: (2) disbursements shall be made only to pay to contractors or vendors or to other parties to whom funds are owing in connection with such work or to reimburse Borrower in respect of any actual costs of the work itemized in Schedule 6 attached hereto; (3) each request for disbursement from the Deferred Maintenance and Environmental Compliance Reserve Account shall specify the work for which the disbursement is requested and shall include an Officer's Certificate certifying that (i) all funds previously disbursed from the Deferred Maintenance and Environmental Compliance Reserve Account have been 20 applied by the applicable Borrower toward the expenses for which they were disbursed and the Borrower has paid their remaining share of all such expenses, and (ii) the funds being requested will be applied to pay or reimburse for materials or work permitted hereunder and done in accordance herewith; (4) Lender shall have received from Borrower evidence reasonably satisfactory to Lender, including lien waivers, if required by Lender, that such Borrower has incurred such expenses and that either (A) the materials for which the request is made are on site at the applicable Property and are properly secured or have been installed in the Property or (B) such request is in connection with a deposit required pursuant to the terms of the contract or contracts under which remediation work with respect to a Deferred Maintenance Condition or Environmental Compliance is being performed; and funds remaining in the Deferred Maintenance and Environmental Compliance Reserve Account after such disbursements will be, in Lender's reasonable judgment, sufficient to pay the balance of the items contemplated to be funded therefrom when required to be so paid, and, with respect to invoices in excess of $25,000 from any single contractor or trade, Lender shall receive copies of partial lien releases and waivers from contractors, subcontractors and others with respect to amounts for which Borrower have previously received disbursements under this Section; (5) Lender shall disburse from the Deferred Maintenance and Environmental Compliance Reserve Account, or authorize such disbursement, within five (5) Business Days after the receipt of Borrower's request for such disbursement and the satisfaction of the other conditions set forth above in this Section, the amount requested by Borrower for such expenses. (c) Borrower shall complete lien free and in a good and workmanlike manner, all of the work itemized on Schedule 6 attached hereto within one (1) year of the date hereof. 6.7 Earthquake Deductible Account. ----------------------------- Borrower shall establish and thereafter maintain with the Deposit Account Bank an account (the "Earthquake Deductible Account") which shall be an ----------------------------- Eligible Account in the name of Lender and under the sole dominion and control of Lender and into which shall be deposited, within thirty (30) days following the occurrence of any earthquake which damages any Property or Properties for which earthquake insurance is carried pursuant to Article III of the Security Instruments (an "Earthquake Insurance Property"), amounts pursuant to Section ----------------------------- 6.2(c) above equal to the lesser of (i) the deductible on such insurance policies applicable to such Property or Properties and (ii) the replacement cost with respect to the actual damages to the Earthquake Insurance Property from such earthquake. Borrower shall have no right to make withdrawals from the Earthquake Deductible Account. Funds in the Earthquake Deductible Account shall not be commingled with any other monies at any time. At any time that an earthquake occurs with respect to an Earthquake Insurance Property, the amounts in the Earthquake Deductible Account shall be applied in accordance with the 21 terms of Section 4.3 of the Security Instruments with respect to such Property or Properties at which such earthquake damage has occurred. 6.8 Account Collateral. ------------------ (1) Borrower hereby grants a perfected first-priority security interest in favor of Lender in and to the Account Collateral as security for the Debt, together with all rights of a secured party with respect thereto. Borrower shall execute any additional documents that Lender in its reasonable discretion may require and shall provide all other evidence reasonably requested by Lender to evidence or perfect its first-priority security interest in the Account Collateral. (2) So long as no Event of Default shall be continuing, Borrower shall be permitted to direct the investment of the funds from time to time held in the Collateral Accounts in Permitted Investments and to sell and reinvest proceeds from the sale or liquidation of Permitted Investments in other Permitted Investments, with all such proceeds and reinvestments to be held in the applicable Collateral Account; provided, however, that the maturity of an adequate portion of the Permitted Investments on deposit in the Collateral Accounts shall be no later than the Business Day immediately preceding the date on which such funds are required to be withdrawn therefrom pursuant to this Agreement. All income and gains from the investment of funds in the Collateral Accounts shall be credited to the Collateral Accounts from which they were derived. As between Borrower and Lender, Borrower shall treat all income, gains and losses from the investment of amounts in the Collateral Accounts as its income or loss for federal, state and local income tax purposes and Borrower shall receive all benefit from such income. (3) After the Loans and all other Debt have been paid in full, or in the event of a Defeasance of the entire outstanding principal balance of the Note, the Collateral Accounts shall be closed and the balances, if any, therein shall be disbursed to Borrower. 6.9 Remedies. (a) In addition to other rights and remedies provided -------- Lender elsewhere in this Agreement and the other Loan Documents, upon the occurrence and during the continuance of an Event of Default, Lender may, in its sole discretion, without notice or liability to Borrower, apply any or all Account Collateral for any of the following purposes relating to the Properties, the Loan or Borrower's obligations hereunder or under any other Loan Document, in the following or any other order: First: reimbursement of Lender for all losses and expenses (including reasonable legal fees) actually suffered or incurred by such persons as a result of such Event of Default; Second: payment of any amount expended in exercising rights and remedies available to Lender at law or in equity or under this Agreement or under any of the other Loan Documents; Third: payment of any other portion or portions of the Debt other than principal and interest; Fourth: payment of interest then due and payable on the Loans; and Fifth: prepayment of the unpaid principal amount of the Loans and payment of interest accrued thereon and any applicable Yield Maintenance Payments. 22 Notwithstanding the foregoing, after the occurrence and during the continuation of an Event of Default, Lender may, in its sole discretion, cause all or a portion of the Account Collateral to be applied toward payment of operating expenses and/or Capital Expenditures. (b) During a Low NOI Period, Lender may undertake, at Borrower's sole cost and expense, property audits and inspections in addition to any such audits or inspections otherwise permitted under the Loan Documents and to the extent any such audits or inspections shall be consistent with Borrower's rights to conduct same under the Operating Lease. (c) During a Low NOI Period caused by a Bankruptcy Event with respect to the Operating Tenant, Lender may, in addition to any other remedies available to Lender, draw down on the Letter of Credit (defined below). 6.1 Letter of Credit. ---------------- (1) Borrower shall at all times maintain with Lender a Letter of Credit (defined below) in an amount equal to the Letter of Credit Amount (defined below). Borrower shall deliver to Lender (i) on the Closing Date, a Letter of Credit in the Letter of Credit Amount and (ii) on the first Business Day of each Letter of Credit Year (defined below), a Letter of Credit in an amount equal to the Letter of Credit Amount, as the same may be adjusted pursuant to this Section 6.10. Lender shall notify Borrower of any adjustment to the Letter of Credit Amount forty-five (45) days prior to the commencement of each Letter of Credit Year. The term "Letter of Credit" shall mean a transferable, clean, ---------------- irrevocable, unconditional standby letter of credit in form and substance satisfactory to Lender in its sole discretion in the amount of the Letter of Credit Amount, issued by a commercial bank (the "Issuing Bank") having a long- ------------ term credit rating of "AA" (or its equivalent) or better assigned by each of the Rating Agencies (the "Minimum L/C Rating") and otherwise satisfactory to Lender ------------------ in its sole discretion. The Letter of Credit shall be payable upon presentation of a sight draft only to the order of Lender at a New York City location and shall have an initial expiration date not earlier than one (1) year from the date of its issuance and shall provide for multiple draws. The Letter of Credit shall be automatically renewed for successive twelve (12) month periods for the term of the Loan. The Issuing Bank shall be obligated to deliver to Lender forty-five (45) days' prior written notice of the expiration of such Letter of Credit to the extent that such Letter of Credit is not renewed. (2) Lender shall be entitled to draw immediately on the Letter of Credit (i) if the Letter of Credit is not renewed forty-five (45) days prior to its expiration date, (ii) if, in the event that the long-term credit rating of the Issuing Bank falls below the Minimum L/C Rating, Borrower fails to deliver to Lender within ten (10) Business Days thereof a Letter of Credit in an amount equal to the Letter of Credit Amount from an Issuing Bank having a credit rating of no less than the Minimum L/C Rating, (iii) upon the occurrence of a Bankruptcy Event (as defined in the Loan Agreement) with respect to the Operating Tenant, (iv) upon an Event of Default or (v) as described in Section 6.9(c) above, during a Low NOI Period caused by a Bankruptcy Event with respect to the Operating Tenant. (3) In addition to the rights of Lender set forth in the preceding paragraph, in the event that Lender draws on a Letter of Credit, Borrower shall deliver to Lender, within ten (10) Business Days of such draw, a new Letter of Credit in an amount equal to the Letter of Credit Amount (unless a draw by Lender is for less than the Letter of Credit Amount, in which case such new Letter of Credit shall be in the amount of the amount of such draw by Lender) issued by an Issuing Bank with the Minimum L/C Rating. Failure by Borrower to do so shall constitute an Event of Default. 23 (4) Upon a draw by Lender of the Letter of Credit, all funds therefrom shall be deposited into the Deposit Account and disbursed in accordance with the terms and conditions of Section 6 of the Loan Agreement. (5) So long as the rating assigned to Societe Generale, Southwest Agency by each of the Rating Agencies does not fall below "AA-" (by Standard & Poor's) and "Aa3" (by Moody's), Societe Generale, Southwest Agency shall constitute an acceptable Issuing Bank for purposes of issuing the Letter of Credit. "Letter of Credit Amount" shall mean, for any Letter of Credit Year ----------------------- (defined below), the sum, of (i) the Monthly Debt Service Payment Amount (as defined in the Note) for the first three (3) months of such Letter of Credit Year and (ii) three (3) times the amount required to be escrowed for Taxes and Insurance Premiums (each as defined in the Security Instruments) and ground rents, if any, for the first month of such Letter of Credit Year. The Letter of Credit Amount for the Letter of Credit Year commencing on the date hereof shall be $9,750,000. "Letter of Credit Year" shall mean the twelve (12) month period following --------------------- the date hereof and each twelve (12) month period thereafter. (f) If, in accordance with the terms of the Security Instruments, the Operating Leases are terminated and either Replacement Operating Leases are executed or the Properties are self-operated by the Borrowers, then provided that the Borrowers and the Properties are in compliance with the terms of Section 3.7 of the Security Instruments, no Event of Default exists and upon delivery of a Rating Confirmation, Lender shall release and return the Letter of Credit to the Borrowers. 7. Events of Default. The term "Event of Default" as used in this Agreement ----------------- ---------------- shall have the meaning ascribed to such term in the Note and the Security Instruments. Notwithstanding any provision to the contrary contained herein or in the other Loan Documents, the occurrence of a Low NOI Period shall not, of itself, constitute an Event of Default. 8. Incorporation of Provisions. The Note, the Security Instruments and the --------------------------- other Loan Documents are subject to the conditions, stipulations, agreements and covenants contained herein to the same extent and effect as if fully set forth therein until this Agreement is terminated by the payment in full of the Debt. 9. Further Assurances. Borrower shall on demand of Lender do any act or ------------------ execute any additional documents reasonably required by Lender to confirm the lien of the Security Instruments. 10. Representations and Warranties. Borrower represents and warrants to Lender ------------------------------ as follows: (1) Borrower is duly qualified to do business in the States in which the respective Properties are located unless such qualification is not necessary pursuant to the applicable laws of the States. 24 (2) Borrower (and the undersigned representative, if any, of Borrower) has the full power and authority to execute and deliver this Agreement and the Loan Documents, and the same constitute the legal, valid and binding obligations of Borrower. (3) Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of such individual Borrower's assets or property, and no individual Borrower has knowledge of any person contemplating the filing of any such petition against it. For purposes of this provision, any knowledge of any officer or director of (i) Borrower, (ii) the managing member (or general partner, as the case may be) of Borrower, (iii) the REIT (as defined in the Security Instruments), (iv) the Operating Partnership (as defined in the Security Instruments) or (v) any other affiliate of Borrower shall be imputed to Borrower. (4) No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact known to Borrower necessary to make statements contained herein or therein not misleading. There is no fact presently known to Borrower which has not been disclosed to Lender which materially and adversely affects, nor as far as Borrower can foresee, would materially and adversely affect, any of the Properties or the business prospects, operations or condition (financial or otherwise) of Borrower. (5) No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 11. Construction of Agreement. The titles and headings of the paragraphs of ------------------------- this Agreement have been inserted for convenience of reference only and are not intended to summarize or otherwise describe the subject matter of such paragraphs and shall not be given any consideration in the construction of this Agreement. Any of the schedules attached hereto which are not referenced herein are referenced in the Security Instruments. 12. Parties Bound, Etc. The provisions of this Agreement shall be binding ------------------ upon and inure to the benefit of Borrower, Lender and their respective heirs, executors, legal representatives, successors and assigns (except as otherwise prohibited by this Agreement). 13. Waivers. Lender may at any time and from time to time waive any one or ------- more of the conditions contained herein, but any such waiver shall be deemed to be made in pursuance hereof and not in modification thereof, and any such waiver in any instance or under any particular circumstance shall not be considered a waiver of such condition in any other instance or any other circumstance. 14. Governing Law. (i) This Agreement shall be deemed to be a contract entered ------------- into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York, provided however, that with respect to the creation, perfection, priority and enforcement of the lien of the Security Instruments, and the determination of deficiency judgments, the laws of the State where the related Property is located shall apply. 25 (ii) Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, Borrower hereby accepts, each for itself and in respect of its property, generally and unconditionally, the non- exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. Borrower irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to Borrower at its address set forth in Article 15 of the Security Instruments. Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of Lender, to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Borrower in any other jurisdiction. 15. Severability. If any term, covenant or provision of this Agreement shall ------------ be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such term, covenant or provision. 16. Notices. All notices required to be given under the terms of this ------- Agreement shall be given in accordance with and to the addresses set forth in Article 15 of the Security Instruments. 17. Fees and Expenses. Borrower shall pay to Lender, upon demand, all ----------------- expenses incurred by Lender in connection with the collection of the Debt, the enforcement of the Loan Documents, and in curing any defaults under the Loan Documents (including, without limitation, reasonable attorneys' fees, which shall include attorney's fees incurred in any trial, appellate or bankruptcy proceeding), with, if any such expenses are past due, interest thereon at a rate per annum equal to the rate of interest payable pursuant to the Note, provided that such interest rate shall in no event exceed the maximum interest rate which Borrower may by law pay, from the date of payment by Lender to the date of payment to Lender, which sums and interest shall be secured by the Security Instruments. 18. Modification. This Agreement may not be modified, amended or terminated, ------------ except by an agreement in writing executed by the parties hereto. 19. No Oral Agreements. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND ------------------ CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY AGREE IN WRITING TO MODIFY IT. 20. Contribution. ------------ 26 (a) As a result of the transactions contemplated by this Agreement, each Borrower will benefit, directly and indirectly, from the Obligations (as defined in the Security Instruments) and in consideration therefor desire to enter into an allocation and contribution agreement among themselves as set forth in this Section 20 to allocate such benefits among themselves and to provide a fair and equitable agreement to make contributions among each of the Borrowers in the event any payment is made by any individual Borrower hereunder to the Lender (such payment being referred to herein as a "Contribution," and for purposes of ------------ this Section 20, includes any exercise of recourse by the Lender against any Collateral of a Borrower and application of proceeds of such Collateral in satisfaction of such Borrower's obligations, to the Lender under the Loan Documents). (b) Each Borrower shall be liable hereunder with respect to the Obligations only for such total maximum amount (if any) that would not render its Obligations hereunder or under any of the Loan Documents subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any state law. (c) In order to provide for a fair and equitable contribution among the Borrowers in the event that any Contribution is made by an individual Borrower (a "Funding Borrower"), such Funding Borrower shall be entitled to a ---------------- reimbursement Contribution ("Reimbursement Contribution") from all other -------------------------- Borrowers for all payments, damages and expenses incurred by that Funding Borrower in discharging any of the Obligations, in the manner and to the extent set forth in this Section. The amount of any Reimbursement Contribution hereunder shall be equal to the payment made by the Funding Borrower to the Lender or any other beneficiary pursuant to this Agreement and shall be determined as of the date on which such payment is made. (d) For purposes hereof, the "Benefit Amount" of any individual Borrower as -------------- of any date of determination shall be the net value of the benefits to such Borrower and its affiliates from extensions of credit made by the Lender to (a) such Borrower and (b) to the other Borrowers hereunder and the Loan Documents to the extent such other Borrowers have guaranteed or mortgaged their Properties to secure the Obligations of such Borrower to the Lender. (e) Each Borrower shall be liable to a Funding Borrower in an amount equal to the greater of (A) the (i) ratio of the Benefit Amount of such Borrower to the total amount of Obligations, multiplied by (ii) the amount of Obligations paid by such Funding Borrower, or (B) 95% of the excess of the fair saleable value of the property of such Borrower over the total liabilities of such Borrower (including the maximum amount reasonably expected to become due in respect of contingent liabilities) determined as of the date on which the payment made by a Funding Borrower is deemed made for purposes hereof (giving effect to all payments made by other Funding Borrowers as of such date in a manner to maximize the amount of such Contributions). (f) In the event that at any time there exists more than one Funding Borrower with respect to any Contribution (in any such case, the "Applicable ---------- Contribution"), then Reimbursement Contributions from other Borrowers pursuant - ------------ hereto shall be allocated among such Funding Borrowers in proportion to the total amount of the Contribution made for or on account of the other Borrowers by each such Funding Borrower pursuant to the Applicable Contribution. In the event that at any time any Borrower pays an amount hereunder in excess of the amount calculated pursuant to Section 20(c) above, that Borrower shall be deemed to be a Funding Borrower to the extent of such 27 excess and shall be entitled to a Reimbursement Contribution from the other Borrowers in accordance with the provisions of this Section. (g) The Borrowers acknowledge that the right to Reimbursement Contribution hereunder shall constitute an asset in favor of the Borrower to which such Reimbursement Contribution is owing. (h) No Reimbursement Contribution payments payable by a Borrower pursuant to the terms of this Section 20 shall be paid until all amounts then due and payable by all of the Borrowers to the Lender, pursuant to the terms of the Loan Documents, are paid in full in cash. Nothing contained in this Section 20 shall limit or affect in any way the Obligations of any Borrower to Lender under this Note or any other Loan Documents. 21. Definitions. Capitalized terms not defined herein shall have the meaning ----------- set forth in the Security Instruments. In addition to the foregoing, the word "person" shall include an individual, corporation, partnership, limited liability company, trust, unincorporated association, government, governmental authority and any other entity. "Account Collateral" means, collectively, the Collateral Accounts and ------------------ all sums at any time held, deposited or invested therein, together with any interest or other earnings thereon, and all proceeds thereof (including, without limitation, proceeds of sales and other dispositions), whether accounts, general intangibles, chattel paper, deposit accounts, instruments, documents or securities. "Affiliate" shall mean a Person or Persons directly or indirectly, --------- through one or more intermediaries, Controlling, Controlled by or under common Control with the Person or Persons in question. "Allocated Loan Amount" Means, with respect to any Property, the --------------------- portion of the Loan allocated thereto, as set forth on Schedule A hereto. "Bankruptcy Event" shall mean (i) the commencement by Operating Tenant ---------------- of any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or if Operating Tenant shall make a general assignment for the benefit of its creditors; or (ii) if there shall be commenced against Operating Tenant any case, proceeding or other action of a nature referred to in clause (i) above which results in the entry of an order for relief or any such adjudication or appointment and is not dismissed within sixty (60) days of the entry of such order. "Capital Expenditures" means, with respect to each Property, hard and -------------------- soft costs incurred by the related Borrower with respect to replacements and capital repairs made to such Property (including, without limitation, repairs to, and replacements of, the structural components, roofs, building systems, parking garages and parking lots, and additions to, and replacements of, FF&E), in each case to the extent such items are capitalized in accordance with GAAP. 28 "Code" means the United States Internal Revenue Code of 1986, as ---- amended from time to time, and the regulations promulgated and the rulings issued thereunder. "Collateral Accounts" means, collectively the Post-Termination ------------------- Property Accounts, the Deposit Account, the Tax, Insurance and Ground Rents Escrow Account, the FF&E Reserve Account, the Deferred Maintenance and Environmental Compliance Reserve Account, the Reserve Account, the Personal Property Account (as defined in the Security Instruments) and Borrower's interest in the Property Accounts, "Control" shall mean, with respect to a Person that is a corporation, ------- the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the shares of the controlled corporation, including the ability to exercise a veto, and, with respect to a Person that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Person. "Controlling" and "Controlled" have meanings correlative thereto. ----------- ---------- "Closing Date" shall mean August 12, 1999. ------------ "Cooperation Agreement" shall mean that certain Mortgage Loan --------------------- Cooperation Agreement dated as of the date hereof among, inter alia, Borrower ----- ---- and Lender. "Debt Service Coverage Ratio" shall mean, as of any Payment Date, a --------------------------- ratio in which (a) the numerator is the NOI for the Properties for the complete 12-month period immediately preceding the first day of the second calendar month prior to such Payment Date multiplied by the remaining term of the Loan (expressed in terms of the number of years and partial years until the Maturity Date(as defined in the Note)) and (b) the denominator is the sum of all payments of interest and principal due under the Note for the remaining term of the Loan (exclusive of (i) any balloon payment due on the Maturity Date pursuant to the amoritzation schedule attached to the Note and (ii) any debt service with respect to any Defeased Note or Defeased Notes) prior to the Maturity Date. The "Origination Debt Service Coverage Ratio" shall be 2.34x. "Defeasance Collateral" shall mean non-callable securities evidencing --------------------- an obligation to pay principal and interest in a full and timely manner that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person Controlled or supervised by and acting as an agency or instrumentality of and guaranteed as a full faith and credit obligation by the United States of America, which in either case are not callable or redeemable at the option of the issuer thereof (including a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such securities or a specific payment of principal of or interest on any such securities held by such custodian for the account of the holder of such depository receipt; provided -------- that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the securities or the specific payment of principal of or interest on the securities evidenced by such depository receipt). "Deferred Maintenance and Environmental Compliance Reserve Amount" ---------------------------------------------------------------- shall mean $2,761,599. 29 "Eligible Account" shall mean (i) an account or account maintained ---------------- with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution, or (ii) a segregated trust account or accounts maintained with the corporate trust department of a federal depository institution or state-chartered depository institution subject to regulations regarding fiduciary funds on deposit similar to Title 12 of the Code of Federal Regulations Section 9.10(b) which, in either case, has corporate trust powers, acting in its fiduciary capacity. "Eligible Institution" shall mean an institution whose (i) short-term -------------------- debt obligations are rated at least "A-1+" (or the equivalent) by each Rating Agency, if the deposits are to be held in the account for thirty (30) days or less, or (ii) long-term senior unsecured debt obligations are rated at least "AA" (or the equivalent) by each Rating Agency, if the deposits are to be held in the account for more than thirty (30) days. "Environmental Indemnity" shall mean that certain Environmental ----------------------- Indemnity Agreement delivered to Lender in connection with the closing of the Loan. "Expenses" shall mean, for purposes of calculating NOI with respect to -------- any Property, for any given period (and shall include the pro rata portion for such period of all such expenses attributable to, but not paid during, such period), all expenses, as determined in accordance with the Uniform System of Accounts, during that period in connection with the operation of such Property for which it is to be determined, including without limitation (and without duplication): 1. expenses for cleaning, repair, maintenance, decoration and painting of the Property (including, without limitation, parking lots and roadways), net of any insurance proceeds in respect of any of the foregoing; 2. wages (including overtime payments), benefits, payroll taxes and all other related expenses for Borrower's on-site personnel, up to and including (but not above) the level of the on-site manager, engaged in the repair, operation and maintenance of the Property and service to tenants and on-site personnel engaged in audit and accounting functions performed by Borrower; 3. management fees equal to the greater of (i) the management fee pursuant to the Management Agreement (as defined in the Security Instruments) and (ii) four percent (4%) of Gross Income. Such fees shall include all fees for management services whether such services are performed at such Property or off- site; 4. franchise fees, reservation fees, national sales and marketing fees and other royalties or similar payments equal to the greater of (i) such fees and payments due under the Franchise Agreement (as defined in the Security Instruments) and (ii) five percent (5%) of Gross Income; 5. the cost of all electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any other energy, utility or similar item and the cost of building and cleaning supplies; 6. the cost of any leasing commissions and tenant concessions and improvements payable by Borrower pursuant to any Leases which are in effect for such Property during such period as such amounts are recognized in accordance with the Uniform System of Accounts, provided 30 however that in no event less than on a straight line basis during the remaining respective base term (excluding extension, renewal or other option); 7. Insurance Premiums (as defined in the Security Instruments); 8. legal, accounting and other professional fees and expenses; 9. the cost of all equipment to be used in the ordinary course of business, which is not capitalized in accordance with the Uniform System of Accounts; 10. Taxes and Other Charges (as such terms are defined in the Security Instruments); 11. advertising and other marketing costs and expenses; 12. casualty losses to the extent not reimbursed by a third party; 13. all amounts that are reserved for hereunder and the Security Instruments, including those funds which are deposited into the FF&E Reserve Account or would be required to be deposited in the FF&E Reserve Account in the event the FF&E Reserve Account is not yet established; 14. all amounts that are required to be reserved for under the Operating Lease, including the Capital Expenditure Reserve (as defined in the Operating Lease), to the extent such amounts are not duplicative of the amounts set forth in clause (M) above; and 15. a furniture, fixtures and equipment reserve equal to the greater of (i) such reserves required under the Management Agreement and the Franchise Agreement and (ii) five percent (5%) of Gross Income, to the extent such amounts are not duplicative of the amounts set forth in clause (M) above. Notwithstanding the foregoing, Expenses shall not include (i) depreciation or amortization or any other non-cash item of expense unless approved by Lender; (ii) interest, principal, fees, costs and expense reimbursements of Lender in administering the Loan but not in exercising any of its rights under this Agreement or the other Loan Documents; or (iii) any expenditure (other than leasing commissions, tenant concessions and improvements and replacement reserves) which is properly treatable as a capital item under the Uniform System of Accounts. "FF&E" shall mean fixtures, furniture and Personal Property (as ---- defined in the Security Instruments). "FF&E Credit Amount" shall mean, with respect to any Quarterly Period, ------------------ the amount by which (a) the FF&E Expenditures during such Quarterly Period exceeds (a) the Quarterly FF&E Reserve Amount applicable to such Quarterly Period. "FF&E Expenditures" shall mean, with respect to any period, the ----------------- amounts spent by Borrower in respect of FF&E for the Properties but shall in no event include amounts spent in respect of Deferred Maintenance and Environmental Remediation Conditions. 31 "FF&E Required Reserve Amount" shall mean an amount equal to the ---------------------------- product of (x) one twelfth (1/12) and (y) four percent (4%) and (z) gross income derived from the operation of the Properties, including, without limitation, rents and accounts receivable during the twelve-month period immediately preceding the first day of the second month immediately preceding the Payment Date for which such amount is calculated. "Franchise Fee" shall mean the fee payable to a Franchisor pursuant to ------------- a Franchise Agreement. "Guarantors" shall mean the guarantors pursuant to that certain ---------- Guaranty of Recourse Obligations dated as of the date hereof. "Gross Income" shall mean, for purposes of calculating NOI with ------------ respect to any Property for any given period, the gross income derived from the operation of such Property for such period. "Legal Requirements" shall mean: ------------------ (a) all governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities (including, without limitation, Environmental Laws) affecting an Borrower or a Property or any part thereof or the construction, ownership, use, alteration or operation thereof, or any part thereof (whether now or hereafter enacted and in force), (b) all permits, licenses and authorizations and regulations relating thereto, and (c) all covenants, conditions and restrictions contained in any instruments at any time in force (whether or not involving Governmental Authorities) affecting a Property or any part thereof which, in the case of this clause (iii), require repairs, modifications or alterations in or to a Property or any part thereof, or in any material way limit or restrict the existing use and enjoyment thereof. "Lien" shall mean any mortgage, deed of trust, security title and/or ---- security interest through a security deed, lien (statutory or other), pledge, hypothecation, assignment, preference, priority, security interest, or any other encumbrance or charge on or affecting a Property or any portion thereof or an Borrower, or any interest therein (including, without limitation, any conditional sale or other title retention agreement, any sale-leaseback, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any other jurisdiction, domestic or foreign, and mechanics', materialmen's and other similar liens and encumbrances). "Low NOI Period" shall mean a period (i) beginning with a Payment Date -------------- (the "Commencement Date") with respect to which (A)(I) NOI has been less than $57,032,913 (the "Low NOI Amount") or (II) the Debt Service Coverage Ratio is less than 1.5x (the "Low Debt Service Threshold") for the NOI/DS Test Period ending on the second Payment Date preceding such Commencement Date or (B) a Bankruptcy Event has occurred with respect to the Operating Tenant 32 since the immediately preceding Payment Date, and (ii) ending on, as applicable, (A) the first Payment Date immediately following the last day of the NOI/DS Test Period coinciding with the second consecutive fiscal quarter following the applicable Commencement Date for which (I) Borrower can demonstrate to the satisfaction of Lender that NOI has been greater than the Low NOI Amount or (II) the Debt Service Coverage Ratio is greater than the Low Debt Service Threshold, or (B) the last day of the calendar month in which a Bankruptcy Event no longer exists with respect to the Operating Tenant. "Management Fee" shall mean the fee payable to a Manager pursuant to -------------- the terms of a Management Agreement. "Mortgage Loan Borrowers" shall mean all of the Borrowers. ----------------------- "NOI" as used herein shall mean, with respect to any Property, for any --- given period, the Gross Income for such Property for such period less Expenses attributable to such Property for such period, as more particularly described on the operating statements for the Property delivered by Borrower or Operating Tenant to Lender pursuant to the Security Instruments. NOI shall include only Rents and Accounts Receivable actually earned by the applicable Operating Tenant in accordance with the Uniform System of Accounts (as defined in the Security Instruments) and such other income, including any rent loss or business interruption insurance proceeds, laundry, parking, vending or concession income, late fees, forfeited security deposits and other miscellaneous tenant charges and Expenses actually paid or payable on an accrual basis attributable to such Property on an annualized basis during the applicable period ending on the last day of the month that is two calendar months prior to the month during which the NOI is being calculated, as set forth on operating statements satisfactory to Lender. NOI shall be calculated on an accrual basis in accordance with the Uniform System of Accounts. Notwithstanding the foregoing, NOI shall not include (a) condemnation or insurance proceeds (excluding rent or business interruption insurance proceeds); (b) any proceeds from the sale, exchange, transfer, financing or refinancing of all or any portion of the Property for which it is to be determined, (c) amounts received from tenants as security deposits; or (d) any other type of income otherwise includible in NOI but paid directly by any tenant to a person or entity other than Borrower or Operating Tenant or their respective agents or representatives, unless such amounts are included as an Expense. "NOI/DS Test Period" shall mean, with respect to any Payment Date ------------------ commencing with respect to the third Payment Date during the term of the Loan, each successive twelve month period ending on a Payment Date. "Officer's Certificate" shall mean a certificate made by an individual --------------------- authorized to act on behalf of a Borrower pursuant to the organizational documents of such Borrower. "Optional Defeasance Date" means the earlier of (a) the third ------------------------ anniversary of the Closing Date and (b) the day after the second anniversary of the "start-up day" (within the meaning of Section 860G(a)(9) of the Code) of the REMIC Trust. "Permitted Investments" shall mean the following, subject to --------------------- qualifications hereinafter set forth: 33 1. Obligations of, or obligations guaranteed as to principal and interest by, the U.S. government or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America. These obligations include, but are not limited to: Treasury obligations (all direct or fully guaranteed US obligations) Farmers Home Administration Certificates of beneficial ownership General Services Administration Participation certificates Maritime Administration Guaranteed Title XI financing Small Business Administration Guaranteed participation certificates Guaranteed pool certificates Department of Housing and Urban Development Local authority bonds Washington Metropolitan Area Transit Authority Guaranteed transit bonds 2. Obligations of government-sponsored agencies that are not backed by the full faith and credit of the U.S., where the obligation is limited to those instruments that have a predetermined fixed dollar amount of principal due at maturity that cannot vary or change. These obligations are limited to: Federal Home Loan Mortgage Corp. (FHLMC)Debt obligations Farm Credit System (formerly: Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives)Consolidated system wide bonds and notes Federal Home Loan Banks (FHL Banks)Consolidated debt obligations Federal National Mortgage Association (FNMA)Debt obligations Student Loan Marketing Association (SLMA)Debt obligations Financing Corp. (FICO)Debt obligations Resolution Funding Corp. (REFCORP)Debt obligations. 3. Federal funds, unsecured certificates of deposit, time deposits, banker's acceptances, and repurchase agreements having maturities of not more than 365 days of any bank, the short-term debt obligations of which are rated "A-1+" (or the equivalent) by each Rating Agency. 4. Deposits that are fully insured by the Federal Deposit Insurance Corp. (FDIC). 5. Debt obligations maturing in 365 days or less that are rated AAA or higher (or the equivalent) by each Rating Agency. 6. Commercial paper rated "A-1+" (or the equivalent) by each Rating Agency and maturing in 365 days or less. 7. Investments in certain short-term debt of issuers rated "A-1+" (or the equivalent) by each Rating Agency may be permitted with certain restrictions. The total amount of debt from "A-1+" issuers must be limited to the investment of an amount equal to Monthly Debt Service Payment Amount. The total amount of "A-1+" investments should not represent more than twenty percent (20%) of the rated issue's outstanding principal amount and each investment should not mature beyond thirty (30) days. Investment in "A-1+" (or the equivalent) rated securities 34 are not eligible for reserve accounts, cash collateral accounts, or other forms of credit enhancement. Short-term debt for purposes of this definition includes: commercial paper, federal funds, repurchase agreements, unsecured certificates of deposit, time deposits, and banker's acceptances. 8. Investment in money market funds rated "AAAm" or "AAAm-G" (or the equivalent) by the Rating Agency. 9. Such other investments as shall be approved in writing by means of a Rating Confirmation. Notwithstanding the foregoing, "Permitted Investments": (i) shall exclude any security with the Standard & Poor's "r" symbol (or any other Rating Agency's corresponding symbol) attached to the rating (indicating high volatility or dramatic fluctuations in their expected returns because of market risk), as well as any mortgage-backed securities and any security of the type commonly known as "strips"; (ii) shall not have maturities in excess of one year; (iii) as to the investments described in (1), (2), (3), (4), (5), (6) and (7): the obligations shall be limited to those instruments that have a predetermined fixed dollar of principal due at maturity that cannot vary or change; interest may either be fixed or variable; and any variable interest should be tied to a single interest rate index plus a single fixed spread (if any), and move proportionately with that index; and (iv) shall exclude any investment where the right to receive principal and interest derived from the underlying investment provide a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. No investment shall be made which requires a payment above par for an obligation if the obligation may be prepaid at the option of the issuer thereof prior to its maturity. All investments, other than those payable on demand, shall mature or be redeemable upon the option of the holder thereof on or prior to the earlier of (x) three (3) months from the date of their purchase or (y) the Business Day preceding the day before the date such amounts are required to be applied hereunder. "Person" shall mean any individual, sole proprietorship, corporation, ------ general partnership, limited partnership, limited liability company or partnership, joint venture, association, joint stock company, bank, trust, estate, unincorporated organization, any federal, state, county or municipal government (or any agency or political subdivision thereof), endowment fund or any other form of entity. "Property Manager" shall mean, with respect to any Property, the ---------------- Person named in the definition of "Qualified Manager" appointed in accordance with Section 3.12 of the Security Instruments. "Quarterly FF&E Credit Amount" shall mean, with respect to any ---------------------------- Quarterly Period, the amount by which (a) the amount of FF&E Expenditures during such Quarterly Period exceeds (b) the Quarterly FF&E Reserve Amount applicable to such Quarterly Period. "Quarterly FF&E Reserve Amount" shall mean three times the applicable ----------------------------- FF&E Required Reserve Amount. "Quarterly Period" means, for each calendar year, each successive ---------------- three month period beginning on (and including) the Payment Date in October, 1999, provided, however, that the period from the date of closing through September 30, 1999 shall be deemed to be a Quarterly Period for 35 purposes of Section 6.5 hereof and any calculations with respect to such Quarterly Period shall be on a prorated basis. "Quarterly FF&E Shortfall Amount" means, with respect to any Quarterly ------------------------------- Period, the amount by which (a) the Quarterly FF&E Reserve Amount applicable to such Quarterly Period exceeds (b) the amount of FF&E Expenditures during such Quarterly Period plus any Quarterly FF&E Credit Amount applicable to such period. "Rating Agency (or, as the context requires, "Rating Agencies")" shall -------------------------------------------------------------- mean each of Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. ("Standard & Poor's"), Moody's Investors Service, Inc. ----------------- ("Moody's"), and any other nationally-recognized statistical rating agency from ------- time to time selected by Lender and rating the Certificates issued in connection with the Securitization. "Rating Confirmation" With respect to the matter in question, shall ------------------- mean that as a condition precedent thereto the Rating Agency shall have confirmed in writing that (i)such investment, replacement, action or inaction shall not result, in and of itself, in a downgrade, withdrawal or qualification of any rating then assigned to any outstanding Certificates (if the Securitization has occurred), or (ii)such investment, replacement, action or inaction would not result, in and of itself, in a downgrade, withdrawal or qualification of any rating for proposed Certificates then under consideration by the Rating Agency (if the Securitization has not yet occurred). "Reference Date" shall mean January 1, 2000 and the 1/st/ day of each -------------- July and January thereafter. "Release Amount" shall mean, for each Property, 125% of the Allocated -------------- Loan Amount relating to such Property. "REMIC" shall mean a "real estate mortgage investment conduit" within ----- the meaning of Section 860D of the Code. "REMIC Trust" shall mean a REMIC which holds any Note or Notes. ----------- "Securities Act" shall mean the Securities Act of 1933, as amended -------------- from time to time. "Securitization" shall have the meaning set forth in the Cooperation -------------- Agreement. "Treasury Constant Yield" shall mean the arithmetic mean of the rates ----------------------- published as "Treasury Constant Maturities" as of 5:00 p.m., New York time, for the five Business Days preceding the date on which acceleration has been declared, as shown on the USD screen of the Telerate service, or if such service is not available, the Bloomberg service, or if neither the Telerate nor the Bloomberg service is available, under Section 504 in the weekly statistical release designated H.15519 (or any successor publication) published by the Board of Governors of the Federal Reserve System, for "On the Run" U.S. Treasury obligations corresponding to the Payment Date occurring on the Maturity Date; if no such maturity shall so exactly correspond, yields for the two most closely corresponding published maturities shall be calculated pursuant to the foregoing sentence and the 36 Treasury Constant Yield shall be interpolated or extrapolated (as applicable) from such yields on a straightline basis (rounding, in the case of relevant periods, to the nearest month). [NO FURTHER TEXT ON THIS PAGE] IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement the day and year first above written. BORROWERS EQUISTAR IRVINE COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer CAPSTAR SACRAMENTO COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer MERISTAR DEL REY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer CAPSTAR SAN FRANCISCO COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer MERISTAR SECURED HOLDINGS LLC, a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer CAPSTAR ENGLEWOOD COMPANY, L.L.C, a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation., a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer EQUISTAR COLORADO COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer CAPSTAR LAFAYETTE COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer EQUISTAR SOMERSET COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer CAPSTAR ALBUQUERQUE COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer EQUISTAR CHARLOTTE COMPANY, L.L.C., a Delaware limited liability company By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer BA PARKWAY ASSOCIATES II, L.P., a Delaware limited partnership By: MeriStar PA SPE LLC, a Delaware limited liability company, its general partner By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ___________________________________ An Phung Assistant Treasurer EQUISTAR ARLINGTON PARTNERS, L.P., a Delaware limited partnership By: MeriStar SPE LLC, a Delaware limited liability company, its general partner By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ___________________________________ An Phung Assistant Treasurer CAPSTAR AP PARTNERS, L.P., a Delaware limited partnership By: MeriStar Austin SPE LLC, a Delaware limited liability company, its general partner By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ___________________________________ An Phung Assistant Treasurer CAPSTAR WESTCHASE PARTNERS, L.P., a Delaware limited partnership By: Westchase SPE LLC, a Delaware limited liability company, its general partner By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ___________________________________ An Phung Assistant Treasurer MERISTAR WEST LOOP, L.P., a Delaware limited partnership By: MeriStar SPE LLC, a Delaware limited liability company, its general partner By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its managing member By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ___________________________________ An Phung Assistant Treasurer MADISON MOTEL ASSOCIATES, LLP, a Wisconsin limited liability partnership By: MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership, its limited liability partner By: MeriStar Hospitality Corporation, a Maryland corporation, its general partner By: ________________________________________ An Phung Assistant Treasurer LENDER: LEHMAN BROTHERS HOLDINGS, INC. d/b/a Lehman Capital, a division of Lehman Brothers Holdings, Inc. By: __________________________________________________ Name: Title: SCHEDULE A
- ----------------------------------------------------------------------------------------------------- Property Borrower Allocated Loan Loan-to-Value Amount Ratio - ----------------------------------------------------------------------------------------------------- 1. Hilton Hotel Orange County EquiStar Irvine $18,010,000 53.8% Airport Company, L.L.C. Irvine, California - ----------------------------------------------------------------------------------------------------- 2. Hilton Sacramento Arden CapStar Sacramento $18,810,000 53.7% West Company, L.L.C. Sacramento, California - ----------------------------------------------------------------------------------------------------- 3. Courtyard by Marriott MeriStar Del Rey, L.L.C. $17,630,000 53.8% Marina Del Rey, California - ----------------------------------------------------------------------------------------------------- 4. Sheraton at Fisherman's CapStar San Francisco $53,380,000 53.8% Wharf Company, L.L.C. San Francisco, California - ----------------------------------------------------------------------------------------------------- 5. Crowne Plaza MeriStar Secured $15,980,000 53.8% San Jose, California Holdings LLC - ----------------------------------------------------------------------------------------------------- 6. Embassy Suites Denver South CapStar Englewood $14,620,000 44.1% Denver, Colorado Company, L.L.C. - ----------------------------------------------------------------------------------------------------- 7. Sheraton Colorado Springs Equistar Colorado $14,510,000 53.7% Colorado Springs, Company, L.L.C. Colorado - ----------------------------------------------------------------------------------------------------- 8. Holiday Inn Select New MeriStar Secured $13,060,000 53.7% Orleans Airport Holdings LLC Kenner, Louisiana - ----------------------------------------------------------------------------------------------------- 9. Hilton & Towers CapStar Lafayette $11,400,000 53.8% Lafayette, Louisiana Company, L.L.C. - ----------------------------------------------------------------------------------------------------- 10. Hilton Hotel MeriStar Secured $ 8,920,000 53.7% Grand Rapids, Michigan Holdings LLC - ----------------------------------------------------------------------------------------------------- 11. Marriott Somerset EquiStar Somerset $31,290,000 53.8% Somerset, New Jersey Company, L.L.C. - ----------------------------------------------------------------------------------------------------- 12. Double Tree CapStar Albuquerque $10,370,000 53.7% Albuquerque, New Mexico Company, L.L.C. - ----------------------------------------------------------------------------------------------------- 13. Sheraton Airport Plaza Hotel EquiStar Charlotte $11,290,000 53.8% Charlotte, North Carolina Company, L.L.C. - ----------------------------------------------------------------------------------------------------- 14. Embassy Suites BA Parkway Associates - -----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------- Property Borrower Allocated Loan Loan-to-Value Amount Ratio - ----------------------------------------------------------------------------------------------------- Philadelphia, Pennsylvania II, L.P. $15,610,000 44.1% - ----------------------------------------------------------------------------------------------------- 15. Hilton EquiStar Arlington $13,710,000 53.8% Arlington, Texas Partners, L.P. - ----------------------------------------------------------------------------------------------------- 16. Doubletree Austin CapStar AP Partners, L.P. $13,140,000 44.1% Austin, Texas - ----------------------------------------------------------------------------------------------------- 17. Hilton Inn Westchase & CapStar Westchase $18,600,000 53.8% Towers Partners, L.P. Houston, Texas - ----------------------------------------------------------------------------------------------------- 18. Marriott Houston West Loop MeriStar West Loop, L.P. $20,960,000 53.7% Houston, Texas - ----------------------------------------------------------------------------------------------------- 19. Crowne Plaza Madison East Madison Motel $ 8,710,000 53.8% Towne Associates, LLP Madison, Wisconsin - ----------------------------------------------------------------------------------------------------- Total - -----------------------------------------------------------------------------------------------------
SCHEDULE 1 Note One Borrowers EquiStar Irvine Company, L.L.C. CapStar Sacramento Company, L.L.C. MeriStar Del Rey, L.L.C. CapStar San Francisco Company, L.L.C. MeriStar Secured Holdings LLC CapStar Englewood Company, L.L.C. EquiStar Colorado Company, L.L.C. CapStar Lafayette Company, L.L.C. EquiStar Somerset Company, L.L.C. CapStar Albuquerque Company, L.L.C. EquiStar Charlotte Company, L.L.C. EquiStar Arlington Partners, L.P. CapStar Westchase Partners, L.P. MeriStar West Loop, L.P. Madison Motel Associates, LLP SCHEDULE 2 Note Two Borrowers BA Parkway Associates II, L.P. CapStar AP Partners, L.P. The Properties owned by the foregoing Note Two Borrowers are sometimes referred to in the Loan Documents as the JV Properties. SCHEDULE 3 San Jose Release SCHEDULE 4 Diversity "Geographic Diversity Threshold" shall mean that (i) the percentage of the total net cash flow (on a trailing 12 month basis) of all of the Properties which is derived from the Properties located in the State of California shall not exceed __% [origination plus 5%], (ii) the percentage of the total net cash flow (on a trailing 12 month basis) of all of the Properties which is derived from the Properties located in the State of Texas shall not exceed __% [origination plus 5%], and (iii) the percentage of the total net cash flow (on a trailing 12 month basis) of all of the Properties which is derived from the Properties located in any one State (other than California or Texas) shall not exceed 15%. "Franchise Diversity Threshold" shall mean that (i) there shall not be less than the Minimum Number of Flags (defined below) represented among the Properties, (ii) with respect to Properties operated under a Hilton Hotel franchise license, the underwritten net cash flow, as determined be Lender, with respect to such Properties shall not exceed 40% of such net cash flow of the Properties, (iii) with respect to Properties operated under a Sheraton Hotel franchise license, the underwritten net cash flow, as determined be Lender, with respect to such Properties shall not exceed 37% of such net cash flow of the Properties, (iv) with respect to Properties operated under a Marriott Hotel franchise license, the underwritten net cash flow, as determined be Lender, with respect to such Properties shall not exceed 29% of such net cash flow of the Properties, and (v) with respect to Properties operated under any franchise license other than Hilton or Sheraton, the underwritten net cash flow, as determined be Lender, with respect to such Properties shall not exceed 15.5% of such net cash flow of the Properties. "Minimum Number of Flags" shall mean, in terms of actual flags rather than franchise operators, the lesser of (i) six and (ii) the number of flags defined as either "luxury" or "upscale" pursuant to Smith Travel Reports. SCHEDULE 5 PIPs Schedule begins on next page. SCHEDULE 6 Deferred Maintenance and Environmental Compliance Schedule begins on next page. SCHEDULE 7 Operating Tenants and Franchisors (The following property nos. correspond to the property nos. on Schedule A) - ------------------------------------------------------------------------------ Property Operating Tenants Franchisors No. - ------------------------------------------------------------------------------ 1 MeriStar H&R Operating Hilton Inns, Inc. Company, L.P. (the "MeriStar Tenant") - ------------------------------------------------------------------------------ 2. MeriStar Tenant Hilton Inns, Inc. - ------------------------------------------------------------------------------ 3. AGH Leasing, L.P. (the "AGH Marriott International, Inc. Tenant") - ------------------------------------------------------------------------------ 4. MeriStar Tenant ITT Sheraton Corporation - ------------------------------------------------------------------------------ 5. AGH Tenant Holiday Inns Franchising, Inc. - ------------------------------------------------------------------------------ 6. MeriStar Tenant Promus Hotels, Inc. - ------------------------------------------------------------------------------ 7. MeriStar Tenant ITT Sheraton Corporation - ------------------------------------------------------------------------------ 8. AGH Tenant Holiday Inns Franchising, Inc. - ------------------------------------------------------------------------------ 9. MeriStar Tenant Hilton Inns, Inc. - ------------------------------------------------------------------------------ 10. AGH Tenant Hilton Inns, Inc. - ------------------------------------------------------------------------------ 11. MeriStar Tenant Marriott International, Inc. - ------------------------------------------------------------------------------ 12. MeriStar Tenant Doubletree Systems, Inc. - ------------------------------------------------------------------------------ 13. MeriStar Tenant ITT Sheraton Corporation - ------------------------------------------------------------------------------ 14. MeriStar Tenant Promus Hotels, Inc. - ------------------------------------------------------------------------------ 15. MeriStar Tenant Hilton Inns, Inc. - ------------------------------------------------------------------------------ 16. MeriStar Tenant Doubletree Hotel Systems, Inc. - ------------------------------------------------------------------------------ 17. MeriStar Tenant Marriott International, Inc. - ------------------------------------------------------------------------------ 18. AGH Tenant Hilton Inns, Inc. - ------------------------------------------------------------------------------ 19. AGH Tenant Holiday Inns Franchising, Inc. - ------------------------------------------------------------------------------ EXHIBIT A NOTICE OF REQUEST FOR RELEASE [BORROWER] ______________________, 19_____ [LENDER] Ladies and Gentlemen: We refer to that certain mortgage loan made by [Lender] to us in the original principal sum of $___________ secured by premises known as ____________________________, [City], [State], [_____________________________, ---- ----- [City], [State], and ________________________, [City], [State] evidenced by a Note (the "Note") and secured by a [those certain] Mortgage(s)/Deed(s) of Trust covering said premises ([collectively] the "Security Instruments") and Loan Agreement made by and between us and Lender, each dated as of ________, 1999 (the "Loan"). All capitalized terms used herein shall have the same meanings herein as they have in the Loan Agreement. On or about ___________ ____, 19___ (the "Release Date"), we shall deliver to you $__________, together with all other sums required under the Loan Agreement. In connection with the defeasance, we also request a Property Release of the premises known as ________________________, [City], [State] (the "Release Premises") pursuant to Section 3 of the Loan Agreement covering the Release Premises. In order to induce you to make a Property Release of the Release Premises from the lien of the related Security Instruments, the undersigned hereby represents and certifies as follows: 20. No Event of Default has occurred and is continuing. 21. The Debt Service Coverage Ratio (as defined in the Loan Agreement) for the Properties, after giving effect to the Property Release, shall be equal to or greater than greater of (i) the Origination Debt Service Coverage Ratio and the (ii) Debt Service Coverage Ratio for the Properties immediately prior to the Property Release. 22. All legal, record, beneficial and economic interests of the Release Premises shall, on the Release Date, simultaneously with the Property Release, be transferred and conveyed to a Release Premises Transferee. Borrower hereby request a Property Release of the Release Premises from the lien of the Security Instrument and related Loan Documents. [BORROWER] EX-12 9 EXHIBIT 12 MERISTAR HOSPITALITY CORPORATION Statement Regarding Computation of Ratios EXHIBIT 12
Year Ended December 31, 1995 1996 1997 1998 1999 ------ ------- -------- -------- -------- Income before minority interests, income tax expense and extraordinary items (1) $ 213 $ 6,988 $ 40,488 $ 69,528 $116,667 Fixed charges: Interest expense 2,414 12,346 21,024 64,378 100,398 Interest capitalized 67 461 442 5,182 12,540 Amortization of debt expense 131 986 920 1,635 3,143 Preferred distributions to minority interests - - 488 650 574 Rent deemed as interest 16 22 26 11 - ------ ------- -------- -------- -------- Total fixed charges 2,628 13,815 22,900 71,856 116,655 ------ ------- -------- -------- -------- Income before minority interest, income tax expense, extraordinary items and fixed charges (excluding capitalized interest and preferred distributions to minority interests) 2,774 20,342 62,458 135,552 220,208 Divided by fixed charges 2,628 13,815 22,900 71,856 116,655 Ratio of earnings to fixed charges 1.06x 1.47x 2.73x 1.89x 1.89x
(1) This amount is before minority interests since the minority interests relate to majority-owned subsidiaries that have fixed charges. EX-21 10 EXHIBIT 21 EXHIBIT 21 JURISDICTION OF INCORPORATION OR NAME ORGANIZATION ------------------------------------------------------------------------------- 183 Hotel Associates, Ltd. Texas 2780 Atlanta Limited Partnership Texas 2929 Williams Limited Liability Company Delaware 3100 Glendale Joint Venture Ohio 339742 B.C. Ltd. British Columbia, Canada 339743 B.C. Ltd. British Columbia, Canada 455 Meadowlands Associates, Ltd Texas 75 Arlington Heights Limited Partnership, L.P. Delaware AGH 2780 Atlanta L.L.C. Delaware AGH 75 Arlington Heights L.L.C. Delaware AGH DFW South L.L.C. Delaware AGH GP, Inc. Nevada AGH LP, Inc. Nevada AGH O'Hare Limited Partnership Illinois AGH O'Hare L.L.C. Delaware AGH Portland/Shelton L.L.C. Delaware AGH PSSI, Inc. Delaware AGH Secaucus L.L.C. Delaware AGH UPREIT L.L.C. Delaware BA Parkway Associates II, L.P. Delaware Ballston Parking Associates Virginia BCHI Acquisition, L.L.C. Delaware CapStar Albuquerque Company, L.L.C. Delaware CapStar AP Partners, L.P. Delaware CapStar C.S. Company, L.L.C. Delaware CapStar Cathedral City Company, L.L.C. Delaware CapStar Cherry Hill Company, L.L.C. Delaware CapStar Chicago Company, L.L.C. Delaware CapStar Columbia Company, L.L.C. Maryland CapStar Cross Keys Company, L.L.C. Maryland CapStar Dallas Partners, L.P. Delaware CapStar Detroit Airport Company, L.L.C. Delaware CapStar Englewood Company, L.L.C. Delaware CapStar Forrestal Company, L.L.C. New Jersey CapStar Frazer Company, L.L.C. Delaware CapStar Georgetown Company, L.L.C. Delaware CapStar Hartford Company, L.L.C. Connecticut CapStar Houston SW Partners, L.P. Delaware CapStar Indianapolis Company, L.L.C. Delaware CapStar Jekyll Company, L.L.C. Delaware CapStar KC Company, L.L.C. Delaware CapStar Lafayette Company, L.L.C. Delaware CapStar LAJV Company, L.L.C. Delaware CapStar Lexington Company, L.L.C. Delaware CapStar Louisville Company, L.L.C. Delaware CapStar Medallion Austin Partners, L.P. Delaware CapStar Medallion Dallas Partners, L.P. Delaware CapStar Medallion Houston Partners, L.P. Delaware CapStar Mesa Company, L.L.C. Delaware CapStar Midland Partners, L.P. Delaware CapStar Mockingbird Partners, L.P. Delaware CapStar Morristown Company, L.L.C. Delaware CapStar National Airport Company, L.L.C. Delaware CapStar Oklahoma City Company, L.L.C. Delaware CapStar Roland Park Company, L.L.C. Maryland CapStar Sacramento Company, L.L.C. Delaware CapStar San Francisco Company, L.L.C. Delaware CapStar San Pedro Company, L.L.C. Delaware CapStar Santa Barbara Company, L.L.C. Delaware CapStar St. Louis Company, L.L.C. Delaware CapStar Tucson Company, L.L.C. Delaware CapStar Washington Company, L.L.C. Delaware CapStar Westchase Partners, L.P. Delaware CapStar Windsor Locks Company, L.L.C Delaware Centennial Hotel Ltd. British Columbia, Canada Cocoa Beach Hotels, Ltd. Florida DFW South Corporation Delaware DFW South I Limited Partnership Texas Durham I-85 Limited Partnership Delaware EquiStar Arlington Partners, L.P. Delaware EquiStar Atlanta Company, L.L.C. Delaware EquiStar Atlanta GP Company, L.L.C. Delaware EquiStar Atlanta LP Company, L.L.C. Delaware EquiStar Ballston Company, L.L.C. Delaware EquiStar Bellevue Company, L.L.C. Delaware EquiStar Charlotte Company, L.L.C. Delaware EquiStar Cleveland Company, L.L.C. Delaware EquiStar Colorado Company, L.L.C. Delaware EquiStar Irvine Company, L.L.C. Delaware EquiStar Latham Company, L.L.C. Delaware EquiStar Salt Lake Company, L.L.C. Delaware EquiStar Schaumburg Company, L.L.C. Delaware EquiStar Somerset Company, L.L.C. Delaware EquiStar Virginia Company, L.L.C. Delaware Lake Buena Vista Partners, Ltd. Florida Lepercq Atlanta Renaissance Partners, L.P. Delaware Madison Motel Associates Wisconsin Madison Motel Associates, L.L.P. Wisconsin Madison Washington Associates Wisconsin MCV Venture, L.L.C. Kentucky MDV Limited Partnership Texas MeriStar Acquisition Company, L.L.C. Delaware MeriStar Austin SPE Corp. Delaware MeriStar Austin SPE, L.L.C. Delaware MeriStar Del Ray, L.L.C. Delaware MeriStar Hospitality Corporation Maryland MeriStar Hospitality Operating Partnership, L.P. Delaware MeriStar Hotel (Burnaby), L.L.C. British Columbia, Canada MeriStar Hotel (Calgary Airport), L.L.C. Alberta, Canada MeriStar Hotel (Surrey), L.L.C. British Columbia, Canada MeriStar Hotel (Vancouver), L.L.C. British Columbia, Canada MeriStar Lexington SPE Corp. Delaware MeriStar Lexington SPE, L.L.C. Delaware MeriStar LP, Inc. Delaware MeriStar Madison SPE, L.L.C Delaware MeriStar Marco Island Company, L.L.C. Delaware MeriStar PA SPE Corp. Delaware MeriStar PA SPE, L.L.C. Delaware MeriStar Plantation Shopping Center Company, L.L.C. Delaware MeriStar Safety Harbor Company, L.L.C. Delaware MeriStar Sanibel Beach Company, L.L.C. Delaware MeriStar Sanibel Golf Company, L.L.C. Delaware MeriStar Sanibel Inn Company, L.L.C. Delaware MeriStar Seaside Inn Company, L.L.C. Delaware MeriStar Secured Holdings I, L.L.C. Delaware MeriStar Secured Holdings, L.L.C. Delaware MeriStar Shirley's Parcel Company, L.L.C. Delaware MeriStar Song of the Sea Company, L.L.C. Delaware MeriStar SPE Corp. Delaware MeriStar SPE, L.L.C. Delaware MeriStar SS Plantation Company, L.L.C. Delaware MeriStar Sundial Beach Company, L.L.C. Delaware MeriStar West Loop, L.P. Delaware Metrotown Overseas Holdings, Inc. British Columbia, Canada Mt. Arlington New Jersey, L.L.C. Delaware Portland/Shelton Corp. Delaware Portland/Shelton, L.L.C. Delaware Richmond Williamsburg Associates, Ltd. Texas Westchase SPE, Corp. Delaware Westchase SPE, L.L.C. Delaware EX-23 11 EXHIBIT 23 EXHIBIT 23 [KPMG Letterhead] INDEPENDENT AUDITORS' CONSENT ` ----------------------------- The Board of Directors MeriStar Hospitality Corporation: We consent to the incorporation by reference in the registration statement (No. 333-60463) on Form S-8 (MeriStar Hospitality Corporation Incentive Plan), the registration statement (No. 333-60465) on Form S-8 (MeriStar Hospitality Corporation Non-employee Directors' Incentive Plan), and the registration statement (No. 333-66229) on Form S-3 (for a shelf registration to register shares for certain operating partnership unit holders) of our report on the consolidated balance sheets of MeriStar Hospitality Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and the related schedule, which report appears in the December 31, 1999 annual report on Form 10-K of MeriStar Hospitality Corporation. /s/ KPMG LLP Washington, D.C. January 28, 2000 EX-27 12 EXHIBIT 27
5 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 2,556 0 1,328 0 0 0 3,118,723 182,430 3,094,201 0 1,676,771 0 0 477 1,170,125 3,094,201 0 374,904 0 1,964 166,944 0 100,398 105,598 2,102 103,496 0 4,532 0 98,964 2.09 2.03
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