CAPSTAR MANAGEMENT COMPANY II, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
dated as of April 1st, 1997
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINED TERMS.......................................................1
ARTICLE 2
ORGANIZATIONAL MATTERS.............................................12
Section 2.1 Organization........................................12
Section 2.2 Name................................................12
Section 2.3 Registered Office and Agent; Principal Office.......12
Section 2.4 Power of Attorney...................................13
Section 2.5 Term................................................14
ARTICLE 3
PURPOSE............................................................14
Section 3.1 Purpose and Business................................14
Section 3.2 Powers..............................................15
ARTICLE 4
CAPITAL CONTRIBUTIONS..............................................15
Section 4.1 Capital Contributions of the Partners...............15
Section 4.2 Issuances of Additional Interests...................15
Section 4.3 Contribution of Proceeds of Issuance of CapStar Shares17
Section 4.4 No Preemptive Rights................................17
Section 4.5 No Interest on Capital..............................17
ARTICLE 5
DISTRIBUTIONS......................................................18
Section 5.1 Requirement and Characterization of Distributions...18
Section 5.2 Amounts Withheld....................................19
Section 5.3 Distributions Upon Liquidation......................19
ARTICLE 6
ALLOCATIONS........................................................19
Section 6.1 Allocations For Capital Account Purposes............19
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PAGE
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS..............................21
Section 7.1 Management..........................................21
Section 7.2 Certificate of Limited Partnership..................25
Section 7.3 Restrictions on General Partner's Authority.........25
Section 7.4 Reimbursement of the General Partner and CapStar....26
Section 7.5 Outside Activities of the General Partner...........27
Section 7.6 Contracts with Affiliates...........................28
Section 7.7 Indemnification.....................................29
Section 7.8 Liability of the General Partner....................31
Section 7.9 Other Matters Concerning the General Partner........32
Section 7.10 Title to Partnership Assets.........................33
Section 7.11 Reliance by Third Parties...........................33
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.........................34
Section 8.1 Limitation of Liability.............................34
Section 8.2 Management of Business..............................34
Section 8.3 Outside Activities of Limited Partners..............34
Section 8.4 Return of Capital...................................35
Section 8.5 Rights of Limited Partners Relating to the Partnership35
Section 8.6 Redemption Right....................................36
Section 8.7 Mandatory Redemption................................39
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS.............................41
Section 9.1 Records and Accounting..............................41
Section 9.2 Fiscal Year.........................................41
Section 9.3 Reports.............................................41
ARTICLE 10
TAX MATTERS........................................................42
Section 10.1 Preparation of Tax Returns..........................42
Section 10.2 Tax Elections.......................................42
Section 10.3 Tax Matters Partner.................................42
Section 10.4 Organizational Expenses.............................44
Section 10.5 Withholding.........................................44
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PAGE
ARTICLE 11
TRANSFERS AND WITHDRAWALS..........................................45
Section 11.1 Transfer............................................45
Section 11.2 Transfer of General Partner's Partnership Interest..45
Section 11.3 Limited Partners' Rights to Transfer................46
Section 11.4 Substituted Partners................................48
Section 11.5 Assignees...........................................48
Section 11.6 General Provisions..................................49
Section 11.7 Pledges of Partnership Interests....................49
ARTICLE 12
ADMISSION OF PARTNERS..............................................50
Section 12.1 Admission of Successor General Partner..............50
Section 12.2 Admission of Additional Limited Partners............50
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership.........................................51
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION...........................51
Section 13.1 Dissolution.........................................51
Section 13.2 Winding Up..........................................52
Section 13.3 Compliance with Timing Requirements of Regulations..54
Section 13.4 Deemed Distribution and Recontribution..............54
Section 13.5 Rights of Limited Partners..........................54
Section 13.6 Notice of Dissolution...............................54
Section 13.7 Termination of Partnership and Cancellation
of Certificate of Limited Partnership...............54
Section 13.8 Reasonable Time for Winding-Up......................55
Section 13.9 Waiver of Partition.................................55
Section 13.10 Liability of the Liquidator.........................55
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.......................55
Section 14.1 Amendments..........................................55
Section 14.2 Meetings of the Partners............................57
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PAGE
ARTICLE 15
GENERAL PROVISIONS.................................................58
Section 15.1 Addresses and Notice................................58
Section 15.2 Titles and Captions.................................58
Section 15.3 Pronouns and Plurals................................58
Section 15.4 Further Action......................................58
Section 15.5 Binding Effect......................................59
Section 15.6 Creditors...........................................59
Section 15.7 Waiver..............................................59
Section 15.8 Counterparts........................................59
Section 15.9 Applicable Law......................................59
Section 15.10 Invalidity of Provisions............................59
Section 15.11 Entire Agreement....................................59
Section 15.12 No Rights as Shareholders...........................60
INDEX TO EXHIBITS
Exhibit A -- PARTNERS AND PARTNERSHIP INTERESTS
Exhibit B -- CAPITAL ACCOUNT MAINTENANCE
Exhibit C -- SPECIAL ALLOCATION RULES
Exhibit D -- VALUE OF CONTRIBUTED PROPERTY
Exhibit E -- FORM OF NOTICE OF REDEMPTION
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CAPSTAR MANAGEMENT COMPANY II, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of ,
-------------
1997, is entered into by and among CapStar General Corp. ("CapStar GP"), a
Delaware corporation, as the General Partner, and CapStar Management Company,
L.P. ("CMC"), as the Limited Partner, together with any other Persons who become
Partners in the Partnership as provided herein.
WHEREAS, the parties wish to form a limited partnership under the
Act (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as
it may be amended from time to time, and any successor to such statute.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 hereof and who is shown
as such on the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement, or is treated as being obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c), or is deemed to be obligated to restore pursuant
to the penultimate sentences of Regulations Sections 1.704-2(g)(1),
1.704-1(i)(5), and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year.
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"ADJUSTED PROPERTY" means any property the Carrying Value of which
has been adjusted pursuant to EXHIBIT B hereof. Once an Adjusted Property is
deemed distributed by, and recontributed to, the Partnership for federal income
tax purposes upon a termination thereof pursuant to Section 708 of the Code,
such property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is further adjusted pursuant to Section 1.D of
EXHIBIT B hereof.
"AFFILIATE" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above. For the purposes of
this definition, "control" when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGREED VALUE" means (i) in the case of any Contributed Property set
forth in EXHIBIT D and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in EXHIBIT D; (ii) in the case of
any Contributed Property not set forth in EXHIBIT D and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed, and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"AGREEMENT" means this Agreement of Limited Partnership, as it may
be amended, supplemented or restated from time to time.
"ASSIGNEE" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"BOOK-TAX DISPARITIES" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to EXHIBIT B and the
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hypothetical balance of such Partner's Capital Account computed as if it had
been maintained strictly in accordance with federal income tax accounting
principles.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"CAPITAL ACCOUNT" means the Capital Account maintained for a Partner
pursuant to EXHIBIT B hereof.
"CAPITAL CONTRIBUTION" means, with respect to any partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.2 or 4.3 hereof. The principal amount of a promissory note which is not
readily traded on an established securities market and which is contributed by a
Partner as the maker of the note shall not be considered a capital contribution
until the Partnership makes a taxable disposition of the note or until (and to
the extent) principal payments are made on the note, all in accordance with
Treasury Regulation Section 1.704- 1(b)(2)(iv)(d)(2).
"CAPSTAR" means CapStar Hotel Company, a Delaware corporation which
owns all of the shares of the General Partner.
"CAPSTAR SHARES AMOUNT" means a whole number of CapStar Shares equal
to the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor (rounded down to the
nearest whole number in the event such product is not a whole number); PROVIDED
THAT in the event CapStar at any time issues to all holders of CapStar Shares
rights, options, warrants or convertible or exchangeable securities entitling
the shareholders to subscribe for or purchase CapStar Shares, or any other
securities or property (collectively, the "rights"), which rights have not
expired pursuant to their terms, then the CapStar Shares Amount thereafter shall
also include such rights that a holder of that number of CapStar Shares would be
entitled to receive.
"CAPSTAR SHARE" means a share of common stock, par value $.01 per
share, of CapStar.
"CARRYING VALUE" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, or the Carrying Value of
such property as determined pursuant to Exhibit B hereof, as the case may be;
reduced (but not below zero) by all Depreciation with respect to such Property
charged to the Partners' Capital Accounts following the contribution of or
adjustment with respect to such Property, and (ii) with respect to any other
Partnership property, the adjusted basis of such property for federal income tax
purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with EXHIBIT B
hereof, and to reflect changes, additions or other
3
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to
the Value on the Valuation Date of the CapStar Shares Amount.
"CERTIFICATE" means the Certificate of Limited Partnership relating
to the Partnership filed in the office of the Delaware Secretary of State on
March 25, 1997, as amended from time to time in accordance with the terms hereof
and the Act.
"CERTIFICATE OF INCORPORATION" means the Amended and Restated
Certificate of Incorporation of CapStar filed in the State of Delaware on June
21, 1996, as amended or restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"CONSENT" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
"CONTRIBUTED PROPERTY" means each property or other asset
contributed to the Partnership, in such form as may be permitted by the Act, but
excluding cash contributed or deemed contributed to the Partnership. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Section 1.D of
EXHIBIT B hereof, such property shall no longer constitute a Contributed
Property for purposes of EXHIBIT B hereof, but shall be deemed an Adjusted
Property for such purposes.
"CONVERSION FACTOR" means 1.0, PROVIDED THAT in the event that
CapStar (i) declares or pays a dividend on its outstanding CapStar Shares in
CapStar Shares or makes a distribution to all holders of its outstanding CapStar
Shares in CapStar Shares; (ii) subdivides its outstanding CapStar Shares; or
(iii) combines its outstanding CapStar Shares into a smaller number of CapStar
Shares, the Conversion Factor shall be adjusted by multiplying the Conversion
Factor by a fraction, the numerator of which shall be the number of CapStar
Shares issued and outstanding on the record date for such dividend,
distribution, subdivision or combination (assuming for such purposes that such
dividend, distribution, subdivision or combination has occurred as of such
time), and the denominator of which shall be the actual number of CapStar Shares
(determined without the above assumption) issued and outstanding on the record
date for such dividend, distribution, subdivision or combination. Any adjustment
to the Conversion Factor shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such event.
"DEBT" means, as to any Person, as of any date of determination, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of
4
property or services; (ii) all amounts owed by such Person to banks or other
Persons in respect of reimbursement obligations under letters of credit, surety
bonds and other similar instruments guaranteeing payment or other performance of
obligations by such Person; (iii) all indebtedness for borrowed money or for the
deferred purchase price of property or services secured by any lien on any
property owned by such Person, to the extent attributable to such Person's
interest in such property, even though such Person has not assumed or become
liable for the payment thereof; and (iv) lease obligations of such Person which,
in accordance with generally accepted accounting principles, should be
capitalized.
"DEPRECIATION" means, for each Partnership year, an amount equal to
the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; PROVIDED, HOWEVER,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"EFFECTIVE TAX RATE" means, for any year, the percentage determined
by the General Partner to be a reasonable estimate of the combined effective
rate of Federal, state and local income tax (giving effect to the deduction of
state and local income taxes, as applicable, for Federal and state income tax
purposes) that would be applicable to the Partnership if it were a C
corporation.
"FINAL DETERMINATION" means (i) a decision, judgment, decree or
other order by a court of original jurisdiction which has become final (i.e.,
the time for filing an appeal shall have expired without any appeal having been
filed), (ii) a closing agreement made under Section 7121 of the Code or any
other settlement agreement entered into in connection with an administrative or
judicial proceeding, (iii) the expiration of the time for instituting a claim
for refund, or if a claim was filed, the expiration of the time for instituting
suit with respect thereto, or (iv) in any case where judicial review shall be
unavailable, a decision, judgment, decree or other order of an administrative
official or agency which has become final.
"GENERAL PARTNER" means CapStar General Corp., a Delaware
corporation, or its successors as general partner of the Partnership.
"GENERAL PARTNER INTEREST" means a Partnership Interest held by the
General Partner that is a general partnership interest. A General Partner
Interest may be expressed as a number of Partnership Units.
5
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"IMMEDIATE FAMILY" means, with respect to any natural Person, such
natural Person's spouse and such natural Person's natural or adoptive parents,
descendants, nephews, nieces, brothers, and sisters.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receive or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof, (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment, or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"INDEMNITEE" means (i) any Person made a party to a proceeding by
reason of his status as (A) the General Partner or a Limited Partner, or (B) a
director or officer of the Partnership or the General Partner or a Limited
Partner, or (C) his or its liability, pursuant to a loan guarantee or otherwise,
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken assets subject to), and (ii)
such other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole
6
and absolute discretion. The General Partner hereby designates CapStar and its
directors and officers as Indemnitees.
"INSTITUTIONAL LENDER" has the meaning assigned thereto in Section
11.7 hereof.
"LIMITED PARTNER" means CapStar Management Company, L.P., a Delaware
limited partnership, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited
Partner in the Partnership and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"LIQUIDATOR" has the meaning set forth in Section 13.2.
"NET INCOME" means, for any taxable period, the excess, if any, of
the Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in EXHIBIT B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Income is subjected to the
special allocation rules in EXHIBIT C, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in EXHIBIT B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subjected to the
special allocation rules in EXHIBIT C. Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.
"NONRECOURSE BUILT-IN GAIN" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of EXHIBIT C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
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"NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704- 2(c).
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially
in the form of EXHIBIT E to this Agreement.
"OPERATING PARTNERSHIP" shall mean each of CMC and the Partnership.
"PARTNER" means a General Partner or a Limited Partner, and
"PARTNERS" means the General Partner and the Limited Partners.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"PARTNERSHIP" means the limited partnership formed under the Act and
pursuant to this Agreement and any successor thereto.
"PARTNERSHIP INTEREST" means an ownership interest in the
Partnership and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
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"PARTNERSHIP UNIT" means (i) a fractional undivided share of the
Partnership Interests of all Partners (other than the Preferred Units); and (ii)
each Preferred Unit. The number of Partnership Units outstanding and the
Percentage Interests in the Partnership represented by such Partnership Units
are set forth in Exhibit A hereto, as such exhibit may be amended from time to
time. The ownership of Partnership Units may be evidenced by such form of
certificate for units as the General Partner adopts from time to time.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which
shall end on the Friday nearest December 31.
"PERCENTAGE INTEREST" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units (other than
Preferred Units) owned by such Partner by the total number of Partnership Units
(other than Preferred Units) then outstanding.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"PREFERRED CAPITAL," with respect to each Preferred Unit, means an
amount equal to $25.50.
"PREFERRED RETURN," with respect to each Preferred Unit, means a
preferred distribution right at the rate of 6.5% per annum, compounded quarterly
to the extent not distributed pursuant to Section 5.1.A(1), on the Preferred
Capital with respect to such Preferred Unit.
"PREFERRED SUB-ACCOUNT," with respect to a Preferred Unitholder,
means an account maintained on the same basis as the Partners' Capital Accounts,
but taking into account only the aggregate Preferred Capital, allocations of Net
Income and Net Loss and distributions with respect to its Preferred Units
(including distributions of Preferred Return).
"PREFERRED UNIT" means a Partnership Unit having the rights,
preferences and privileges assigned to Preferred Units pursuant to the further
provisions of this Agreement. The ownership of Preferred Units by the Partners
is as set forth in Exhibit A annexed hereto, as such Exhibit may be amended from
time to time.
"PREFERRED UNITHOLDER" means a Limited Partner that holds one or
more Preferred Units.
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"RECAPTURE INCOME" means any gain recognized by the Partnership upon
the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"REDEEMING PARTNER" has the meaning set forth in Section 8.6 hereof.
"REDEMPTION RIGHT" shall have the meaning set forth in Section 8.6
hereof.
"REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss,
as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of EXHIBIT C to eliminate
Book-Tax Disparities.
"704(C) VALUE" of any Contributed Property means the value of such
property as set forth in EXHIBIT D or if no value is set forth in EXHIBIT D, the
fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt; PROVIDED, however, that the 704(c) Value of any
property deemed contributed to the Partnership for federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
shall be determined in accordance with EXHIBIT B hereof. Subject to EXHIBIT B
hereof, the General Partner shall, in its sole and absolute discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate of the
704(c) Values of contributed Properties in a single or integrated transactions
among the separate properties on a basis proportional to their respective fair
market values.
"SPECIFIED REDEMPTION DATE" means the tenth (10th) Business Day
after receipt by the General Partner of a Notice of Redemption; PROVIDED THAT,
except as hereinafter expressly provided, no Specified Redemption Date shall
occur before one (1) year from the date of this Agreement; provided further that
if CapStar combines its outstanding CapStar Shares, no Specified Redemption Date
shall occur after the record date and prior to the effective date of such
combination.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
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"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"TERMINATING CAPITAL TRANSACTION" means any sale or other
disposition of all or substantially all of the assets of the Partnership or its
Subsidiaries or a related series of transactions that, taken together, result in
the sale or other disposition of all or substantially all of the assets of the
Partnership or its Subsidiaries.
"UNPAID PREFERRED RETURN," with respect to each Preferred Unit,
means an amount equal to the excess, if any, of (x) the aggregate Preferred
Return on the Preferred Capital with respect to such Preferred Unit over (y) the
aggregate of all amounts previously distributed with respect to such Preferred
Unit pursuant to Section 5.1.A(1).
"UNREALIZED GAIN" attributable to any item of Partnership Property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under EXHIBIT B hereof) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to EXHIBIT B hereof) as of such date.
"UNREALIZED LOSS" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to EXHIBIT B
hereof) as of such date, over (ii) the fair market value of such property (as
determined under EXHIBIT B hereof) as of such date.
"VALUATION DATE" means the date of receipt by the General Partner of
a Notice of Redemption or, if such date is not a Business Day, the first
Business Day thereafter.
"VALUE" means, with respect to a CapStar Share, the average of the
daily market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day shall
be: (i) if the CapStar Shares are listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day; (ii) if the CapStar
Shares are not listed or admitted to trading on any securities exchange or the
NASDAQ-National Market System, the last reported sale price on such day or, if
no sale takes place on such day, the average of the closing bid and asked prices
on such day, as reported by a reliable quotation source designated by the
General Partner; or (iii) if the CapStar Shares are not listed or admitted to
trading on any securities exchange or the NASDAQ National Market System and no
such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low
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asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
PROVIDED THAT if there are no bid and asked prices reported during the ten (10)
days prior to the date in question, the Value of the CapStar Shares shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. In the event the CapStar Shares Amount includes rights that a
holder of CapStar Shares would be entitled to receive, and the General Partner
acting in good faith determines that the value of such rights is not reflected
in the Value of the CapStar Shares determined as aforesaid, then the Value of
such rights shall be determined by the General Partner acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 ORGANIZATION
The parties hereby form the Partnership pursuant to the provisions
of the Act and upon the terms and conditions set forth herein. Except as
expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
Section 2.2 NAME
The name of the Partnership shall be CapStar Management Company II,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the State
of Delaware is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and the
registered agent for service of process on the Partnership in the State of
Delaware at such registered office shall be The Corporation Trust Company. The
principal office of the Partnership shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or such other place as the General Partner may from
time to time designate by
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notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee who accepts Partnership
Units (or any rights, benefits or privileges associated therewith) is deemed to
irrevocably constitute and appoint the General Partner, any Liquidator, and
authorized officers and attorneys-in-fact of each, and each of those acting
singly, in each case with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to:
(1) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement and the
Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidator deems appropriate or necessary to form, qualify
or continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all jurisdictions in which the
Partnership may or plans to conduct business or own property; (b) all
instruments that the General Partner or the Liquidator deems appropriate
or necessary to reflect any amendment, change, modification or restatement
of this Agreement in accordance with its terms; (c) all conveyances and
other instruments or documents that the General Partner deems appropriate
or necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article 11, 12 or 13 hereof or the Capital
Contribution of any Partner; and (e) all certificates, documents and other
instruments relating to the determination of the rights, preferences and
privileges of Partnership Interests; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is
made or given by the Partners hereunder or is consistent with the terms of
this Agreement or appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the terms or intent of
this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
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B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidator to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
Section 2.5 TERM
The term of the Partnership commenced on the date the Certificate
was filed in the office of the Secretary of State of Delaware in accordance with
the Act and shall continue until December 31, 2095, unless the Partnership is
dissolved sooner pursuant to the provisions of Article 13 or as otherwise
provided by law.
ARTICLE 3
PURPOSE
Section 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the
Partnership, directly and indirectly through Subsidiaries (including, without
limitation, partnerships for which the Partnership is a general partner) is to
invest in, acquire, purchase, lease, own and operate hotels and similar
properties and businesses (including interests therein), to engage in all phases
of the hotel business, and to pursue such other purposes as may be incidental or
related thereto, including disposing of its interests in any or all of its
hotels or properties and reinvesting the proceeds thereof in furtherance of its
business, and all other activities which may be permitted by the Act.
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Section 3.2 POWERS
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire and develop real
property, and lease, sell, transfer and dispose of real property.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
The Partners are, on the date hereof, making the Capital
Contributions described in Exhibit A annexed hereto. To the extent the
Partnership acquires any property by the merger of any person into the
Partnership, Persons who receive Partnership Interests in exchange for their
interests in the Person merging into the Partnership shall become Partners and
shall be deemed to have made Capital Contributions as provided in the applicable
merger agreement and as set forth in Exhibit A, as amended to reflect such
deemed Capital Contributions. The Partners shall own shall own Partnership Units
as set forth in Exhibit A and shall have a Percentage Interest in the
Partnership as set forth in Exhibit A, which Percentage Interest shall be
adjusted from time to time by the General Partner to the extent necessary to
accurately reflect redemptions, Capital Contributions, the issuance of
additional Partnership Units, or similar events having an effect on a Partner's
Percentage Interest. A number of Partnership Units held by the General Partner
equal to one percent (1%) of all outstanding Partnership Units (other than
Preferred Units) shall be the General Partner Interest. Except as provided in
Sections 4.2 and 10.5, the Partners shall have no obligation to make Capital
Contributions or loans to the Partnership.
Section 4.2 ISSUANCES OF ADDITIONAL INTERESTS
A. The General Partner is hereby authorized to cause the Partnership
from time to time to issue to the Partners (including the General Partner) or
other persons (including, without limitation, in connection with the
contribution of property to the Partnership) additional Partnership Units or
other Partnership Interests in one or more classes, or one or more series of any
of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined by the General Partner in its sole and absolute
15
discretion subject to Delaware law, including, without limitation, (i) the
allocations of items of Partnership income, gain, loss, deduction and credit to
each such class or series of Partnership Interests; (ii) the right of each such
class or series of Partnership Interests to share in Partnership distributions;
and (iii) the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; PROVIDED THAT no such additional
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a)(1) the additional Partnership Interests are issued in
connection with the grant, award, or issuance of shares of CapStar, which shares
have designations, preferences and other rights (except for voting rights) such
that the economic interests attributable to such shares are substantially
similar to the designations, preferences and other rights of the additional
Partnership Interests issued to the General Partner in accordance with this
Section 4.2.A, and (2) the General Partner shall make a Capital Contribution to
the Partnership in an amount equal to the proceeds, if any, raised in connection
with the issuance of such shares of CapStar and contributed by CapStar to the
General Partner, or (b) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
B. CapStar has agreed, pursuant to a separate agreement with the
Partnership (the "CapStar Agreement") that, except as described in Section
4.2.C, CapStar shall not grant, award, or issue any additional CapStar Shares
(other than CapStar Shares which are made available for delivery to a Limited
Partner as provided in Section 8.6 or 8.7), or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase CapStar Shares (collectively "NEW SECURITIES"), other than to all
holders of CapStar Shares unless (i) the General Partner shall cause the
Partnership to issue to the General Partner Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially the same as those of the New Securities, and (ii)
CapStar shall contribute to the General Partner, and the General Partner shall
thereafter contribute to the Partnership, the net proceeds from the grant, award
or issuance of such New Securities and from the exercise of rights contained in
such New Securities. Without limiting the foregoing, CapStar is expressly
authorized under the CapStar Agreement to issue New Securities for less than
fair market value (and the General Partner is hereby authorized to cause the
Partnership to issue to the General Partner corresponding Partnership
Interests), so long as (x) CapStar and the General Partner conclude in good
faith that such issuance is in the interests of CapStar, the General Partner and
the Partnership (for example, and not by way of limitation, the issuance of
CapStar Shares and corresponding Partnership Units pursuant to an employee stock
purchase plan providing for employee purchases of CapStar Shares at a discount
from fair market value or employee stock options that have an exercise price
that is less than the fair market value of the CapStar Shares, either at the
time of issuance or at the time of exercise), and (y) subject to the provisions
of Section 4.2.C, all proceeds from such issuance and exercise are contributed
by CapStar to the General Partner and by the General Partner to the Partnership.
16
C. The parties acknowledge (i) that CapStar is the general partner
of CMC and that CMC independently (and not through its interest in the
Partnership) carries on activities similar to those of the Partnership, (ii)
that CapStar may, in connection with the redemption of interests in CMC, issue
New Securities to the partners of CMC and (iii) that CapStar may otherwise issue
New Securities and cause the net proceeds of such issuance to be contributed to
CMC and not to the General Partner as hereinabove provided. The parties further
acknowledge that, notwithstanding anything to the contrary set forth in Section
4.2.B, CapStar shall have the right under the CapStar Agreement so to issue such
New Securities without contributing the net proceeds from the issuance thereof
(or from the exercise of rights contained therein) to the General Partner so
long as CapStar determines in good faith that such issuance, and the
contribution of the net proceeds thereof to CMC or the partners thereof, is in
the interest of CapStar and is not prejudicial to the Partnership.
Section 4.3 CONTRIBUTION OF PROCEEDS OF ISSUANCE OF CAPSTAR SHARES
In connection with any grant, award, or issuance of New Securities
the proceeds of which are contributed by CapStar to the General Partner as
contemplated by Section 4.2(B), the General Partner shall make a Capital
Contribution to the Partnership of the proceeds raised in connection with such
grant, award, or issuance; PROVIDED THAT if the proceeds actually received by
the General Partner are less than the gross proceeds of such grant, award, or
issuance as a result of any underwriter's discount, commission, or fee or other
expenses paid or incurred in connection with such grant, award, or issuance,
then the General Partner shall be deemed to have made a Capital Contribution to
the Partnership in the amount of the gross proceeds of such issuance and the
Partnership shall be deemed simultaneously to have reimbursed the General
Partner pursuant to Section 7.4.C for the amount of such underwriter's discount
or other expenses.
Section 4.4 NO PREEMPTIVE RIGHTS
No existing Limited Partner shall have any preemptive, preferential
or other similar right with respect to (i) additional Capital Contributions or
loans to the Partnership; or (ii) issuance or sale of any Partnership Units or
other Partnership Interests.
Section 4.5 NO INTEREST ON CAPITAL
No Partner shall be entitled to interest on its Capital Contribution
or its Capital Account.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
A. Distributions shall be made to the Partners as follows and in the
following order of priority:
(1) First, except to the extent the General Partner, by
resolution of its Board of Directors, determines that the
Partnership does not have cash available for distribution, to the
Preferred Unitholders with respect to their Preferred Units, in
proportion to and to the extent of their respective amounts of
Unpaid Preferred Return on such Preferred Units at such time; and
(2) Thereafter, to the extent that the General Partner
determines that the Partnership has cash available for distribution,
to the Partners in accordance with their respective Percentage
Interests.
Distributions made pursuant to clause (1) shall be made on a quarterly
basis.
B. (1) Notwithstanding the provisions of Section 5.1.A., if it is
anticipated that the Partners will recognize taxable income with
respect to the Partnership for any year, the General Partner shall
make a good faith estimate of the amount of such taxable income to
be recognized by each of the Partners (other than any taxable income
recognized as a result of the allocations of Net Income Pursuant to
Sections 6.l.A(1), (2) and (3)), and distributions of Partnership
cash shall be made to the Partners, in proportion to their
respective Percentage Interests, in an aggregate amount sufficient
to permit each of the Partners to pay taxes (calculated at a rate
equal to the Effective Tax Rate) on their distributive shares of
such taxable income. Distributions required to be made pursuant to
this Section 5.1.B(1) shall be made at such times as may be
appropriate to permit the Partners to make estimated tax payments;
provided that if any Partnership Unit is redeemed pursuant to
Section 8.6 or 8.7, the fact that such Partner may no longer hold
any Partnership Units after such redemption shall not affect such
Partner's right to receive any distributions required pursuant to
this Section 5.1.B(1) with respect to the applicable taxable income
allocated to such Partnership Unit up to and including the date of
such redemption.
(2) The computation of the amounts required to be distributed
pursuant to Section 5.1.B(1) for any year shall be adjusted (i)
prior to each distribution of such year, (ii) upon the filing of the
Partnership's Federal income tax return for such year, (iii) upon
any Final Determination of the Partnership's taxable income for such
year
18
and (iv) at any other time when in the good faith judgment of the
General Partner it appears that a prior estimate has been incorrect,
in each case so as to take into account actual determinations and/or
revised estimates of the Partners' shares of taxable income for such
year for Federal income tax purposes. Following any such adjustment,
the amounts to be distributed pursuant to Section 5.1.B(1) shall be
adjusted appropriately, or additional distributions shall be made,
so as to give effect to such actual determinations and/or revised
estimates.
Section 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
Section 5.3 DISTRIBUTIONS UPON LIQUIDATION
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES
For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with EXHIBIT B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. NET INCOME. After giving effect to the special allocations set
forth in Section 1 of Exhibit C, Net Income shall be allocated as follows and in
the following order of priority:
(1) First, to the General Partner until the aggregate amount
of Net Income allocated to it pursuant to this clause (1) for the
current and all prior years equals the aggregate amount of Net Loss
previously allocated to it pursuant to the proviso of Section
6.1.B(3);
(2) Second, to the Partners, in proportion to and to the
extent of any deficit balances in their respective Capital Accounts;
19
(3) Third, to the Preferred Unitholders with respect to their
Preferred Units, in proportion to and to the extent of the excess,
if any, of (x) each such Preferred Unitholder's aggregate Preferred
Capital with respect to such Preferred Units over (y) the balance of
such Preferred Unitholder's Preferred Sub-Account; and
(4) Thereafter, to the Partners in accordance with their
respective Percentage Interests.
B. NET LOSS. After giving effect to the special allocations set
forth in Section 1 of Exhibit C, Net Loss shall be allocated as follows and in
the following order of priority:
(1) First, to the Partners in proportion to and to the extent
of the excess, if any, of (x) each such Partner's Capital Account
balance over (y) such Partner's aggregate Preferred Capital with
respect to such Partner's Preferred Units (if any);
(2) Second, to the Preferred Unitholders, in proportion to
and to the extent of their remaining Capital Account balances; and
(3) Thereafter, to the Partners in accordance with their
respective Percentage Interests; provided that, to the extent any
such allocation to a Limited Partner would (after giving effect to
the allocations required under Sections 1.A and 1.B of Exhibit C)
give such Limited Partner an Adjusted Capital Account Deficit, such
amount of Net Loss shall instead be allocated to the General
Partner.
C. ALLOCATION OF NONRECOURSE DEBT. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. RECAPTURE INCOME. Any gain allocated to the Partners upon the
sale or other taxable disposition of any Partnership asset shall to the extent
possible, after taking into account other required allocations of gain pursuant
to EXHIBIT C, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income
(including deductions taken by any Partner with respect to Contributed Property
prior to the time such Property was contributed to the Partnership).
E. ALLOCATIONS TO REFLECT ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS. In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner under Section
4.2 hereof, the
20
General Partner shall make such revisions to Sections 6.1.A and B above as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 MANAGEMENT
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on
loans), the assumption or guarantee of, or other contracting
for, indebtedness and other liabilities (including, without
limitation, indebtedness and other liabilities of CMC), the
issuance of evidences of indebtedness (including the securing
of same by deed to secure debt, mortgage, deed of trust or
other lien or encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for the
conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option,
privilege, or subscription right or other right available in
connection with any assets at any time held by the
Partnership) or the merger or other combination of the
Partnership with or into another entity;
21
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the
terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct of
the operations of the General Partner, the Partnership or any
of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the
Partnership's Subsidiaries) and the repayment of obligations
of the Partnership and its Subsidiaries and any other Person
in which it has an equity investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the General Partner, the Partnership or
any of the Partnership's Subsidiaries;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General
Partner's powers under this Agreement, including contracting
with contractors, developers, consultants, accountants, legal
counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the
Partnership's assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership,
any division of the Partnership, or the General Partner
(including, without limitation, employees having titles such
as "president," "vice president," "secretary" and "treasurer"
of the Partnership, any division of the Partnership, or the
General Partner), and agents, outside attorneys, accountants,
consultants and contractors of the General Partner, the
Partnership or any division of the Partnership, and the
determination of their compensation and other terms of
employment or hiring;
22
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property
to, its Subsidiaries and any other Person in which it has an
equity investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution, or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from the
Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute
resolution, the incurring of legal expense, and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of
valuation as it may adopt;
(16) the exercise, directly or indirectly through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote,
appurtenant to any asset or investment held by the
Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person in
which the Partnership has a direct or indirect interest, or
jointly with any such Subsidiary or other Person;
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(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which
the Partnership does not have an interest pursuant to
contractual or other arrangements with such Person;
(19) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
legal instruments or agreements in writing necessary or
appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner;
and
(20) the distribution of cash to acquire Partnership Units held by
a Limited Partner in connection with a Limited Partner's
exercise of its Redemption Right under Section 8.6 or the
exercise by the General Partner of its rights under Section
8.7.
The General Partner shall have the right, at its election, to delegate to
CapStar any of the powers, duties and responsibilities of the General Partner
under this Agreement; provided, however, that no such delegation shall relieve
the General Partner of any of its obligations under this Agreement.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the fullest extent permitted
under the Act or other applicable law. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof, the General Partner
at the expense of the Partnership, may or may not cause the Partnership to
obtain and maintain (i) casualty, liability and other insurance on the
properties of the Partnership and (ii) liability insurance for the Indemnitees
hereunder.
D. At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
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E. The General Partner shall have the full power and authority in
the name and on behalf of the Partnership in its capacity as the General
Partner, to take all such actions and to execute, deliver, and file all such
agreements, instruments, reports and documents as may be necessary or advisable
in connection with the formation of the General Partner, the issuance of Units
in connection with a proposed transaction or any transactions described in or
contemplated by CapStar's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on June 21, 1996, as amended and supplemented
through the date hereof.
F. Notwithstanding anything to the contrary contained in this
Agreement, any agreement of merger or consolidation of the Partnership entered
into in accordance with the provisions of this Agreement may, as provided in
Section 17- 211(g) of the Delaware Revised Uniform Limited partnership Act, (1)
effect any amendment to this Agreement of (2) effect the adoption of a new
partnership agreement for the Partnership if it is the surviving or resulting
limited partnership in the merger or consolidation (provided that no such
amendment shall be so effected if it would, under Section 7.3 hereof, require
the consent of the Limited Partners (unless the requisite consent or consents
shall be obtained), and no provision shall be included in any such new
partnership agreement if such provision would, under Section 7.3 hereof, require
the consent of the Limited Partners if it were being incorporated in this
Agreement by amendment (unless the requisite consent shall be obtained)).
Section 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has heretofore filed the Certificate with the
Secretary of State of Delaware as required by the Act. The General Partner shall
use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state or the
District of Columbia, in which the Partnership may elect to do business or own
property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner.
Section 7.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY
Subject to Section 14.1, the General Partner may not take any action
in contravention of an express prohibition or limitation of this Agreement
without the
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written Consent of a majority of the Limited Partners (including Limited
Partnership Interests held by the General Partner) (or such lower percentage of
the Limited Partners as may be specifically provided for under a provision of
this Agreement or the Act).
Section 7.4 REIMBURSEMENT OF THE GENERAL PARTNER AND CAPSTAR
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which the General Partner may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership and neither the General Partner nor CapStar shall be entitled to
reimbursement of its costs and expenses.
B. The General Partner and CapStar shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses they incur relating to the ownership and
operation of, or for the benefit of, the Partnership; PROVIDED THAT the amount
of any such reimbursement shall be reduced by any interest earned by the General
Partner or CapStar, as applicable, with respect to bank accounts or other
instruments or accounts held by it on behalf of the Partnership as permitted in
Section 7.5.A. The Limited Partners acknowledge that, for purposes of this
Section 7.4.B, all of CapStar's expenses (including without limitation, costs
and expenses associated with compliance with the periodic reporting requirements
and all other rules and regulations of the Securities and Exchange Commission or
any other federal, state or local regulatory body, salaries payable to officers
and employees of CapStar, fees and expenses payable to directors of CapStar, and
all other operating of administrative costs of CapStar) are deemed incurred for
the benefit of the Partnership and shall be paid by or reimbursed by the
Partnership as provided in this Section 7.4.B. Such reimburse ments shall be in
addition to any reimbursement to the General Partner or CapStar as a result of
indemnification pursuant to Section 7.7 hereof. All payments and reimbursements
hereunder will be characterized for federal income tax purposes as expenses of
the Partnership incurred on its behalf, and not expenses of the General Partner
or CapStar. Notwithstanding anything to the contrary contained in the foregoing:
(i) to the extent costs and expenses of CapStar relate exclusively to the
ownership and operation of, or are for the exclusive benefit of, CMC, the
Partnership shall have no obligation to reimburse CapStar for such costs and
expenses; and (ii) costs and expenses of CapStar which do not relate exclusively
to the ownership or operation of, and are not for the exclusive benefit of,
either the Partnership or CMC shall be shared by the Partnership and CMC in such
manner the General Partner shall determine in good faith.
C. The General Partner and CapStar shall also be reimbursed for all
expenses they incur relating to the organization and/or reorganization of the
Partnership, the General Partner and/or CapStar, and any issuance of additional
26
Partnership Interests, CapStar Shares or other New Securities (including,
without limitation, all costs, expenses, damages, and other payments resulting
from or arising in connection with litigation related to any of the foregoing).
To the extent such expenses relate to the organization or reorganization of
CapStar or the issuance of CapStar Shares or New Securities, they shall be
reimbursed on the basis described in clause (ii) of the last sentence of Section
7.4.B.
D. In the event that CapStar shall elect to purchase from its
shareholders CapStar Shares for the purpose of delivering such shares to satisfy
an obligation under any dividend reinvestment program adopted by CapStar, any
employee stock purchase plan adopted by CapStar, or any similar obligation or
arrangement undertaken by CapStar in the future, the purchase price paid by
CapStar for such CapStar Shares and any other expenses incurred by CapStar in
connection with such purchase shall be considered expenses of the Partnership
and CMC and shall be reimbursed to CapStar by the Partnership and CMC on the
basis described in clause (ii) of the last sentence of Section 7.4.B, subject to
the condition that: (i) if such CapStar Shares subsequently are to be sold by
CapStar, CapStar shall pay to the Partnership and CMC any proceeds received by
CapStar for such CapStar Shares in the same proportion as the reimbursements
made with respect to such CapStar Shares pursuant to the preceding portion of
this sentence (provided that a transfer of CapStar Shares for Partnership Units
pursuant to Section 8.6 or 8.7 (or a transfer of CapStar Shares for partnership
units in CMC pursuant to the corresponding provisions of the partnership
agreement of CMC) shall not be considered a sale for such purposes); and (ii) if
such CapStar Shares are not retransferred by CapStar within 30 days after the
purchase thereof, the General Partner shall cause the Partnership to cancel a
number of Partnership Units (rounded to the nearest whole Partnership Unit) held
by the General Partner (in its capacity as a general partner or a limited
partner) and/or by other Affiliates of CapStar equal to the product obtained by
multiplying the number of such CapStar Shares (to the extent the reimbursement
with respect thereto was made by the Partnership and not by CMC) by a fraction,
the numerator of which is one and the denominator of which is the Conversion
Factor.
Section 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
A. The General Partner shall not directly or indirectly enter into
or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner (or as
a Limited Partner) and the management of the businesses of the Partnership, and
such activities as are incidental thereto. The General Partner shall not incur
any debts other than (i) debt of the Partnership for which it may be liable in
its capacity as General Partner of the Partnership, and (ii) indebtedness for
borrowed money the proceeds from which borrowing are loaned to the Partnership
on the same terms and conditions as the borrowing by the General Partner. The
General Partner shall not hold any assets other than Partnership Interests as a
General Partner (or as a Limited Partner), other than such bank accounts or
similar instruments or accounts as it deems necessary to carry out its
responsibilities contemplated under this Agreement and its Articles of
27
Incorporation. The CapStar Agreement provides that: (A) CapStar shall not
directly or indirectly enter into or conduct any business, other than in
connection with the ownership, acquisition and disposition of stock, partnership
interests or other interests in CMC, the General Partner and any other entity
formed to own interests in the Partnership or CMC, the management of the
business of CMC (and the Partnership, to the extent the General Partner
delegates its powers, responsibilities and duties under this Agreement to
CapStar), and such activities as are incidental thereto; (B) CapStar shall not
incur any debts other than (x) debt of the Partnership or CMC for which it may
be liable in its capacity as the general partner of CMC or as a guarantor or
co-borrower and (y) indebtedness for borrowed money the proceeds of which
borrowing are loaned to the Partnership or CMC on the same terms and conditions
as the borrowing by CapStar; and (C) CapStar shall not hold any assets other
than the stock, partnership interests and other interests hereinabove referred
to, other than bank accounts or similar instruments or accounts as it deems
necessary to carry out the responsibilities delegated to it as provided in
Section 7.1.A, its responsibilities under the partnership agreement of CMC and
other activities consistent with the foregoing provisions of this Section 7.5.A.
The General Partner and any Affiliates of the General Partner may acquire
Limited Partner Interests and shall be entitled to exercise all rights of a
Limited Partner relating to such Limited Partner Interests.
B. The CapStar Agreement provides that CapStar may, from time to
time, purchase and/or redeem CapStar Shares (including, without limitation, in
connection with a stock repurchase or similar program) if CapStar determines
that it is in the interest of the Partnership and CMC to purchase and/or redeem
CapStar Shares. In the event that CapStar purchases and/or redeems CapStar
Shares, then the General Partner and CapStar shall cause the Partnership and CMC
to purchase from CapStar and/or the General Partner (and/or any other Partner
(or partner in CMC) in which CapStar owns a direct or indirect interest),
concurrently with the CapStar Share purchase or redemption, Partnership Units
and units in CMC (the "CMC Units"). The relative amounts of Partnership Units
and CMC Units (collectively, "Units") purchased by each Operating Partnership
shall be determined by reference to the number of Units in each Operating
Partnership owned directly or indirectly by CapStar. The purchase of such Units
shall be for the same consideration (including any fees, concessions and
expenses payable by CapStar) and on the same terms as those applicable to the
purchase or redemption by CapStar of the related CapStar Shares.
Section 7.6 CONTRACTS WITH AFFILIATES
A. The Partnership may lend or contribute funds or other assets to
its Subsidiaries or other Persons in which it has an equity investment, and such
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Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Subject to the provisions of Section 7.5.A, the Partnership may
transfer assets to joint ventures, other partnerships, corporations or other
business entities in which it is or thereby becomes a participant upon such
terms and subject to such conditions consistent with this Agreement and
applicable law as the General Partner, in its sole and absolute discretion,
believes are advisable.
C. Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are determined by the General
Partner in good faith to be fair and reasonable and no less favorable to the
Partnership than would be obtained from an unaffiliated third party.
D. The General Partner or CapStar, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit plans, stock option plans,
and similar plans funded by the Partnership for the benefit of employees of the
General Partner, CapStar, the Partnership, Subsidiaries of the Partnership or
any Affiliate of any of them in respect of services performed, directly or
indirectly, for the benefit of the Partnership, the General Partner, CapStar or
any of the Partnership's Subsidiaries. If any such employees also perform,
directly or indirectly, services for CMC or any of its Subsidiaries, then the
plans benefitting such employees shall be funded by the Partnership and CMC in
such relative amounts as the General Partner and CapStar shall determine in good
faith.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership (including CMC and CapStar) and the General Partner, on such terms
as the General Partner, in its sole and absolute discretion, believes are
advisable.
Section 7.7 INDEMNIFICATION
A. The Partnership shall indemnify each Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements, and other amounts arising from any and
all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the Partnership in which such
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and
29
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. Without limitation, the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guaranty or
otherwise, for any indebtedness of the Partnership or any Subsidiary of the
Partnership (including, without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), and the General Partner is hereby authorized and empowered, on behalf of
the Partnership, to enter into one or more indemnity agreements consistent with
the provisions of this Section 7.7 in favor of any Indemnitee having or
potentially having liability for any such indebtedness. The termination of any
proceeding, by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct set forth in this
Section 7.7.A. The termination of any proceeding by conviction of an Indemnitee
or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an
entry of an order of probation against an Indemnitee prior to judgment, creates
a rebuttable presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.7.A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.7 shall be made only
out of the assets of the Partnership, and neither the General Partner nor any
Limited Partner shall have any obligation to contribute to the capital of the
Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity unless otherwise provided in a written agreement pursuant
to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
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E. For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of Section 7.7; and actions taken or
omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership, any Partners or any Assignees for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that, so long as
CapStar and the General Partner act in good faith and in accordance with the
provisions of this Agreement and the CapStar Agreement, neither the General
Partner nor CapStar shall be liable to the Partnership or to any Partner for
monetary damages or otherwise, and no Limited Partner shall have any claim
against CapStar or the General Partner, by reason of any action, decision or
omission which is alleged to have benefitted CapStar or CMC at the expense of,
or without corresponding benefit
31
to, the Partnership (including, without limitation, any decision to cause a
hotel to be acquired by CMC or any of its Subsidiaries rather than by the
Partnership or any of its Subsidiaries) or which is alleged not to have taken
into account the separate interests of the Limited Partners.
C. Subject to its obligations and duties as General Partner set
forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
E. If the General Partner shall elect to delegate any of its duties,
responsibilities and powers to CapStar as permitted under Section 7.1.A, then
the provisions of this Section 7.8 applicable to the General Partner shall be
equally applicable to CapStar as such delegate.
Section 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and
32
authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. If the General Partner shall elect to delegate any of its duties,
responsibilities and powers to CapStar as permitted under Section 7.1.A, then
the provisions of this Section 7.9 applicable to the General Partner shall be
equally applicable to CapStar as such delegate.
Section 7.10 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any
Person dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect,
33
(ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (iii) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 LIMITATION OF LIABILITY
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.
Section 8.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee (other than the General Partner, any
of its Affiliates or any officer, director, employee, partner, agent or trustee
of the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
Section 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to Section 7.5 hereof and any other agreements entered into
by a Limited Partner or its Affiliates with the Partnership or a Subsidiary, any
Limited Partner and any officer, director, employee, agent, trustee, Affiliate
or shareholder of any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities that are in direct
competition with the Partnership or that are enhanced by the activities of the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner or
Assignee. None of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the Partnership relationship established
hereby in any business ventures of any other Person (other than the General
Partner to the extent expressly provided herein) and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures to the Partnership, any Limited Partner or any such other Person, even
if
34
such opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.4 RETURN OF CAPITAL
Except pursuant to the right of redemption set forth in Section 8.6
(including any such right exercised after the giving of a Mandatory Redemption
Notice as provided in Section 8.7), no Limited Partner shall be entitled to the
withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Nothing in this Section 8.4 shall be interpreted
as limiting the Partnership's right to redeem all or a portion of the
Partnership Units held by a Limited Partner, with the consent of such Limited
Partner, on such terms and for such consideration as determined by the General
Partner to be in the interests of the Partnership. Except to the extent provided
by EXHIBIT C hereof or as permitted by Section 4.2 (relating to preferred
interests issued subsequent to the date hereof), or otherwise expressly provided
in this Agreement, no Limited Partner or Assignee shall have priority over any
other Limited Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions.
Section 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by
the General Partner pursuant to the Securities Exchange Act of
1934;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all
powers of attorney pursuant to which this Agreement, the
Certificate and all amendments thereto have been executed; and
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(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or
services contributed by each Partner and which each Partner
has agreed to contribute in the future, and the date on which
each became a Partner.
B. The Partnership shall notify each Limited Partner, upon request,
of the then current Conversion Factor and any change therein.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that (i) the General Partner reasonably believes
to be in the nature of trade secrets or other information the disclosure of
which the General Partner in good faith believes is not in the best interests of
the Partnership or could damage the Partnership or its business or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
Section 8.6 REDEMPTION RIGHT
A. Subject to Section 8.6.B, each Limited Partner, other than CMC,
shall have the right (the "Redemption Right"), on or after the first anniversary
of the date on which such Limited Partner acquires its Partnership Units (or
such later or earlier date as shall be determined in the sole and absolute
discretion of the General Partner at the time of issuance of the Partnership
Units), to require the Partnership to redeem on a Specified Redemption Date all
or a portion of the Partnership Units held by such Limited Partner at a
redemption price equal to and in the form of the Cash Amount to be paid by the
Partnership. The Redemption Right shall be exercised pursuant to a Notice of
Redemption delivered to the Partnership (with a copy to the General Partner) by
the Limited Partner who is exercising the redemption right (the "Redeeming
Partner"). A Limited Partner may not exercise the Redemption Right for less than
one thousand (1,000) Partnership Units or, if such Limited Partner holds less
than one thousand (1,000) Partnership Units, all of the Partnership Units held
by such Partner. Except as provided in Section 8.6.B, neither the Redeeming
Partner nor any Assignee of any Limited Partner shall have any right with
respect to any Partnership Units so redeemed to receive any distributions paid
after the Specified Redemption Date. The Assignee of any Limited Partner may
exercise the rights of such Limited Partner pursuant to this Section 8.6, and
such Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Limited
Partner's Assignee. In connection with any exercise of such rights by such
Assignee on behalf of such Limited Partner, the Cash Amount shall be paid by the
Partnership directly to such Assignee and not to such Limited Partner.
Notwithstanding anything to the contrary set forth above, if any Preferred
Unitholder shall exercise the Redemption Right with respect to any Preferred
Units, the
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Partnership shall be obligated to pay to such Preferred Unitholder, together
with the Cash Amount, the Unpaid Preferred Return attributable to the Preferred
Units being redeemed as of the date such payment is made.
B. Notwithstanding the provisions of Section 8.6.A, in the event a
Limited Partner elects to exercise the Redemption Right, the General Partner
may, in its sole and absolute discretion, elect to cause CapStar to assume and
satisfy a Redemption Right either by paying to the Redeeming Partner the Cash
Amount or, at the General Partner's sole and absolute discretion, delivering the
CapStar Shares Amount to the Redeeming Partner in exchange for the Partnership
Units offered for redemption, in either case on the Specified Redemption Date.
Any Partnership Units so acquired by CapStar shall be contributed by CapStar to
the General Partner, and the General Partner shall thereupon be treated for all
purposes of this Agreement as the owner of such Partnership Units. Unless the
General Partner (in its sole and absolute discretion) shall exercise its right
to cause CapStar to assume and satisfy the Redemption Right, neither CapStar nor
the General Partner shall have any obligation to the Redeeming Partner or to the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. In the event the General Partner shall exercise its right to cause
CapStar to satisfy the Redemption Right in the manner described in the first
sentence of this Section 8.6.B, the Partnership shall have no obligation to pay
any amount to the Redeeming Partner with respect to such Redeeming Partner's
exercise of the Redemption Right, and each of the Redeeming Partner, the
Partnership, and the General Partner shall treat the transaction between the
General Partner and the Redeeming Partner for federal income tax purposes as a
sale of the Redeeming Partner's Partnership Units to CapStar and the subsequent
contribution of such Partnership Units to the General Partner. Each Redeeming
Partner agrees to execute such documents as the General Partner or CapStar may
reasonably require in connection with the issuance of CapStar Shares upon
exercise of the Redemption Right. If the Redemption Right is satisfied by the
delivery of CapStar Shares, the Redeeming Partner shall be deemed to become a
holder of CapStar Shares as of the close of business on the Specified Redemption
Date.
Notwithstanding anything to the contrary contained in the foregoing or in
Section 8.6.A, if the Cash Amount with respect to a redemption of Partnership
Units is, pursuant to Section 8.6.D hereof, paid after the Specified Redemption
Date, then (i) such redemption shall not occur until the Cash Amount is paid and
(ii) the Limited Partner in question (or its Assignee) shall have the right to
continue receiving distributions hereunder until the date of such redemption or
as otherwise provided in Section 5.1.B(1).
In addition, notwithstanding anything to the contrary contained in Section
8.6.A, if the General Partner exercises its right to cause CapStar to satisfy
the Redemption Right pursuant to this Section 8.6.B, then, if the Redeeming
Partner is a Preferred Unitholder: (i) the General Partner shall be obligated to
cause CapStar to pay to such Preferred Unitholder, together with the payment of
the Cash Amount or the delivery of CapStar Shares, an amount equal to the Unpaid
Preferred Return attributable to such Preferred Units as of the date such
payment is made; and (ii) if the General
37
Partner has elected to cause CapStar Shares to be delivered by CapStar to such
Preferred Unitholder, the General Partner shall have the right to satisfy its
obligation under clause (i) of this sentence by causing CapStar to deliver to
such Preferred Unitholder a number of CapStar Shares equal to the amount of such
Unpaid Preferred Return DIVIDED BY the Value on the Valuation Date of one
CapStar Share (rounded down to the nearest whole number of CapStar Shares if
such quotient is not a whole number).
C. Each Limited Partner covenants and agrees that all Partnership
Units delivered for redemption shall be delivered to the Partnership or CapStar,
as the case may be, free and clear of all liens and, notwithstanding anything
herein contained to the contrary, neither the General Partner nor the
Partnership shall be under any obligation to acquire Partnership Units which are
or may be subject to any liens. Each Limited Partner further agrees that, in the
event any state or local property transfer tax is payable as a result of the
transfer of its Partnership Units to the Partnership or CapStar, such Limited
Partner shall assume and pay such transfer tax.
D. Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 8.6 shall be paid within 60 days after the initial date of receipt
by the Partnership of the Notice of Redemption relating to the Partnership Units
to be redeemed; PROVIDED, HOWEVER, that such 60-day period may be extended for
up to an additional 30-day period to the extent required for CapStar to cause
additional CapStar Shares to be issued to provide financing to be used to make
such payment of the Cash Amount. Notwithstanding the foregoing, the Partnership
and the General Partner agree to use their best efforts to cause the closing of
the acquisition of redeemed Partnership Units hereunder to occur as quickly as
reasonably possible.
E. Notwithstanding anything to the contrary hereinabove contained,
except as provided in Section 8.7.A, no Limited Partner shall be entitled to
exercise the Redemption Right with respect to any Preferred Unit as to which the
Mandatory Redemption Notice (as hereinafter defined) has been given.
F. In addition to the right of redemption hereinabove provided for
in this Section 8.6, the Limited Partners, other than CMC, shall have the right,
on one occasion only on or after the seventh anniversary of the date of this
Agreement, to require the Partnership to redeem all of their Preferred Units
then outstanding at a redemption price equal to $25.50 per Preferred Unit. If
such right is exercised, then, for purposes of this Agreement but subject to the
further provisions of this Section 8.6.F, (i) such exercise shall be deemed to
constitute, as to each Limited Partner (other than CMC), the exercise of the
Redemption Right, (ii) each such Limited Partner shall be deemed a Redeeming
Partner, and (iii) such redemption shall, except as provided above and except as
hereinafter provided, be treated in the same manner as a redemption pursuant to
Section 8.6.A hereof; provided that (A) the Notice of Redemption shall be signed
by all such Limited Partners, (B) each Notice of Redemption shall state
specifically that it is being given under this Section 8.6.F and
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(C) such Limited Partners shall be entitled to elect (which election shall be
indicated in the Notice of Redemption) whether to be paid the Cash Amount (which
term, for purposes of this Section 8.6.F, shall mean the redemption price
provided for above) or to receive CapStar Shares in exchange for their Preferred
Units (the number of CapStar Shares so to be delivered to such Limited Partners
to be computed in accordance with Section 8.7.B hereof). In the event such
Limited Partners elect to receive CapStar Shares in exchange for their Preferred
Units, the provisions of Section 8.6.B shall apply (except that references
therein to the General Partners's election to cause CapStar Shares to be
delivered to the Redeeming Partners shall instead be deemed references to the
election of the Limited Partners to receive CapStar Shares). The redemption
right provided for in this Section 8.6.F may be exercised only in conjunction
with the exercise of the redemption right provided for in Section 8.6.F of the
CMC Partnership Agreement, and the Limited Partners' election hereunder whether
to be paid the Cash Amount or to receive Capstar Shares shall correspond to the
election of the limited partners of CMC under said Section 8.6.F.
Section 8.7 MANDATORY REDEMPTION
A. Except as otherwise provided in the last sentence of this Section
8.7.A, the Partnership shall have the right ("Mandatory Redemption Right"), at
any time on or after the third anniversary of the date of this Amendment, to
redeem all or any portion of the Preferred Units at a redemption price equal to
$25.50 per Preferred Unit; provided, however, that any such redemption shall be
effected on a PRO RATA basis among all of the Preferred Unitholders. The
Mandatory Redemption Right shall be exercised pursuant to a notice (the
"Mandatory Redemption Notice") delivered by the Partnership to the Preferred
Unitholders whose Preferred Units are being redeemed. If the Mandatory
Redemption Notice is given to a Preferred Unitholder, then the redemption of
such Preferred Unitholder's Preferred Units shall take place on the tenth
Business Day after the giving of such Notice. On such tenth Business Day, the
Partnership shall pay to such Preferred Unitholder the redemption price
hereinabove provided for, and such Preferred Unitholder shall deliver to the
Partnership such instruments of transfer as the Partnership shall reasonably
require assigning to the Partnership the Preferred Units being redeemed, free
and clear of all liens and encumbrances. Such Preferred Unitholder shall pay any
state or local property tax payable in connection with such transfer.
Notwithstanding anything to the contrary contained in the foregoing, if, within
5 Business Days after the giving of the Mandatory Redemption Notice, any
Preferred Unitholder gives the Redemption Notice with respect to the Preferred
Units specified in such Mandatory Redemption Notice, then such Mandatory
Redemption Notice shall be deemed null and void and the provisions of Section
8.6 shall apply with respect to such Preferred Units.
B.(i) Notwithstanding anything to the contrary contained in Section
8.7.A, the General Partner shall have the right to cause CapStar to purchase all
or any portion of the Preferred Units in lieu of the Partnership's exercise of
its Mandatory Redemption Right. Any such purchase by CapStar of the Preferred
Units shall be on the terms and conditions set forth in Section 8.7.A, with
CapStar
39
performing the obligations of the Partnership under such section; provided,
however, that the General Partner shall have the right (the "Share Exchange
Right"), in lieu of causing CapStar to pay to the Preferred Unitholder in
question the redemption price provided for in Section 8.7.A, to cause CapStar to
deliver to such Preferred Unitholder a number of CapStar Shares equal to (i) the
number of Preferred Units being purchased, multiplied by (ii) $25.50, divided by
(iii) the Value per CapStar Share on the Valuation Date (which amount shall be
rounded down to the nearest whole number if it is not a whole number). The Share
Exchange Right shall be exercised by notice included in the Mandatory Redemption
Notice. For purposes of this Section 8.7, the term "Valuation Date" shall mean
the date on which the Mandatory Redemption Notice is delivered to the Preferred
Unitholder in question or, if such date is not a Business Day, the first
Business Day thereafter. If CapStar purchases Preferred Units pursuant to this
Section 8.7.B, CapStar shall contribute such Preferred Units to the General
Partner, and the General Partner shall thereafter be treated for all purposes as
the owner of such Preferred Units.
(ii) Notwithstanding anything to the contrary contained in
clause (i) this Section 8.7.B, if the General Partner shall exercise the Share
Exchange Right with respect to a Preferred Unitholder on or after the third
anniversary of the date hereof, such Preferred Unitholder shall have the right,
by notice given to the General Partner within five Business Days after the
giving of the Mandatory Redemption Notice, to receive cash for its Preferred
Units in lieu of accepting delivery of CapStar Shares therefor. If any Preferred
Unitholder shall exercise such right, then the Partnership or CapStar shall pay
to such Preferred Unitholder the redemption price for the Preferred Units being
redeemed as provided in Section 8.7.A or clause (i) of this Section 8.B, as
applicable. In addition to the foregoing, if the General Partner shall exercise
the Mandatory Redemption Right on or after the third anniversary of the date
hereof and shall not exercise the Share Exchange Right as to a Preferred
Unitholder, such Preferred Unitholder shall have the right, by notice given to
the General Partner within five Business Days after the giving of the Mandatory
Redemption Notice, to require the General Partner to cause CapStar to deliver
CapStar Shares to such Preferred Unitholder in exchange for such Preferred
Unitholder's Preferred Units. If any Preferred Unitholder shall exercise such
right, then the General Partner shall cause CapStar so to deliver such CapStar
Shares on the terms and conditions set forth in clause (i) of this Section 8.7.B
C. If the Mandatory Redemption Right is exercised or CapStar
purchases Preferred Units pursuant to Section 8.7.B, then the Partnership or
CapStar, as the case may be, shall be required to pay (or cause to be paid) to
the Preferred Unitholder in question, in addition to the payment or the delivery
of CapStar Shares hereinabove provided for, an amount equal to the Unpaid
Preferred Return (as of the date such payment is made) attributable to the
Preferred Units being so redeemed or purchased; provided, however, that if the
General Partner has elected to cause CapStar to purchase Preferred Units by
delivery of CapStar Shares and a Preferred Unitholder has not elected, pursuant
to Section 8.7.B, to receive cash in lieu of such CapStar Shares, or if a
Preferred Unitholder has elected pursuant to Section 8.7.B to receive CapStar
Shares in exchange for its Preferred Units, the General Partner shall have the
right, in lieu of paying an amount equal to such Unpaid Preferred Return, to
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cause CapStar to deliver to such Preferred Unitholder a whole number of CapStar
Shares equal to the amount of such Unpaid Preferred Return (as of the date such
payment is made) DIVIDED BY the Value on the Valuation Date of one CapStar Share
(rounded down to the nearest whole number of CapStar Shares if such quotient is
not a whole number).
D. Notwithstanding the foregoing, in no event shall the Mandatory
Redemption Right be exercisable with respect to any Preferred Unit as to which a
Redemption Notice has been given as provided in Section 8.6.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micro graphics or any other information
storage device, PROVIDED THAT the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or other such basis as the General Partner determines to be necessary or
appropriate.
Section 9.2 FISCAL YEAR
The fiscal year of the Partnership shall end on the Friday nearest
December 31 of each calendar year.
Section 9.3 REPORTS
A. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each Partnership Year, the General Partner
shall cause to be mailed to each Limited Partner as of the close of the
Partnership Year, an annual report containing financial statements of the
Partnership, or of CapStar if such statements are prepared solely on a
consolidated basis with CapStar, for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the General Partner.
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B. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be mailed to
each Limited Partner as of the last day of the calendar quarter, a report
containing unaudited financial statements of the Partnership, or of CapStar, if
such statements are prepared solely on a consolidated basis with CapStar, and
such other information as may be required by applicable law or regulation, or as
the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within ninety (90) days of the
close of each taxable year, the tax information reasonably required by Limited
Partners for federal and state income tax reporting purposes.
Section 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in
its sole and absolute discretion, determine whether to make any available
election pursuant to the Code; PROVIDED, however, that the General Partner shall
make the election under Section 754 of the Code in accordance with applicable
regulations thereunder effective for the first calendar year following the
Effective Date. The General Partner shall have the right to seek to revoke any
such election (including, without limitation, the election under Section 754 of
the Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; PROVIDED,
however, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
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B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a
Partner for income tax purposes (such administrative
proceedings being referred to as a "tax audit" and such
judicial proceedings being referred to as "judicial review"),
and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners,
except that such settlement agreement shall not bind any
Partner (i) who (within the time prescribed pursuant to the
Code and Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the authority to
enter into a settlement agreement on behalf of such Partner or
(ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" (as
defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be
taken into account by a Partner for tax purposes (a "final
adjustment") is mailed to the tax matters partner, to seek
judicial review of such final adjustment, including the filing
of a petition for readjustment with the Tax Court or the
filing of a complaint for refund with the United States Claims
Court or the District Court of the United States for the
district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
IRS and, if any part of such request is not allowed by the
IRS, to file an appropriate pleading (petition or complaint)
for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period
for assessing any tax which is attributable to any item
required to be taken into account by a Partner for tax
purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial
review proceeding to the extent permitted by applicable law or
regulations.
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The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. Nothing herein shall be construed
to restrict the Partnership from engaging an accounting or legal firm to assist
the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable.
Section 10.4 ORGANIZATIONAL EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by
it in organizing the Partnership ratably over a sixty (60) month period as
provided in Section 709 of the Code.
Section 10.5 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (ii) the General Partner determines, in its sole and absolute discretion,
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be
44
deemed to have loaned such amount to such defaulting Limited Partner and shall
succeed to all rights and remedies of the Partnership as against such defaulting
Limited Partner. Without limitation, in such event the General Partner shall
have the right to receive distributions that would otherwise be distributable to
such defaulting Limited Partner until such time as such loan, together with all
interest thereon, has been paid in full, and any such distributions so received
by the General Partner shall be treated as having been distributed to the
defaulting Limited Partner and immediately paid by the defaulting Limited
Partner to the General Partner in repayment of such loan. Any amounts payable by
a Limited Partner hereunder shall bear interest at the lesser of (A) the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the WALL STREET JOURNAL, plus four (4) percentage
points, or (B) the maximum lawful rate of interest on such obligation, such
interest to accrue from the date such amount is due (i.e., fifteen (15) days
after demand) until such amount is paid in full. Each Limited Partner shall take
such actions as the Partnership or the General Partner shall request in order to
perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 TRANSFER
A. The term "transfer," when used in this Article 11 with respect to
a Partnership Interest or Partnership Unit, shall be deemed to refer to a
transaction by which the General Partner purports to assign all or any part of
its General Partner Interest to another Person or by which a Limited Partner
purports to assign all or any part of its Limited Partner Interest to another
Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
The term "transfer" when used in this Article 11 does not include any redemption
of Partnership Units by a Limited Partner or acquisition of Partnership Units
from a Limited Partner by the General Partner or CapStar pursuant to Section 8.6
or Section 8.7.
B. No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST
A. The General Partner may not transfer any of its General Partner
Interest or withdraw as General Partner except in connection with a transaction
described in Section 11.2.B, 11.2.C or 11.2.D; provided that the General Partner
may transfer its General Partner Interest to CapStar or to any wholly-owned
direct or indirect subsidiary of CapStar (which transferee shall be admitted as
a substitute
45
General Partner) and, in connection with such transfer, withdraw as General
Partner. The CapStar Agreement provides that CapStar may not transfer (as such
term is defined in the CapStar Agreement) the stock of the General Partner
except as hereinafter described in this Section 11.2.
B. The CapStar Agreement provides that, except as otherwise
described in Section 11.2.C or 11.2.D hereof, CapStar shall not engage in any
merger, consolidation or other combination with or into another Person or sale
of all or substantially all of its assets, or any reclassification, or
recapitalization or change of outstanding CapStar Shares (other than a change in
par value, or from par value to no par value, or as a result of a subdivision or
combination as described in the definition of "Conversion Factor")
("Transaction"), unless the Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the Partnership as a
result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid to a holder of one CapStar Share in consideration of one CapStar Share at
any time during the period from and after the date on which the Transaction is
consummated.
C. The CapStar Agreement provides that, notwithstanding the
prohibition described in Section 11.2.B hereof, CapStar may merge with another
entity if immediately after such merger substantially all of the assets of the
surviving entity are contributed, directly or indirectly, to the Partnership and
CMC as capital contributions in exchange for Units having, as to each Operating
Partnership, a fair market value, as reasonably determined by the General
Partner, equal to the 704(c) Value of the assets so contributed to such
Operating Partnership. Such assets shall be allocated between the Partnership
and CMC in such manner as CapStar and the General Partner shall determine in
good faith.
D. Notwithstanding Sections 11.2.A and 11.2.B, the General Partner
or CapStar may pledge its General Partner Interest, or the stock of the General
Partner, as applicable, in connection with any borrowing of the Partnership or
CMC which is guaranteed by or otherwise recourse to the General Partner or
CapStar, and any transfer of the General Partner Interest or such stock pursuant
or subsequent to the exercise of rights or remedies in connection with such
pledge shall be permitted hereunder or under the CapStar Agreement, as
applicable.
Section 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. Subject to the provisions of Section 11.3.F and Section 11.7, no
Limited Partner shall have the right to transfer all or any portion of his
Partnership Interest, or any of such Limited Partner's rights as a Limited
Partner, without the prior written consent of the General Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. Any purported transfer of a Partnership Interest by a Limited
Partner in violation of this Section 11.3.A shall be void AB INITIO and shall
not be given effect for any purpose by the Partnership.
46
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited
Partner of his Partnership Units otherwise permitted under Section 11.3.F or
Section 11.7 if, in the opinion of legal counsel to the Partnership, such
transfer would require filing of a registration statement under the Securities
Act of 1933 or would otherwise violate any federal, state or foreign securities
laws or regulations applicable to the Partnership or the Partnership Unit.
D. Subject to the provisions of Section 11.3.F, no transfer by a
Limited Partner of his Partnership Units may be made to any Person if (i) in the
opinion of legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation for federal income tax
purposes, or would result in a termination of the Partnership for federal income
tax purposes or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Code.
E. Subject to the provisions of Section 11.3.F and Section 11.7, no
transfer of any Partnership Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership if, in either case, such loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
which consent may be given or withheld by the General Partner in its sole and
absolute discretion, PROVIDED THAT as a condition to such consent being granted
the lender will be required to enter into an arrangement with the Partnership
and the General Partner to exchange or redeem for the CapStar Shares Amount any
Partnership Units in which a security interest is held simultaneously with the
time at which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.
F. Notwithstanding the foregoing provisions of this Section 11.3, a
Limited Partner may pledge its Partnership Interest, or any of such Limited
Partner's rights as a Limited Partner, in connection with any borrowing of the
Partnership which is guaranteed by or otherwise recourse to such Limited
Partner, and any transfer of such Partnership Interest (or of such rights)
pursuant or subsequent to the exercise of rights or remedies in connection with
such pledge shall be permitted hereunder.
47
Section 11.4 SUBSTITUTED PARTNERS
A. Except as provided in Section 11.4.C hereof, no Limited Partner
shall have the right to substitute a transferee as a Limited Partner in his
place. The General Partner shall, however, have the right to consent to the
admission of a transferee of the interest of a Limited Partner pursuant to this
Section 11.4 as a Substituted Limited Partner, which consent may be given or
withheld by the General Partner in its sole and absolute discretion. The General
Partner's failure or refusal to permit a transferee of any such interests to
become a Substituted Limited Partner shall not give rise to any cause of action
against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. The admission of any transferee as a Substituted Limited
Partner shall be subject to the transferee executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
(including, without limitation, the provisions of Section 2.4) and such other
documents or instruments as may be required to effect the admission.
C. Subject to the next sentence of this Section 11.4.C, (i) any
transferee by way of an exercise of the rights and remedies in connection with
the pledge of a General Partner Interest pursuant to Section 11.2.D shall have
the right, at the election of such transferee, to be admitted as a substituted
General Partner, and (ii) any transferee of a Limited Partner Interest pursuant
to Section 11.3.F or Section 11.7 shall have the right, at the election of such
transferee, to be admitted as a Substituted Limited Partner.
Section 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion, does
not consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any other items of gain, loss, deduction and credit of the
Partnership attributable to the Partnership Units assigned to such transferee,
but shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
In the event any such transferee desires to make a further assignment of any
such Partnership Units, such transferee shall be subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of Partnership Units.
48
Section 11.6 GENERAL PROVISIONS
A. No Limited Partner may withdraw from the Partnership other than
as a result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6 or Section 8.7.
B. Any Limited Partner who shall transfer all of his Partnership
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of his Partnership Units pursuant to a redemption of all of his Partnership
Units under Section 8.6 or Section 8.7 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the
first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
D. If any Partnership Interest is transferred or assigned in
compliance with the provisions of this Article 11 or redeemed or transferred
pursuant to Section 8.6 or Section 8.7, on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such Partnership Year shall be divided
and allocated between the transferor Partner and the transferee Partner by
taking into account their varying interests during the fiscal year in accordance
with Section 706(d) of the Code, using the interim closing of the books method
(unless the General Partner, in its sole and absolute discretion, elects to
adopt a daily, weekly or monthly proration method, in which event Net Income,
Net Losses and each item thereof for such Partnership Year shall be prorated
based upon the applicable period selected by the General Partner). Solely for
purposes of making such allocations, each of such items for the calendar month
in which the transfer or assignment occurs shall be allocated to the transferee
Partner, and none of such items for the calendar month in which a redemption
occurs shall be allocated to the Redeeming Partner. Without derogating from the
provisions of Section 5.1.B(1), all distributions attributable to such
Partnership Unit before the date of such transfer, assignment or redemption
shall be made to the transferor Partner or the Redeeming Partner or the Partner
whose Preferred Units are being redeemed pursuant to Section 8.7, as the case
may be.
Section 11.7 PLEDGES OF PARTNERSHIP INTERESTS. Except as provided in
Section 11.3.F, no Limited Partner shall pledge, hypothecate or grant a security
interest in all or any portion of its Partnership Interest; provided, however,
that any Limited Partner shall have the right, as security for a borrowing from
a bank, insurance company or other commercial lending institution (an
"INSTITUTIONAL LENDER"), to pledge or hypothecate to such Institutional Lender,
or to grant and/or sell to and/or purchase from such Institutional Lender or an
Affiliate thereof an option with respect to, or grant to such Institutional
Lender a security interest in, all or a
49
portion of its Partnership Units, and any transfer of such pledged Partnership
Units to such Institutional Lender (or to its transferee in any public or
private sale by such Institutional Lender) pursuant to the exercise of rights or
remedies in connection with such pledge or option shall be permitted hereunder.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner Interest pursuant to
Section 11.2.A or 11.2.D hereof shall be admitted to the Partnership as a
successor General Partner in accordance with the provisions of Section 11.4.C.
If CapStar is then the General Partner, then a successor to all of the General
Partner Interest pursuant to Section 11.2.C hereof who is proposed to be
admitted as a successor General Partner shall be admitted to the Partnership as
the General Partner, effective upon the transfer referred to in said Section
11.2.C. Any transferee hereinabove referred to in this Section 12.1 shall carry
on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the successor General Partner executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement and such other documents or instruments as may be required to
effect the admission. In the case of such admission on any day other than the
first day of a Partnership Year, all items attributable to the General Partner
Interest for such Partnership Year shall be allocated between the transferring
General Partner and such successor as provided in Section 11.6.D hereof.
Section 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. A Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement or who exercises an option to receive Partnership
Units shall be admitted to the Partnership as an Additional Limited Partner only
upon furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including, without limitation, the power of attorney granted in
Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
50
C. If any Additional Limited Partner is admitted to the Partnership
on any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assignees including such Additional Limited
Partner. All distributions pursuant to Section 5.1.B before the date of such
admission shall be made solely to Partners and Assignees other than the
Additional Limited Partner, and all distributions pursuant to Section 5.1.B
thereafter shall be made to all the Partners and Assignees including such
Additional Limited Partner.
Section 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP
For the admission to the Partnership of any Partner, the General
Part ner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement and, if required by law, shall prepare
and file an amendment to the Certificate and may for this purpose exercise the
power of attorney granted pursuant to Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 DISSOLUTION
Except as set forth in this Article 13, no Partner shall have the
right to dissolve the Partnership. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve, and its affairs shall be wound up, upon the first to occur of
any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. (i) a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry
51
of such order or judgment all of the remaining Partners agree in writing to
continue the business of the Partnership and to the appointment, effective as of
a date prior to the date of such order or judgment, of a substitute General
Partner, or (ii) any other event of withdrawal of the General Partner, as
defined in the Act (other than an event of bankruptcy), unless, within ninety
(90) days after such event of withdrawal all the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor General Partner;
C. on or after December 31, 2015 an election to dissolve the
Partnership made by the General Partner, in its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act; or
E. the sale of all or substantially all of the assets and properties
of the Partnership.
Section 13.2 WINDING UP
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator") shall
be responsible for overseeing the winding up and dissolution of the Partnership
and shall take full account of the Partnership's liabilities and property and
the Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to the
extent determined by the General Partner, include shares of stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the other Partners; and
52
(4) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after
giving effect to all contributions, distributions, and
allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
1. distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of
the Partnership or of the General Partner arising out of or in
connection with the Partnership. The assets of any such trust shall
be distributed to the General Partner and Limited Partners from time
to time, in the reasonable discretion of Liquidator, in the same
proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General
Partner and Limited Partners pursuant to this Agreement; or
2. withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld or escrowed amounts shall
be
53
distributed to the General Partner and Limited Partners in the
manner and order of priority set forth in Section 13.2.A as soon as
practicable.
Section 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever.
Section 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
[Intentionally left blank.]
Section 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
Section 13.6 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that
would, but for an election or objection by one or more Partners pursuant to
Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of
CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.
54
Section 13.8 REASONABLE TIME FOR WINDING-UP
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
Section 13.10 LIABILITY OF THE LIQUIDATOR
The Liquidator shall be indemnified and held harmless by the
Partnership from and against any and all claims, demands, liabilities, costs,
damages and cause of action of any nature whatsoever arising out of or
incidental to the Liquidator's taking of any action authorized under or within
the scope of this Agreement; PROVIDED, HOWEVER, that the Liquidator shall not be
entitled to indemnification, and shall not be held harmless, where the claim,
demand, liability, cost, damage or cause of action at issue arises out of:
(i) a matter entirely unrelated to the Liquidator's action or
conduct pursuant to the provisions of this Agreement; or
(ii) the proven willful misconduct or gross negligence of the
Liquidator.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 AMENDMENTS
A. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partners holding twenty-five percent (25%) or more of
the Percentage Interests. Following such proposal, the General Partner shall
submit any proposed amendment to the Limited Partners. Subject to Section
14.2.B, the General Partner shall seek the written vote of the Partners on the
proposed amendment or shall call a meeting to vote thereon and to transact any
other business that it may deem appropriate. For purposes of obtaining a written
vote, the General Partner may require a response within a reasonable specified
time, but not less than fifteen (15) days, and failure to respond in such time
period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
14.1.B, 14.1.C or 14.1.D, a proposed amendment shall
55
be adopted and be effective as an amendment hereto if it is approved by the
General Partner and it receives the Consent of Partners holding a majority of
the Percentage Interests of the Limited Partners (including Limited Partner
Interests held by the General Partner).
B. Notwithstanding Section 14.1.A but subject to Section 14.1.C, the
General Partner shall have the power, without the consent of the Limited
Partners, to amend this Agreement as may be required to facilitate or implement
any of the following purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the
Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Section 4.2.A hereof;
(4) to reflect a change that does not adversely affect any of the
Limited Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions,
or make other changes with respect to matters arising under
this Agreement that will not be inconsistent with law or with
the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in
federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement
shall not be amended without the Consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a general partner interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to Article 5, or the allocations
specified in Article 6 (except as permitted pursuant to Section 4.2 and Section
14.1.B(3) hereof) in a manner adverse to such Partner; (iv) alter or modify the
Redemption Right or Mandatory Redemption Right and CapStar Shares Amount as set
forth in Section 8.6 or 8.7, and related definitions hereof; (v) cause the
termination of the Partnership
56
prior to the time set forth in Sections 2.5 or 13.1; (vi) amend Section 11.7 (as
to any then existing Limited Partner) or this Section 14.1.C; or (vii) amend
Section 2 of Exhibit C in a manner adverse to such Partner. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth in Section 7.3 without the Consent specified in that section.
D. Notwithstanding Section 14.l.A or Section 14.l.B hereof, the
General Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without
the Consent of a majority of the Percentage Interests of the Limited Partners
excluding Limited Partnership Interests held directly or indirectly by the
General Partner.
Section 14.2 MEETINGS OF THE PARTNERS
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a request by Limited
Partners holding twenty-five percent (25%) or more of the Percentage Interests.
The call shall state the nature of the business to be transacted. Notice of any
such meeting shall be given to all Partners not less than seven (7) days nor
more than thirty (30) days prior to the date of such meeting. Partners may vote
in person or by proxy at such meeting. Whenever the vote or Consent of the
Partners is permitted or required under this Agreement, such vote or Consent may
be given at a meeting of the Partners or may be given in accordance with the
procedure prescribed in Section 14.1.A hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement
such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act
for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
57
D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate in its sole discretion. Without limitation, meetings of
Partners may be conducted in the same manner as meetings of the shareholders of
the General Partner and may be held at the same time as, and as part of,
meetings of the shareholders of the General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee. Such communications shall be deemed sufficiently given,
served, sent or received for all purposes at such time as delivered to the
addressee (with the return receipt or delivery receipt being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
Section 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agree
ment shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
Section 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
58
Section 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 CREDITORS
Other than as expressly set forth herein with respect to the
Indemnitees, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on an the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
Section 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.11 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.
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Section 15.12 NO RIGHTS AS SHAREHOLDERS
Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Partnership Units any rights whatsoever as shareholders
of the General Partner, including without limitation any right to receive
dividends or other distributions made to shareholders of the General Partner or
to vote or to consent or to receive notice as shareholders in respect of any
meeting of shareholders for the election of directors of the General Partner or
any other matter.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first written above.
AS GENERAL PARTNER:
CAPSTAR GENERAL CORP.
By:
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Name:
Title:
AS LIMITED PARTNER:
CAPSTAR MANAGEMENT COMPANY, L.P.
By: CapStar Hotel Company, General Partner
By:
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
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EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
NAME AND ADDRESS OF PARTNER PARTNERSHIP UNITS PARTNERSHIP INTEREST
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GENERAL PARTNER:
CapStar General Corp. 29,048 1.0%
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
LIMITED PARTNERS:
CapStar Management 2,867,835 98.73%
Company, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
CapStar General Corp. 7,878 .27%
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
CAPITAL CONTRIBUTIONS:
General Partner - $100
Limited Partner - $61,000,000
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. CAPITAL ACCOUNTS OF THE PARTNERS.
A. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions and any other deemed contributions made by such
Partner to the Partnership pursuant to this Agreement and (ii) all items of
Partnership income and gain (including income and gain exempt from tax) computed
in accordance with Section 1.B hereof and allocated to such Partner pursuant to
Section 6.1.A of the Agreement and EXHIBIT C hereof, and decreased by (x) the
amount of cash or Agreed Value of all actual and deemed distributions of cash or
property made to such Partner pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 1.B hereof
and allocated to such Partner pursuant to Section 6.1.B of the Agreement and
EXHIBIT C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain,
loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by
the Partnership, provided that the amounts of any adjustments
to the adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of the
distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been
reflected in the Partners' Capital Accounts) shall be
reflected in the Capital Accounts of the Partners in the
manner and subject to the limitations prescribed in
Regulations Section 1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described
in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
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(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnership's Carrying
Value with respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any
such adjustment shall be taken into account as gain or loss
from the disposition of such asset.
(6) Any items specifically allocated under Section 2 of EXHIBIT C
hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor; PROVIDED, HOWEVER, that, if the transfer causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code and if the Regulations
currently in effect are not modified, the Partnership's properties shall be
deemed solely for federal income tax purposes, to have been distributed in
liquidation of the Partnership to the holders of Partnership Units (including
such transferee) and recontributed by such Persons in reconstitution of the
Partnership. In such event, the Carrying Values of the Partnership properties
shall be adjusted immediately prior to such deemed distribution pursuant to
Section 1.D(2) hereof. The Capital Account of such reconstituted Partnership
shall be maintained in accordance with principles of this EXHIBIT B.
D. (1) Consistent with the provisions of Regulations Section
1.704- 1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Values of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D(2)
hereof, as if such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 and Section 1 of Exhibit C
of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest
in the Partnership by any new or existing Partner in exchange
for more than a de minimis Capital Contribution;
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(b) immediately prior to the distribution by the Partnership
to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c)
immediately prior to the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
PROVIDED, HOWEVER, that adjustments pursuant to clauses (a)
and (b) above shall be made only if the General Partner
determines that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Partners in
the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
the Carrying Value of Partnership assets distributed in kind
shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership
property, as of the time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes
of this EXHIBIT B, the aggregate cash amount and fair market
value of all Partnership assets (including cash or cash
equivalents) shall be determined by the General Partner using
such reasonable method of valuation as it may adopt, or in the
case of a liquidating distribution pursuant to Article 13 of
the Agreement, shall be determined and allocated by the
Liquidator using such reasonable methods of valuation as it
may adopt. The General Partner, or the Liquidator, as the case
may be, shall allocate such aggregate value among the assets
of the Partnership (in such manner as it determines in its
sole and absolute discretion to arrive at a fair market value
for individual properties).
E. The provisions of this Agreement (including this EXHIBIT B and
the other Exhibits to this Agreement) relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article 14 of the Agreement, provided that it is not likely to
have a material effect on the amounts distributable to any Person pursuant to
Article 13 of the Agreement upon the dissolution of the Partnership.
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2. NO INTEREST.
No interest shall be paid by the Partnership on Capital
Contributions or on balance in Partners' Capital Accounts.
3. NO WITHDRAWAL.
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
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EXHIBIT C
SPECIAL ALLOCATION RULES
1. SPECIAL ALLOCATION RULES.
Notwithstanding any other provision of the Agreement or this EXHIBIT
C, the following special allocations shall be made in the following order:
A. MINIMUM GAIN CHARGEBACK. Notwithstanding the provisions of
Section 6.1 of the Agreement or any other provisions of this EXHIBIT C, if there
is a net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. PARTNERSHIP MINIMUM GAIN CHARGEBACK. Notwithstanding any other
provision of Section 6.1 of this Agreement or any other provisions of this
EXHIBIT C (except Section 1.A hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Year, each Partner who has a share of the Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specifically allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and Limited Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i)(4). This Section
1.B is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.B, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of the Agreement or this Exhibit with respect to such Partnership Year,
other than allocations pursuant to Section 1.A hereof.
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C. QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Section 1.A and 1.B hereof, such Partner has an Adjusted Capital Account
Deficit, items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) and shall be specifically allocated to such Partner in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, its Adjusted Capital Account Deficit created by such adjustments,
allocations or distributions as quickly as possible. This Section 1.C is
intended to constitute a "qualified income offset" under Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
D. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
Partnership Year shall be allocated to the Partners as Net Loss in accordance
with Section 6.1.B of the Agreement. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of the
Regulations promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the Limited Partners, to revise the prescribed ratio
for such Partnership Year to the numerically closest ratio which would satisfy
such requirements.
E. PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse
Deductions for any Partnership Year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
F. CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. REGULATORY ALLOCATIONS. The allocations set forth in Sections 1.A
through 1.F (the "REGULATORY ALLOCATIONS") shall be taken into account in
allocating items of income, gain, loss and deduction among the Partners so that,
to the extent possible, the net amount of such allocations of other items and
the Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner if the Regulatory Allocations had
not occurred.
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2. ALLOCATIONS FOR TAX PURPOSES.
A. Except as otherwise provided in this Section 2, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section 1 of this EXHIBIT C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners consistent with the principles of Section
704(c) of the Code to take into account the variation
between the 704(c) Value of such property and its
adjusted basis at the time of contribution (taking into
account Section 2.C of this EXHIBIT C); and
(b) any item of Residual Gain or Residual Loss attributable
to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of
"Book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this EXHIBIT C.
(2) (a) In the case of and Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the
Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the
allocations thereof pursuant to EXHIBIT B. and
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in
a manner consistent with Section 2.B(1) of this EXHIBIT
C; and
(b) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Partners in the same manner its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of the EXHIBIT C.
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(3) all other items of income, gain, loss and deduction shall be
allocated among the Partner the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to Section 6.1 of the Agreement and Section 1 of the EXHIBIT
C.
C. To the extent Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit a Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall elect to use the "traditional method"
set forth in Treasury Regulations ss. 1.704-3(b).
D. Any foreign or other tax credits of the Partnership shall be
allocated among the Partners in proportion to the allocations of income with
respect to which such credits arose.
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EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
UNDERLYING PROPERTY 704(C) VALUE AGREED VALUE
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All properties To be determined by General Partner in the
exercise of its reasonable discretion
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EXHIBIT E
FORM OF NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems Partnership
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Units in CapStar Management Company II, L.P. in accordance with the terms of the
Limited Partnership Agreement of CapStar Management Company II, L.P. and the
Redemption Right referred to therein, (ii) surrenders such Limited Partnership
Units and all right, title and interest therein, and (iii) directs that the Cash
Amount or CapStar Shares Amount (as determined by the General Partner)
deliverable upon exercise of the Redemption Right be delivered to the addresses
specified below, and if CapStar Shares are to be delivered, such CapStar Shares
be registered or placed in the name(s) and at the address(es) specified below.
The undersigned hereby represents, warrants, and certifies, that the undersigned
(a) has marketable and unencumbered title to such Partnership Units, free and
clear of the rights of or interests of any other person or entity, (b) has the
full right, power and authority to redeem and surrender such Partnership Units
as provided herein, and (c) has obtained the consent or approval of all persons
or entities, if any, having the right to consult or approve such redemption and
surrender.
Dated:
Name of Limited Partner:
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(Signature of Limited Partner)
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(Street Address)
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(City, State, Zip Code)
Signature Guaranteed by:
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If CapStar Shares are to be issued, issue to:
Name:
Please insert social security or identifying number: