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SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/X/ Definitive Information Statement
VISTANA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[LOGO]
[LOGO]
VISTANA, INC.
INFORMATION STATEMENT
------------------------
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
PROSPECTUS
------------------------
We are sending you this information statement/prospectus to describe the
proposed merger between Vistana, Inc. and a wholly owned subsidiary of Starwood
Hotels & Resorts Worldwide, Inc. When we complete this merger, Vistana will
become a subsidiary of Starwood, and we will convert your shares of Vistana
common stock into cash and units of Starwood stock, each consisting of one share
of common stock of Starwood and one class B share of Starwood's subsidiary,
Starwood Hotels & Resorts. For each share of Vistana common stock that you own,
you will receive $5.00 in cash and a fraction of a unit of Starwood stock equal
to an exchange ratio, subject to adjustment in certain circumstances. The number
of units of Starwood stock that you will receive will be determined by the
average trading price of units of Starwood stock on the New York Stock Exchange
over a twenty-trading day period ending with the sixth trading day prior to the
merger. The number will be determined by dividing $14 by the average trading
price of units of Starwood stock over that period, except that the number will
not be less than .3889 or greater than .4667. We will round the total number of
units of Starwood stock you receive down to the nearest whole number of shares,
and you will receive a cash payment for any remaining fraction.
Vistana's controlling shareholders, Raymond L. Gellein, Jr., the chairman
and co-chief executive officer of Vistana, and Jeffrey A. Adler, the president
and co-chief executive officer, and certain of their affiliates, representing in
excess of 50% of the outstanding shares of Vistana common stock, have already
approved the merger by signing an irrevocable written consent of shareholders.
No further vote of Vistana shareholders is necessary to approve and adopt the
merger agreement or the merger. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY. As we explain in this information
statement/prospectus, however, completion of the merger is still subject to
satisfaction or waiver of a number of conditions, including various regulatory
approvals. We cannot predict with certainty when we will complete the merger,
but we hope to complete it in the beginning of the fourth quarter of 1999.
This information statement/prospectus is also Starwood's prospectus for the
units of Starwood stock that it will issue to Vistana shareholders in the merger
and pursuant to related transactions. Starwood's units currently trade on the
New York Stock Exchange under the symbol "HOT" and the units to be issued in
this merger will also be listed on the New York Stock Exchange.
FOR RISKS ASSOCIATED WITH AN INVESTMENT IN UNITS OF STARWOOD STOCK, SEE
PAGES 14 TO 20 OF THIS INFORMATION STATEMENT/PROSPECTUS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, NOR THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL
BOARD, THE NEW JERSEY CASINO CONTROL COMMISSION, THE INDIANA GAMING
COMMISSION OR THE MISSISSIPPI GAMING COMMISSION HAS APPROVED OR
DISAPPROVED THE MERGER OR THE SECURITIES TO BE ISSUED UNDER THIS
INFORMATION STATEMENT/PROSPECTUS OR DETERMINED IF THIS INFORMATION
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT/PROSPECTUS IS DATED AUGUST 23, 1999, AND WAS FIRST
MAILED TO SHAREHOLDERS OF VISTANA ON OR ABOUT AUGUST 31, 1999.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
SUMMARY.................................................................................................... 4
The Companies............................................................................................ 4
The Controlling Shareholders............................................................................. 5
The Merger............................................................................................... 5
Reasons for the Merger................................................................................... 5
No Further Shareholder Approval Required; Vistana Board Approval......................................... 5
Opinion of Salomon Smith Barney.......................................................................... 6
The Merger Agreement..................................................................................... 6
What You Will Receive in the Merger.................................................................... 6
Conditions to the Merger............................................................................... 7
Regulatory Approvals................................................................................... 8
Material Federal Income Tax Consequences............................................................... 8
Accounting Treatment................................................................................... 8
Termination............................................................................................ 8
Effects of the Merger on the Rights of Vistana Shareholders............................................ 8
Interests of Officers, Directors and the Controlling Shareholders in the Merger........................ 9
No Dissenters' Rights.................................................................................... 9
SUMMARY HISTORICAL FINANCIAL INFORMATION................................................................... 10
Vistana Summary Financial Information.................................................................... 10
Starwood Summary Financial Information................................................................... 11
Comparative per Share/Unit Data.......................................................................... 12
Market Price and Dividend Data........................................................................... 13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................................................. 14
If the units of Starwood stock trade below $30, the value of the consideration received by Vistana
shareholders in the merger may be below $19 per share.................................................. 14
The price per unit of Starwood stock at the effective time of the merger may be less than the average
price used to establish the exchange ratio............................................................. 14
As a Starwood shareholder, you will have different rights than as a Vistana shareholder.................. 14
Risks Related to Hotel Operations........................................................................ 15
Real Estate Investment Risks............................................................................. 16
Moderate or severe economic downturns or adverse conditions may adversely affect hotel and gaming
operations............................................................................................. 17
Starwood faces risks related to the year 2000............................................................ 17
There is a risk that the Trust may fail to qualify as a REIT............................................. 18
Foreign Operations and Currency Fluctuations............................................................. 18
Starwood must attract and retain key personnel........................................................... 18
Starwood has risks relating to European Union currency conversions....................................... 18
Starwood Capital may exert influence over Starwood....................................................... 19
Starwood faces risks involved in investments through partnerships or joint ventures...................... 19
Although Starwood has entered into definitive agreements to sell substantially all its gaming assets,
Starwood faces risks related to gaming operations until those sales are completed...................... 19
THE MERGER................................................................................................. 21
General.................................................................................................. 21
Background of the Merger................................................................................. 21
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Vistana's Reasons for the Merger; Approval of the Vistana Board.......................................... 25
Starwood's Reasons for the Merger........................................................................ 27
Opinion of Salomon Smith Barney.......................................................................... 27
Interests of Certain Persons in the Merger............................................................... 32
Employment Agreements.................................................................................. 32
Change of Control Provisions in Executive Officer Agreements........................................... 34
Stock Options.......................................................................................... 35
Effective Time of the Merger............................................................................. 37
Articles of Incorporation and Bylaws..................................................................... 38
Material Federal Income Tax Consequences................................................................. 38
Federal Income Tax Consequences of the Merger.......................................................... 38
Federal Income Taxation of Holders of Units of Starwood Stock.......................................... 39
Accounting Treatment..................................................................................... 41
Regulatory Approvals..................................................................................... 41
Listing of Units of Starwood Stock on the NYSE........................................................... 41
Resale of Units of Starwood Stock Issued in the Merger; Affiliates....................................... 42
No Appraisal Rights...................................................................................... 42
THE MERGER AGREEMENT....................................................................................... 43
The Merger............................................................................................... 43
Consideration To Be Received In The Merger; Exchange Ratio............................................... 43
Treatment of Vistana Stock Held by Vistana, Starwood and Merger Sub.................................... 43
Procedures For Surrender Of Vistana Certificates; Fractional Shares...................................... 43
Surrender of Vistana Certificates...................................................................... 43
Fractional Shares...................................................................................... 44
Representations And Warranties........................................................................... 44
Covenants................................................................................................ 45
Conduct of Business Pending the Merger................................................................. 45
No Solicitation........................................................................................ 47
Reorganization......................................................................................... 47
Employee Benefits...................................................................................... 47
Vistana Stock Options.................................................................................. 47
Indemnification; Directors and Officers Insurance...................................................... 47
Fees and Expenses...................................................................................... 48
Accounting Matters..................................................................................... 48
Stock Exchange Listing................................................................................. 48
Public Announcements................................................................................... 48
All Reasonable Efforts................................................................................. 48
Additional Covenants................................................................................... 48
Conditions............................................................................................... 49
Mutual conditions...................................................................................... 49
Conditions of Vistana's Obligation to Effect the Merger................................................ 49
Conditions of Starwood's Obligation to Effect the Merger............................................... 49
Termination.............................................................................................. 50
Amendments............................................................................................... 51
Extension; Waiver........................................................................................ 51
SHAREHOLDERS AGREEMENTS.................................................................................... 52
Representations and Warranties of the Shareholders; Indemnification.................................... 52
Covenants; Irrevocable Proxy........................................................................... 52
Transfer Restrictions.................................................................................. 53
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Forfeiture............................................................................................. 53
Other Provisions....................................................................................... 53
Termination............................................................................................ 53
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 54
Summary of Material Differences Between Current Rights of Vistana Shareholders and Rights Those
Shareholders Will Have as Starwood and Trust Shareholders Following the Merger......................... 55
EXPERTS.................................................................................................... 70
LEGAL MATTERS.............................................................................................. 70
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 70
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APPENDICES
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APPENDIX A -- Agreement and Plan of Merger dated as of July 18, 1999, as amended, among
Starwood, Merger Sub and Vistana.................................................. A-1
APPENDIX B -- Shareholders Agreement dated as of July 18, 1999, among Starwood, Merger Sub,
Raymond L. Gellein, Jr. and certain affiliates.................................... B-1
APPENDIX C -- Shareholders Agreement dated as of July 18, 1999, among Starwood, Merger Sub,
Jeffery A. Adler and certain affiliates........................................... C-1
APPENDIX D -- Opinion of Salomon Smith Barney Inc............................................... D-1
</TABLE>
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This document incorporates important business and financial information
about Vistana and Starwood that is neither included in nor delivered with this
document. Vistana will provide you with copies of this information relating to
Vistana, without charge, upon written or oral request to:
VISTANA, INC.
8801 Vistana Centre Drive
Orlando, Florida 32821
Telephone: (407) 239-3568
Attention: Investor Relations
Starwood will provide you with copies of this information relating to
Starwood, without charge, upon written or oral request to:
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
777 Westchester Avenue
White Plains, New York 10604
Telephone: (914) 640-8100
Attention: Shareholder Relations
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, YOU SHOULD MAKE YOUR
REQUEST NO LATER THAN SEPTEMBER 22, 1999.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT IS THE PROPOSED TRANSACTION?
A. Vistana will merge into a subsidiary of Starwood. As a result, Vistana will
become a wholly owned subsidiary of Starwood, and Vistana shareholders will
receive for each of their shares of Vistana common stock a combination of
cash and a fraction of a unit of Starwood stock. Each unit of Starwood stock
consists of one share of common stock of Starwood Hotels & Resorts Worldwide,
Inc. and one class B share of Starwood Hotels & Resorts, a subsidiary of
Starwood Hotels & Resorts Worldwide, Inc., which are attached and trade
together as a unit on the New York Stock Exchange.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. Each share of Vistana common stock that you own will be exchanged for $5.00
in cash and a fraction of a unit of Starwood stock equal to an exchange
ratio, which would provide each Vistana shareholder with units of Starwood
stock valued at approximately $14 for each share of Vistana common stock
exchanged, so long as the average price of a unit of Starwood stock during a
twenty-trading day period is between $30 and $36. The exchange ratio is based
on the average of the high and low prices for each trading day of units of
Starwood stock on the New York Stock Exchange over a twenty-trading day
period ending with the sixth trading day prior to the merger. The exchange
ratio will be calculated as follows:
- if the average trading price of units of Starwood stock as calculated
above is between $30 and $36, the exchange ratio will equal $14 divided by
such average price;
- if the average trading price is $30 or less, the exchange ratio will be
fixed at .4667; and
- if the average trading price is $36 or greater, the exchange ratio will be
fixed at .3889.
This means that the fraction of a unit of Starwood stock received as part
of the merger consideration for each share of Vistana common stock will
never be less than .3889 nor greater than .4667.
Starwood and Vistana each has the right to terminate the merger agreement
if:
- the average trading price of units of Starwood stock as calculated above
is less than $23;
- the closing price of units of Starwood stock on the trading day
immediately preceding the effective time of the merger is less than $23
(although this right to terminate is subject to a ten-trading day notice
period during which, if the closing price of the units of Starwood stock
is greater than $23 on any trading day, the merger will become effective
on the next business day);
- the merger is not completed by January 31, 2000.
You will receive a cash payment instead of any fractional units of Starwood
stock you would have otherwise received. This amount will be calculated by
multiplying the per unit closing price of the units of Starwood stock on the
date of the effective time of the merger by the fractional interest to which
you would otherwise be entitled.
On August 20, 1999, the last day for which this information could be
calculated before the date of this information statement/ prospectus, the
units of Starwood stock closed at $26.63, and the average trading price of
the units as calculated above for the twenty-trading day period ending with
that date was $26.13. If these were the average closing price and the
average trading price, respectively, of the units of Starwood stock on the
effective date of the merger, because the average trading price is $30 or
less, the exchange ratio would be equal to .4667 and Vistana shareholders
would receive .4667 of a unit of Starwood stock plus $5.00 in cash
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in exchange for each share of Vistana common stock. Based on a value of
units of Starwood stock equal to the average price as calculated above, this
exchange ratio would result in Vistana shareholders receiving cash and stock
with a total value of $17.19 per share of Vistana common stock. This
calculation is intended solely to illustrate the calculation of the exchange
ratio. THE ACTUAL VALUE OF THE UNITS OF STARWOOD STOCK RECEIVED IN THE
MERGER MAY VARY SIGNIFICANTLY FROM THE VALUE OF SUCH STOCK BASED ON THE
AVERAGE TRADING PRICE.
Q. WILL THE NUMBER OF UNITS THAT I WILL RECEIVE OR THE VALUE OF THE TRANSACTION
CHANGE BETWEEN NOW AND THE TIME THE MERGER IS COMPLETED?
A. The number of units of Starwood stock that you will receive in the merger is
determined by the exchange ratio, which will change based on the average
trading price of units of Starwood stock, but will not be less than .3889 nor
greater than .4667.
If the price of a unit of Starwood stock over the twenty-trading day period
is $30 or less, the exchange ratio will be .4667. If the price of a unit of
Starwood stock over the twenty-trading day period is $36 or higher, the
exchange ratio will be .3889. If the price of a unit of Starwood stock over
the twenty-trading day period is between $30 and $36, then the exchange ratio
will be between .3889 and .4667, and will be equal to $14.00 divided by the
twenty-trading day average price.
You can obtain current information on the exchange ratio by calling toll-free
1-800-431-9643.
The value of the transaction will fluctuate between the date of this
information statement/prospectus and the completion of the merger, based upon
the market price for units of Starwood stock. The exchange ratio is
calculated in a manner designed to provide each Vistana shareholder with
approximately $14.00 in units of Starwood stock (in addition to $5.00 in
cash) for each share of Vistana common stock owned so long as the average
price of a unit of Starwood stock over the twenty-trading day period is
between $30 and $36. The value of the Starwood units received will be more or
less than $14.00 if the average trading value of the units of Starwood stock,
determined as described in the first paragraph of this answer, exceeds $36.00
or is less than $30.00.
Q. WHY IS THERE NO SHAREHOLDER VOTE?
A. Concurrent with the execution of the merger agreement, Raymond L. Gellein,
Jr. and Jeffrey A. Adler, and certain of their affiliates, as controlling
shareholders of Vistana, gave their written consent to the merger. At that
time Messrs. Gellein and Adler and their affiliates held and had voting power
over approximately 53% of the outstanding Vistana common stock. Their written
consent to the merger met the shareholder approval requirements for the
merger under Florida law, Vistana's articles of incorporation and Vistana's
bylaws, so no additional shareholder vote is necessary. See "The
Merger--Background of the Merger" for more information on the Vistana board's
approval of the merger agreement and the merger.
Q. WHAT WILL THE CONTROLLING SHAREHOLDERS RECEIVE IN THE MERGER AND WHAT WILL
THEY BE REQUIRED TO DO?
A. Even though the controlling shareholders held a majority of shares of Vistana
common stock at the time of the shareholder action by written consent, they
will not receive a "control premium" for their shares. Instead, they will
exchange their shares of Vistana stock for units of Starwood stock in the
same per share amount and at the same exchange ratio as all other Vistana
shareholders.
In shareholders agreements entered into at the same time as the merger
agreement, the controlling shareholders agreed to vote to approve and adopt
the merger agreement and the merger, to take additional action in furtherance
of the merger, and to abide by certain restrictions on their future
activities with respect to confidentiality,
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noncompetition and nonsolicitation provisions set forth in those agreements.
They also agreed to indemnify Starwood if certain representations and
warranties made by Vistana in the merger agreement prove incorrect in the
future. Please see pages 52 through 53 for more information concerning these
agreements.
Messrs. Gellein and Adler have also entered into new four-year employment
agreements with Vistana that will become effective and will supersede their
prior employment agreements at the time of the merger. They have each agreed
that if their employment is terminated for certain reasons prior to the
second anniversary of completion of the merger, then they will surrender and
forfeit a certain number of their units of Starwood stock that they received
in connection with the merger. Under their employment agreements, Messrs.
Gellein and Adler will each be granted nonqualified options exercisable for
not fewer than 100,000 units of Starwood stock. Please see pages 32 through
34 for more information concerning these agreements.
Q. AM I ENTITLED TO APPRAISAL RIGHTS?
A. No. Under Florida law, which governs the merger, you are not entitled to
appraisal rights.
Q. WHAT DO I NEED TO DO NOW?
A. Nothing. After the merger is completed, you will receive written instructions
and a letter of transmittal for exchanging your shares of Vistana common
stock for cash and units of Starwood stock. Please do not send your share
certificates until you receive the instructions and letter of transmittal.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working toward completing the merger as quickly as possible. We must
still obtain certain regulatory approvals and satisfy certain other
conditions before we can close, but we hope to complete the merger in the
fourth quarter of this year. However, delays in obtaining regulatory
approvals could delay the merger. In addition, it is possible that the merger
agreement will be terminated if its required conditions have not been
satisfied, including completion of the merger by January 31, 2000.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT STARWOOD AND VISTANA?
A. More information about Starwood and Vistana is available from various sources
described under "Where You Can Find More Information" on page 70 of this
information statement/prospectus.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the merger, you should contact:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Telephone: (407) 239-3568
Attention: Investor Relations
Starwood Hotels & Resorts Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10603
Telephone: (914) 640-8100
Attention: Shareholder Relations
To obtain Starwood stock quotations and the exchange ratio, call toll free
1-800-431-9643.
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SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the merger and for a more complete description of the legal terms of the merger,
you should read carefully this entire document and the documents to which we
refer.
THE COMPANIES
VISTANA, INC.
8801 Vistana Centre Drive
Orlando, Florida 32821
Telephone: (407) 239-3568
Attention: Investor Relations
Founded in 1980, Vistana is a leading developer of high quality timeshare
resorts in the United States. Vistana's principal operations consist of
acquiring, developing and operating vacation ownership resorts, marketing and
selling vacation ownership interests (referred to in this information
statement/prospectus as "VOIs") in its resorts (which typically entitle the
buyer to ownership of a fully-furnished unit for a one-week period on either an
annual or alternate-year basis), and providing financing to customers who
purchase VOIs at its resorts. Vistana also furnishes management, operations,
maintenance and telecommunications services at its resorts and provides limited
telecommunications contracting services to other customers.
At June 30, 1999, Vistana operated ten vacation ownership resorts, with six
in active sales. Four of these ten resorts are in Florida (Vistana Resort in
Orlando, Hampton Vacation Resort-Oak Plantation in Kissimmee, Vistana's Beach
Club on Hutchinson Island, and Vistana Resort at World Golf Village in St.
Augustine), three are in Colorado (Eagle Point in Vail and Falcon Point and
Lakeside Terrace in Avon), one is in South Carolina (Embassy Vacation Resort at
Myrtle Beach) and two are in Arizona (Embassy Vacation Resort at Scottsdale and
Villas of Cave Creek located north of Scottsdale). Available inventory at four
of these ten resorts (Vistana's Beach Club, Eagle Point, Falcon Point and Villas
of Cave Creek) is primarily limited to VOIs that Vistana has reacquired in
connection with owner upgrades and defaults under customer mortgages. In
addition, Vistana acts as exclusive sales and marketing agent for The Christie
Lodge, a large vacation ownership resort in Avon, Colorado. Vistana is planning
three new resorts: PGA Vacation Resort by Vistana at PGA Village in Port St.
Lucie, Florida; Harborside at Atlantis on Paradise Island in The Bahamas (which
will be developed in a joint venture with a subsidiary of Sun International
Hotels Limited); and a large successor property to Vistana's flagship Vistana
Resort in Orlando.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
777 Westchester Avenue
White Plains, New York 10604
Telephone: (914) 640-8100
Attention: Shareholder Relations
Starwood Hotels & Resorts Worldwide, Inc. is one of the world's largest
hotel operating companies. Starwood conducts its business both directly and
through its subsidiaries, including ITT Sheraton Corporation, Starwood Hotels &
Resorts and Ciga, S.p.a. Starwood's brand names include Sheraton, Westin, St.
Regis/The Luxury Collection, W and Four Points. Through these brands, Starwood
is represented in most major markets of the world.
Starwood's business emphasizes the global operation of full-service hotels
in the luxury and upscale segment of the lodging industry. Starwood seeks to
acquire interests in or management rights with respect to this segment. At June
30, 1999, Starwood's portfolio of owned, leased, managed or franchised hotels
totaled approximately 695 hotels with over 220,000 rooms in 72 countries. This
portfolio is comprised of 171 hotels that Starwood owns or leases or in which
Starwood has a majority equity interest (substantially all of which hotels
Starwood also manages), approximately 236 hotels Starwood manages on behalf of
third-party owners (including entities in which Starwood has a minority equity
interest), and
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approximately 288 hotels for which Starwood receives franchise fees.
FIRE ACQUISITION CORP.
c/o Starwood Hotels & Resorts Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Telephone: (914) 640-8100
Attention: Shareholder Relations
Fire Acquisition Corp., the merger sub, is a Florida corporation and a
wholly owned subsidiary of Starwood that was recently formed solely for the
purpose of effecting the merger with Vistana.
THE CONTROLLING SHAREHOLDERS
Raymond L. Gellein, Jr. is the Chairman of the Board and Co-Chief Executive
Officer of Vistana. Jeffrey A. Adler is the President and Co-Chief Executive
Officer of Vistana. As of July 18, 1999, the date that Messrs. Gellein and Adler
and certain of their affiliates signed and delivered the written consent
approving and adopting the merger agreement and the merger, they had voting
power over approximately 53% of the outstanding Vistana common stock.
THE MERGER
The merger agreement provides for the merger of Vistana with and into the
merger sub, with the merger sub continuing as the surviving corporation. As a
result of the merger, the merger sub will be renamed "Vistana, Inc." and will be
a wholly owned subsidiary of Starwood.
REASONS FOR THE MERGER
The Board of Directors of Vistana believes that the merger will enhance
shareholder value for Vistana shareholders for a number of reasons, including
the following:
- the merger will provide Vistana shareholders with an investment in a
larger and more diversified enterprise;
- the merger is expected to provide Vistana shareholders with cash and
Starwood units at a premium over the average closing price for shares of
Vistana stock over the past year;
- the merger is expected to be partially tax free to Vistana shareholders;
- the merger will provide Vistana shareholders with greater liquidity due to
the more active trading market for Starwood units; and
- the merger is expected to improve Vistana's competitive position and
future scale by providing access to Starwood's brands, frequency program,
customer base and resort development opportunities.
The Board of Directors of Starwood believes that the merger is in the best
interest of Starwood and its shareholders. Starwood expects to benefit from
Vistana's products, market presence, know how and people. Starwood believes that
the addition of Vistana will enable Starwood to take advantage of numerous
synergies between its hotel businesses and Vistana's vacation ownership resort
business, thereby creating positive prospects for both shareholder value and
improved customer satisfaction.
Please note that achieving these benefits is subject to important factors
that could affect the future results of Vistana and Starwood. For a discussion
of these factors, please see "Cautionary Statement Concerning Forward-Looking
Statements" on page 14.
NO FURTHER SHAREHOLDER APPROVAL REQUIRED;
VISTANA BOARD APPROVAL
We are not asking you to vote on the merger. On July 18, 1999, the
controlling shareholders, who on that date together held about 53% of Vistana's
voting power, voted by written consent to approve and adopt the merger agreement
and the merger. Their vote was sufficient for shareholder approval and adoption
of the merger agreement and the merger under Florida law, Vistana's articles of
incorporation and Vistana's bylaws.
The Board of Directors of Vistana believes that the merger is advisable and
fair and in the best interest of Vistana and Vistana's shareholders. The Vistana
board, upon the recommendation of a special committee, has
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unanimously approved and adopted the merger agreement and the merger.
OPINION OF SALOMON SMITH BARNEY
In connection with the merger, the Vistana board and special committee
received a written opinion from Salomon Smith Barney Inc. as to the fairness,
from a financial point of view, of the merger consideration to the holders of
Vistana common stock (other than those shareholders who delivered as of the date
of the opinion written consents in respect of the merger, as to whom Salomon
Smith Barney was not requested to express an opinion). The full text of Salomon
Smith Barney's written opinion dated July 18, 1999 is attached to the back of
this document as Appendix D, and should be read carefully in its entirety for a
description of the assumptions made, matters considered and limitations on the
review undertaken. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO THE VISTANA
BOARD AND SPECIAL COMMITTEE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE PROPOSED MERGER.
THE MERGER AGREEMENT
The merger agreement is the legal document that governs the merger. It is
attached as Appendix A to this information statement/ prospectus, and we
encourage you to read it carefully. The following is just a summary of the terms
of the merger agreement and omits numerous details.
WHAT YOU WILL RECEIVE IN THE MERGER. (SEE PAGE 43)
Each share of Vistana common stock that you own will be exchanged for $5.00
in cash and a fraction of a unit of Starwood stock equal to an exchange ratio.
The exchange ratio is based on the average of the high and low prices for each
trading day of units of Starwood stock on the New York Stock Exchange over a
twenty-trading day period ending with the sixth trading day prior to the merger.
The exchange ratio will be calculated as follows:
- if the average trading price of units of Starwood stock as calculated
above is between $30 and $36, the exchange ratio will equal $14 divided by
such average price;
- if the average trading price is $30 or less, the exchange ratio will be
fixed at .4667; and
- if the average trading price is $36 or more, the exchange ratio will be
fixed at .3889.
This means that the fraction of a unit of Starwood stock received as part of
the merger consideration for each share of Vistana common stock will never be
less than .3889, nor greater than .4667.
Starwood and Vistana each has the right to terminate the merger agreement
if:
- the average trading price of units of Starwood stock as calculated above
is less than $23; or
- if the closing price of units of Starwood stock on the trading day
immediately preceding the effective time of the merger is less than $23
(although this right is subject to a ten-trading day notice period during
which, if the closing price of the units of Starwood stock is greater than
$23 on any trading day, the merger will become effective on the next
business day).
You will receive a cash payment instead of any fractional units of Starwood
stock you would have otherwise received. This amount will be calculated by
multiplying the per unit closing price of the units of Starwood stock on the
date of the effective time of the merger by the fractional interest to which you
would otherwise be entitled.
On August 20, 1999, the last day for which this information could be
calculated before the date of this information statement/prospectus, the units
of Starwood stock closed at $26.63, and the average price of the units as
calculated above for the twenty-trading day period ending with that date was
$26.13. If these were the average closing price and the average trading price,
respectively, of the units of Starwood stock on the effective date of the
merger, because the average trading price is $30 or less, the exchange
6
<PAGE>
ratio would be equal to .4667 and Vistana shareholders would receive .4667 of a
unit of Starwood stock plus $5.00 in cash in exchange for each share of Vistana
common stock. Based on a value of units of Starwood stock equal to the average
price as calculated above, this exchange ratio would result in Vistana
shareholders receiving cash and stock with a total value of $17.19 per share of
Vistana common stock. This calculation is intended solely to illustrate the
calculation of the exchange ratio. THE ACTUAL VALUE OF THE UNITS OF STARWOOD
STOCK RECEIVED IN THE MERGER MAY VARY SIGNIFICANTLY FROM THE VALUE OF SUCH STOCK
BASED ON THE AVERAGE CLOSING PRICE.
The following table gives you illustrative examples of the exchange ratio
and the corresponding value of consideration per share of Vistana common stock
at various average Starwood unit trading prices.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VALUE OF
TOTAL
AVERAGE CONSIDERATION
STARWOOD VALUE OF PER
UNIT TRADING EXCHANGE CASH VISTANA
PRICE* RATIO CONSIDERATION SHARE
$ 23** .4667 $ 5.00 $ 15.73
$ 27 .4667 $ 5.00 $ 17.60
$ 30 .4667 $ 5.00 $ 19.00
$ 33 .4242 $ 5.00 $ 19.00
$ 36 .3889 $ 5.00 $ 19.00
$ 39 .3889 $ 5.00 $ 20.17
</TABLE>
* The average Starwood unit trading price will be calculated based on the
average of the high and low prices for each trading day of units of Starwood
stock on the New York Stock Exchange over a twenty-trading day period ending
with the sixth trading day prior to the merger.
** The merger agreement may be terminated by either Vistana or Starwood if the
average Starwood unit trading price during the twenty-trading day period is
less than $23.
CONDITIONS TO THE MERGER. (SEE PAGE 49)
The completion of the merger depends upon satisfaction of a number of
conditions, including:
- approval for listing on the New York Stock Exchange of the units of
Starwood stock issuable in the merger;
- no pending or threatened litigation, that has a significant likelihood of
success, which seeks to prohibit or limit completion of the merger, and no
effective law, rule, regulation, injunction or other order making the
merger illegal;
- approvals and consents from lenders and other third parties, as well as
other material regulatory approvals and consents;
- receipt of legal opinions about certain tax consequences of the merger;
- receipt of "comfort letters" from Starwood's and Vistana's independent
accountants;
- representations and warranties of each of Starwood and Vistana contained
in the merger agreement remaining true and correct in all material
respects at the closing;
- each of Starwood and Vistana having performed in all material respects
each of their agreements under the merger agreement;
- execution by Starwood and certain of Vistana's executives of employment
agreements; and
- no material adverse effect since the date of the merger agreement on the
business, properties, assets, results of operations or condition
(financial or otherwise) of Vistana.
The merger will occur, and your shares of Vistana common stock will be
converted into a right to receive cash and units of Starwood stock, no later
than two business days after Vistana and Starwood satisfy or waive all the
conditions specified in the merger agreement.
7
<PAGE>
REGULATORY APPROVALS. (SEE PAGE 41)
Because of the nature of Vistana's business, certain filings must be made
with and certain approvals must be obtained from government authorities,
relating to federal and state land development, mortgage servicing and
telemarketing laws, state time share laws, state securities laws applicable to
the sale or offer of VOIs, and seller of travel and travel agency laws. We
believe that all material notifications, filings and approvals have been made or
obtained, or will be made or obtained prior to the date of the merger (or, if
appropriate, after the merger is effective).
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. (SEE PAGE 38)
The merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. You will recognize gain, but not loss, on the exchange of
your shares of Vistana common stock for the merger consideration in an amount
equal to the lesser of (a) the gain realized on the exchange (I.E., the amount
by which the sum of the cash (excluding any cash received instead of a
fractional share of common stock of Starwood) and the fair market value as of
the effective time of the units of Starwood stock received exceeds your adjusted
tax basis in the shares of Vistana stock that you exchange) and (b) the amount
of cash (including any cash received instead of a fractional class B share but
not including any cash received instead of a fractional share of common stock of
Starwood) and the fair market value of the class B shares you receive.
ACCOUNTING TREATMENT. (SEE PAGE 41)
The Vistana merger will be accounted for under the "purchase" method of
accounting, in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by Starwood to Vistana shareholders
in the merger will be allocated to Vistana's assets and liabilities based upon
their fair market value with any excess being treated as goodwill.
TERMINATION. (SEE PAGE 50)
The merger agreement may be terminated, and the merger abandoned, only in
the following circumstances:
- if the merger is not completed by January 31, 2000;
- if either Starwood or Vistana breaches its representations, warranties,
covenants or agreements and the breach is not cured within ten business
days;
- if the parties agree to terminate the merger agreement;
- if the average of the high and low prices for each trading day of units of
Starwood stock on the New York Stock Exchange over a twenty-trading day
period ending with the sixth trading day prior to the merger is less than
$23; or
- if the closing price of units of Starwood stock on the trading day
immediately preceding the effective time of the merger is less than $23
(although this right is subject to a ten-trading day notice period during
which, if the closing price of the units of Starwood stock is greater than
$23 on any trading day, the merger will become effective on the next
business day).
EFFECTS OF THE MERGER ON THE RIGHTS OF VISTANA SHAREHOLDERS. (SEE PAGE 14)
As a result of the merger, you will become a holder of shares of common
stock of Starwood Hotels & Resorts Worldwide, Inc. and a holder of class B
shares of beneficial interest of Starwood Hotels & Resorts, which shares are
attached and trade together as a unit on the New York Stock Exchange. Starwood
Hotels & Resorts Worldwide, Inc. is organized under Maryland corporate law and
its articles of incorporation and bylaws; Starwood Hotels & Resorts is organized
under the Maryland real estate investment trust law and its declaration of trust
and bylaws. Vistana is organized under Florida corporate law and its articles of
incorporation and bylaws. Your rights as a shareholder of Starwood Hotels &
Resorts
8
<PAGE>
Worldwide, Inc. and Starwood Hotels & Resorts will differ in certain respects
from your rights as a shareholder of Vistana.
INTERESTS OF OFFICERS, DIRECTORS AND THE CONTROLLING SHAREHOLDERS IN THE MERGER.
(SEE PAGE 32)
Vistana's executive officers, directors and several of the controlling
shareholders have certain interests in the merger that include:
- accelerated vesting of stock options;
- employment arrangements and change of control payments; and
- indemnification and directors' and officers' liability insurance policies.
The executive officers and directors of Vistana have stock options that will
become immediately exercisable as a result of the merger and will be converted
under the terms of the merger agreement into options to purchase units of
Starwood stock. In certain cases, the exercise prices relating to those stock
options will be lowered in connection with the merger. As of July 31, 1999, the
executive officers and directors of Vistana held stock options to purchase an
aggregate of 525,000 shares of Vistana common stock.
Certain executive officers have stock options granted by the controlling
shareholders. In certain cases, the exercise prices relating to those stock
options will be lowered in connection with the merger. The controlling
shareholders may cash out those options for the difference between the
applicable exercise price and the value of the merger consideration or they may
keep those options in place which would then be exercisable by the option
holders for the consideration received in connection with the merger.
Certain executive officers, including the controlling shareholders, will
also enter into or extend the terms of their employment agreements with Vistana
and, in connection therewith, will receive options exercisable for units of
Starwood stock.
In assessing the fairness of the merger to shareholders of Vistana, the
Vistana board took into account all these interests. These interests are
different from and in addition to your interests as shareholders.
NO DISSENTERS' RIGHTS
Florida law does not provide for any dissenters' rights to an appraisal for
Vistana shareholders in connection with the merger.
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
VISTANA SUMMARY FINANCIAL INFORMATION
The summary historical financial information of Vistana set forth below for
each of the years in the five-year period ended December 31, 1998 has been
derived from the historical financial statements of Vistana. The summary
historical financial information for Vistana for the six months ended June 30,
1999 and 1998 has been obtained from the unaudited financial statements of
Vistana which, in the opinion of management of Vistana, include all adjustments
of a normal and recurring nature that are necessary to present fairly the
information for such periods. Such financial information should be read in
conjunction with the financial statements of Vistana and other financial
information incorporated by reference in this information statement/prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:..............
Total revenues........................ $ 77,636 $ 81,109 $ 96,936 $ 145,352 $ 233,722 $ 104,737 $ 143,457
Operating income...................... 10,714 5,850 10,594 23,025 33,303 13,982 19,030
Net income............................ 10,714 5,850 10,594 298 20,648 8,669 11,007
Income from continuing operations per
share
Basic............................... -- -- -- 0.09 0.98 0.41 0.55
Diluted............................. -- -- -- 0.09 0.96 0.40 0.54
BALANCE SHEET DATA:
Total assets.......................... 117,989 140,651 173,922 287,209 471,420 374,371 518,896
Long-term debt........................ 64,769 101,504 118,557 109,547 242,644 167,842 276,687
Total liabilities..................... 84,331 122,747 142,822 163,820 325,539 240,442 361,661
Shareholders' equity.................. 33,658 17,904 26,648 119,405 144,216 130,524 156,499
OTHER DATA:
Cash dividends declared per common
share:.............................. -- -- -- -- -- -- --
</TABLE>
10
<PAGE>
STARWOOD SUMMARY FINANCIAL INFORMATION
The summary historical financial information of Starwood set forth below for
each of the years in the five-year period ended December 31, 1998 has been
derived from the historical financial statements of Starwood. The summary
historical financial information for Starwood for the six months ended June 30,
1999 and 1998 has been obtained from the unaudited financial statements of
Starwood which, in the opinion of management of Starwood, include all
adjustments of a normal and recurring nature that are necessary to present
fairly the information for such periods. Such financial information should be
read in conjunction with the financial statements of Starwood and other
financial information incorporated by reference in this information
statement/prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Revenues.................................. $ 1,209 $ 1,606 $ 1,646 $ 1,762 $ 3,333 $ 1,510 $ 1,819
Income (loss) from continuing
operations.............................. 53 101 156 (233) 220 124 (783)
Income (loss) from continuing operations
per Unit................................ .42 .80 1.25 (1.85) 1.06 0.59 (4.21)
BALANCE SHEET DATA:
Total assets.............................. 4,721 6,769 7,452 6,790 13,417 13,417 13,088
Total debt, including capital leases...... 617 854 1,183 607 6,489 6,489 6,134
OTHER DATA:
Cash dividends declared per Unit.......... -- -- -- -- 1.71 1.04 0.30
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE/UNIT DATA
Set forth below are earnings, cash dividends declared and book value per
share/unit data for Starwood and Vistana on a historical basis. The information
set forth below should be read in conjunction with the respective audited and
unaudited financial statements of Starwood and Vistana incorporated by reference
in this information statement/prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
------------------------- ---------------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
VISTANA--HISTORICAL
Income from continuing operations per share:
Basic............................................................. $ 0.98 $ 0.55
Diluted........................................................... 0.96 0.54
Cash dividends declared per Vistana common share.................... -- --
Book Value per Vistana common share................................. 6.79 7.34
STARWOOD--HISTORICAL
Income (loss) from continuing operations per unit:
Basic............................................................. 1.06 (4.21)
Diluted........................................................... 1.05 (4.21)
Cash dividends declared per unit.................................... 1.71 0.30
Book value per unit................................................. 25.38 19.81
PRO FORMA COMBINED
Income (loss) from continuing operations per unit:
Basic............................................................. 1.06 (3.95)
Diluted........................................................... 1.05 (3.95)
Cash dividends declared per unit.................................... 1.71 0.30
Book value per unit................................................. 25.62 20.41
PRO FORMA EQUIVALENT--VISTANA
Income (loss) from continuing operations per share:
Basic............................................................. .50 (1.84)
Diluted........................................................... .49 (1.84)
Cash dividends declared per share................................... .80 .14
Book value per share................................................ 11.95 9.52
</TABLE>
12
<PAGE>
MARKET PRICE AND DIVIDEND DATA
The following table reflects (i) the range of the reported high and low last
sale prices of units of Starwood stock on the New York Stock Exchange, Inc. (the
"NYSE") Composite Tape and the per unit dividends paid thereon and (ii) the
range of the reported high and low last sale prices of shares of Vistana common
stock on the Nasdaq National Market tier of the Nasdaq Stock Market (the
"NASDAQ/NM") and the per share dividends paid thereon, in each case for the
calendar quarters indicated.
<TABLE>
<CAPTION>
STARWOOD VISTANA
------------------------------- -------------------------------
HIGH LOW DIV. HIGH LOW DIV.
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997:
First quarter......................................... $ 45.88 $ 34.50 $ 0.39 $ 15.88 $ 11.00 --
Second quarter........................................ 42.81 34.25 0.39 15.50 9.00 --
Third quarter......................................... 57.44 41.56 0.48 22.88 14.75 --
Fourth quarter........................................ 60.38 52.13 0.48 27.75 18.50 --
1998:
First quarter......................................... 57.88 49.50 0.52 27.50 20.00 --
Second quarter........................................ 54.38 44.44 0.52 29.75 16.00 --
Third quarter......................................... 49.19 29.19 0.52 21.50 11.00 --
Fourth quarter........................................ 31.38 18.75 0.15 16.50 6.81 --
1999:
First quarter......................................... 34.19 22.69 0.15 14.25 9.38 --
Second quarter........................................ 37.75 28.00 0.15 17.50 12.13 --
Third quarter (as of August 20, 1999)................. 31.00 23.31 0.15(a) 18.38 14.00 --
</TABLE>
- ------------------------
(a) Starwood has declared a distribution of $0.15 per share payable on October
22, 1999 to shareholders of record on September 30, 1999.
Units of Starwood stock are listed on the NYSE and the Pacific Exchange
under the symbol "HOT." On July 16, 1999, the last full trading day prior to the
announcement of the merger agreement, the closing price per unit of Starwood
stock was $29.06, as reported on the NYSE Composite Tape. Vistana common stock
is listed on the NASDAQ/NM under the symbol "VSTN." On such date, the closing
price per share of Vistana common stock was $17.25, as reported on the
NASDAQ/NM. On August 20, 1999, the most recent practicable date prior to the
mailing of this information statement/ prospectus, the closing prices of a unit
of Starwood common stock and Vistana common stock were $26.63 per unit and
$16.38 per share, respectively, as reported, in the case of a unit of Starwood
common stock, on the NYSE Composite Tape and, in the case of Vistana stock, on
the NASDAQ/NM. Vistana shareholders are encouraged to obtain current market
quotations for units of Starwood stock and Vistana common stock. To obtain
Starwood common stock quotations and the exchange ratio, call toll free
1-800-431-9643.
Starwood will apply for the listing on the NYSE of the units of Starwood
stock to be issued in the merger.
Vistana has agreed in the merger agreement that it will not declare or pay
any dividends between the date of the merger agreement and the effective time of
the merger.
13
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this
information statement/prospectus may be deemed to be "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, that address activities,
events or developments that Starwood or Vistana intends, expects, projects,
believes or anticipates will or may occur in the future are forward looking
statements. Such statements are characterized by terminology such as "believe,"
"hope," "anticipate," "should," "intend," "plan," "will," "expect," "estimate,"
"project," "positioned," "strategy," and similar expressions. These statements
are based on assumptions and assessments made by Starwood management or Vistana
management in light of their experience and their perception of historical
trends, current conditions, expected future developments and other factors they
believe to be appropriate. These forward looking statements are subject to a
number of risks and uncertainties, including but not limited to those set forth
below.
In addition, Starwood and Vistana are subject to risks and uncertainties
that affect the hotel and lodging and vacation ownership resort businesses
generally, including, but not limited to, economic, competitive, governmental
and technological factors affecting Starwood's and Vistana's operations,
markets, products, services and prices. Any such forward looking statements are
not guarantees of future performances, and actual results, developments and
business decisions may differ from those envisaged by such forward looking
statements. Starwood and Vistana disclaim any duty to update any forward looking
statements, all of which are expressly qualified by the foregoing.
IF THE UNITS OF STARWOOD STOCK TRADE BELOW $30, THE VALUE OF THE CONSIDERATION
RECEIVED BY VISTANA SHAREHOLDERS IN THE MERGER MAY BE BELOW $19 PER SHARE.
If the average of the high and low prices for each trading day of units of
Starwood stock on the New York Stock Exchange over a twenty-trading day period
ending with the sixth trading day prior to the merger is less than $30, then the
combination of cash and units that you will receive in the merger may have a
value of less than $19 per share of Vistana common stock. The closing price of
units of Starwood stock on the New York Stock Exchange on July 16, 1999, the
last trading day prior to the signing of the merger agreement, was less than
$30, and the units have traded below $30 through the date of this information
statement/prospectus.
THE PRICE PER UNIT OF STARWOOD STOCK AT THE EFFECTIVE TIME OF THE MERGER MAY BE
LESS THAN THE AVERAGE PRICE USED TO ESTABLISH THE EXCHANGE RATIO.
The exchange ratio establishing the number of units of Starwood stock into
which shares of Vistana common stock will be converted will be determined by the
average of the high and low prices for each trading day of units of Starwood
stock on the New York Stock Exchange over a twenty-trading day period ending
with the sixth trading day prior to the merger. Accordingly, it is possible that
the market price of units of Starwood stock at the effective time of the merger
will be higher or lower than the average price on which the exchange ratio was
based. If this is the case, the value of the consideration to be received by
Vistana shareholders will be more or less than the average price on which the
exchange ratio was based, depending on the direction of the price movement.
There can be no assurance that the price of units of Starwood stock will not
decline from the prices used in the calculation of the exchange ratio.
AS A STARWOOD SHAREHOLDER, YOU WILL HAVE DIFFERENT RIGHTS THAN AS A VISTANA
SHAREHOLDER.
Starwood and its subsidiary, Starwood Hotels & Resorts (the "Trust"), are
organized under the laws of Maryland and Vistana is organized under the laws of
Florida. If the merger is consummated, you will become a holder of units of
Starwood stock and your rights will be governed by Maryland law,
14
<PAGE>
the articles of incorporation and bylaws of Starwood, and the declaration of
trust and bylaws of the Trust, rather than Florida law and the articles of
incorporation and bylaws of Vistana.
You should be aware of the following differences in your rights as
shareholders of Vistana as compared to shareholders of Starwood and the Trust:
- As a holder of Starwood stock, you will technically hold shareholder
interests in two separate entities each of which is governed by its own
organizational documents. However, such shareholder interests, which
consist of one share of common stock of Starwood and one class B share of
the Trust, are attached and trade together as a unit on the New York Stock
Exchange.
- Starwood's articles of incorporation and the Trust's declaration of trust
each provide that as long as the Trust maintains its status as a real
estate investment trust (a "REIT"): (a) no person shall beneficially own
units of Starwood stock in excess of 8%, by value, vote or number of such
shares; (b) any transfer resulting in beneficial ownership of greater than
such 8% value shall be void as to the shares in excess of such 8% value;
(c) any transfer resulting in beneficial ownership of units of Starwood
stock by fewer than 100 persons (determined without reference to any rules
of attribution) shall be void; and (d) any transfer of units of Starwood
stock resulting in the Trust being "closely held" within the meaning of
Section 856(h) of the Internal Revenue Code of 1986, as amended, shall be
void as to the number of units of Starwood stock that cause the Trust to
be "closely held."
- Starwood has a shareholders rights plan that will cause substantial
dilution to a person or group that attempts to acquire control of Starwood
in a manner that causes the rights issued thereunder to become
exercisable. Vistana does not currently have a shareholder rights plan.
- Holders of Starwood's shares may act by written consent only if the
written consent of every shareholder is obtained. Holders of the Trust's
publicly traded shares are not generally entitled to vote or act by
written consent. Vistana shareholders are entitled to act by written
consent if a number of holders of the outstanding stock of each voting
group at least as great as the number that would be required at a meeting,
deliver signed written consents, and notice is given to all other
shareholders within ten days after delivery thereof.
See "Comparison of Shareholder Rights."
RISKS RELATED TO HOTEL OPERATIONS
STARWOOD'S PROPERTIES ARE SUBJECT TO ALL THE OPERATING RISKS COMMON TO THE
HOTEL INDUSTRY. These risks include:
- changes in general economic conditions;
- decreases in the level of demand for rooms and related services;
- cyclical over-building in the hotel industry;
- restrictive changes in zoning and similar land use laws and regulations or
in health, safety and environmental laws, rules and regulations;
- the inability to obtain property and liability insurance to fully protect
against all losses or to obtain such insurance at reasonable rates; and
- changes in travel patterns.
In addition, the hotel industry is highly competitive. Starwood's properties
compete with other hotel properties in their geographic markets, and some of its
competitors may have substantially greater marketing and financial resources
than it does.
15
<PAGE>
THE HOTEL INDUSTRY IS SEASONAL IN NATURE. However, the periods during which
Starwood's properties experience higher hotel revenue vary from property to
property and depend principally upon location. Although Starwood's revenue
historically has been lower in the first quarter than in the second, third or
fourth quarters, future acquisitions may affect seasonal fluctuations in revenue
and cash flow.
THE HOTEL AND LODGING BUSINESS IS CAPITAL INTENSIVE. In order for
Starwood's properties to remain attractive and competitive, Starwood has to
spend money periodically to keep them well maintained, modernized and
refurbished. This creates an ongoing need for cash and, to the extent such
expenditures cannot be funded from cash generated by its operations, Starwood
may be required to borrow or otherwise obtain such funds. Accordingly,
Starwood's financial results may be sensitive to the cost and availability of
funds.
REAL ESTATE INVESTMENT RISKS
REAL PROPERTY INVESTMENTS ARE SUBJECT TO NUMEROUS RISKS. The investment
returns available from equity investments in real estate depend in large part on
the amount of income earned and capital appreciation generated by the related
properties, as well as the expenses incurred.
In addition, a variety of other factors affect income from properties and
real estate values, including governmental regulations, real estate, zoning, tax
and eminent domain laws, interest rate levels and the availability of financing.
For example, new or existing real estate, zoning or tax laws can make it more
expensive and/or time consuming to develop real property or expand, modify or
renovate hotels.
When interest rates increase, the cost of acquiring, developing, expanding
or renovating real property increases. On the other hand, when interest rates
increase, real property values decrease as the number of potential buyers
decreases. Similarly, as financing becomes less available, it becomes more
difficult both to acquire and to sell real property. Finally, governments can,
under eminent domain laws, take real property. Sometimes this taking is for less
compensation than the owner believes the property is worth. Any of these factors
could have a material adverse impact on Starwood's results of operations or
financial condition, as well as on Starwood's ability to make distributions to
its shareholders.
In addition, equity real estate investments, such as the investments
Starwood holds and any additional properties that it may acquire, are relatively
difficult to sell quickly. If Starwood's properties do not generate revenue
sufficient to meet operating expenses, including debt service and capital
expenditures, its income will be adversely affected.
HOTEL DEVELOPMENT IS SUBJECT TO NUMEROUS RISKS. Starwood intends to develop
hotel properties as suitable opportunities arise; Starwood is currently
developing several luxury or upscale full-service hotels. New project
development is subject to a number of risks, including risks associated with:
- construction delays or cost overruns that may increase project costs;
- receipt of zoning, occupancy and other required governmental permits and
authorizations;
- incurring development costs for projects that are not pursued to
completion;
- so-called "acts of God" such as hurricanes, floods or fires that could
adversely impact a project; and
- governmental restrictions on the nature or size of a project.
Starwood cannot assure you that any development project will be completed on
time or within budget.
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STARWOOD HAS POSSIBLE LIABILITY RELATED TO ENVIRONMENTAL
MATTERS. Environmental laws, ordinances and regulations of various federal,
state, local and foreign governments regulate certain of Starwood's operations
and could make Starwood liable for the costs of managing, removing or cleaning
up hazardous or toxic substances on, under or in property it currently owns or
operates or previously owned or operated. Such laws could impose liability
without regard to whether Starwood knew of, or was responsible for, the presence
of such hazardous or toxic substances. The presence of hazardous or toxic
substances, or the failure to properly address such substances when present,
could jeopardize Starwood's ability to develop, use, sell or rent the real
property or to borrow using the real property as collateral. If Starwood
arranges for the disposal or treatment of hazardous or toxic wastes it could be
liable for the costs of removing or cleaning up such wastes at the disposal of
treatment facility, even if it never owned or operated that facility. Other
laws, ordinances and regulations could require Starwood to manage, abate or
remove lead or asbestos-containing materials. Similarly, the operation and
closure of storage tanks are often regulated by federal, state, local and
foreign laws. Finally, certain laws, ordinances and regulations, particularly
those governing the management or preservation of wetlands, coastal zones and
threatened or endangered species, could limit Starwood's ability to develop,
use, sell or rent its real property.
MODERATE OR SEVERE ECONOMIC DOWNTURNS OR ADVERSE CONDITIONS MAY ADVERSELY AFFECT
HOTEL AND GAMING OPERATIONS.
The conditions may be widespread or isolated to one or more geographic
regions. As a result, general economic conditions may have a negative impact on
Starwood's ability to achieve or sustain substantial improvements in funds from
operations and other important financial tests.
Further, an economic downturn in the countries of Starwood's high-end
international customers could cause a reduction in the frequency of their visits
and, consequently, the revenue generated by such customers. Similarly, the
receivables from international gaming customers could be harder to collect due
to future business or economic trends, or significant events, in the countries
where such customers live.
Large parts of the world economy, including Asia, are currently in moderate
to severe recession. In addition, the United States could experience a recession
in the near or medium term. A continued recession overseas or a recession in the
United States would likely have a material adverse effect on the results of
operations of Starwood.
STARWOOD FACES RISKS RELATED TO THE YEAR 2000.
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates--that is, they will need
to be "Year 2000 Compliant." As a result, the computerized systems and
applications Starwood uses need to be reviewed and evaluated and modified or
replaced, if necessary. In less than four months, Starwood needs to ensure that
all its financial, information and operational systems are Year 2000 Compliant.
Because Starwood has tested all major computerized systems and applications
and has already accepted reservations for the year 2000, Starwood believes that
it has addressed all significant risks related to the reservation function. The
remaining risks relate to the non-critical business applications, support
hardware for the central facilities and embedded systems at the properties
Starwood owns or manages. A failure of certain of these systems to become Year
2000 Compliant could disrupt the timeliness or the accuracy of management
information provided by the central facilities.
Starwood cannot assure you that its efforts will be sufficient to make the
computerized systems and applications at its hotel and gaming properties Year
2000 Compliant on time or that it has allocated
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sufficient resources to the task. A failure to become Year 2000 Compliant could
affect the integrity of the gaming and hotel property guest check-in, billing
and accounting functions. Certain physical hotel property, machinery and
equipment could also fail, resulting in safety risks and customer
dissatisfaction.
Additionally, failure of the gaming systems to become Year 2000 Compliant
could result in the inefficient processing of operational gaming information and
the malfunction of computerized gaming machines.
THERE IS A RISK THAT THE TRUST MAY FAIL TO QUALIFY AS A REIT.
Qualifying as a REIT requires compliance with highly technical and complex
tax provisions that courts and administrative agencies have interpreted only to
a limited degree. Due to the complexities of Starwood's ownership, structure and
operations, the Trust is more likely than are other REITs to face interpretative
issues for which there are no clear answers. Also, facts and circumstances that
Starwood does not control may affect the Trust's ability to qualify as a REIT.
The Trust believes that since the taxable year ended December 31, 1995, it has
qualified as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"). The Trust intends to continue to operate so as to qualify as a REIT.
However, the Trust cannot assure you that it will continue to qualify as a REIT.
If the Trust failed to qualify as a REIT for any prior tax year, the Trust would
be liable to pay a significant amount of taxes for those years. Similarly, if
the Trust fails to qualify as a REIT in the future, Starwood's liability for
taxes would increase.
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS.
Starwood has significant international operations which, as of March 31,
1999, included (other than gaming properties, which are held for disposition) 31
properties owned in Europe, two properties owned in Africa and the Middle East,
15 properties owned in Latin America (including three in Brazil) and three
properties owned in the Asia/Pacific region. International operations generally
are subject to various political and other risks that are not present in U.S.
operations. Such risks include, among other things, the risk of war or civil
unrest, expropriation and nationalization. In addition, certain international
jurisdictions restrict the repatriation of non-U.S. earnings. Various
international jurisdictions also have laws limiting the right and ability of
non-U.S. entities to pay dividends and remit earnings to affiliated companies
unless specified conditions have been met.
In addition, sales in international jurisdictions typically are made in
local currencies, which subjects Starwood to risks associated with currency
fluctuations. Currency devaluations and unfavorable changes in international
monetary and tax policies could materially adversely affect Starwood's
profitability and financing plans, as could other changes in the international
regulatory climate and international economic conditions. Other than Italy,
where risks are heightened due to the relatively large number of properties
Starwood owns, Starwood's properties are geographically diversified and are not
concentrated in any particular region.
STARWOOD MUST ATTRACT AND RETAIN KEY PERSONNEL.
Starwood's future success and its ability to manage future growth depends
largely upon the work of its senior management and its ability to hire key
officers and other highly qualified personnel and retain them. Competition for
such personnel is intense. Since January 1996, Starwood has experienced
significant changes in its senior management, including its executive officers.
Starwood cannot assure you that it will continue to be successful in attracting
and retaining qualified personnel.
STARWOOD HAS RISKS RELATING TO EUROPEAN UNION CURRENCY CONVERSIONS.
On January 1, 1999, 11 of the 15 member countries of European Union
established fixed conversion rates between their existing sovereign currencies
and the euro. Following the introduction of
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the euro, the legacy currencies of the participating countries will remain legal
tender during a transition period ending on January 1, 2002. During the
transition period, both the legacy currency and the euro will be legal tender in
the respective participating countries, and currency conversions will be
computed by a triangulation with reference to conversion rates between the
respective currencies and the euro. Starwood currently operates in 10 of the 11
participating countries. Starwood is uncertain what effect the adoption of the
euro by the participating countries will have on it. However, it is possible
that the euro adoption will result in increased competition in the European
market. In addition, a number of Starwood's information systems are not
currently euro compliant. Starwood is evaluating and updating its information
systems to make them euro compliant; however, it cannot assure you that it or
its third-party application vendors will successfully bring all systems into
compliance. Failure to do so could result in disruptions in the processing of
transactions in euros or computed by reference to the euro.
STARWOOD CAPITAL MAY EXERT INFLUENCE OVER STARWOOD.
Barry S. Sternlicht is the Chairman and Chief Executive Officer and a board
member of Starwood and the Trust. Mr. Sternlicht also serves as the President
and Chief Executive Officer of, and may be deemed to control, Starwood Capital
Group, L.L.C. ("Starwood Capital"), which owns limited partnership interests in
SLT Realty Limited Partnership and SLC Operating Limited Partnership. In
addition, Jonathan D. Eilian and Madison F. Grose, each of whom is a director of
Starwood and a trustee of the Trust, are also employed by or affiliated with
Starwood Capital. Although Starwood's policy requires a majority of the trustees
and directors to be "independent" of Starwood Capital, Starwood Capital may be
able to exercise influence over Starwood's affairs. Because Starwood Capital's
tax situation is different from Starwood's tax situation, Starwood Capital may
not share the same objectives as do Starwood shareholders or management with
regard to the pricing, structure and timing of any sale of properties or
mortgage loans.
STARWOOD FACES RISKS INVOLVED IN INVESTMENTS THROUGH PARTNERSHIPS OR JOINT
VENTURES.
Instead of purchasing hotel properties directly, Starwood may invest as a
co-venturer. Joint venturers often have shared control over the operation of the
joint-venture assets. Therefore, such investments may, under certain
circumstances, involve risks such as the possibility that the co-venturer in an
investment might become bankrupt, or have economic or business interests or
goals that are inconsistent with Starwood's business interests or goals, or be
in a position to take action contrary to Starwood's instructions or requests or
contrary to Starwood's policies or objectives.
Consequently, actions by a co-venturer might subject hotel properties owned
by the joint venture to additional risk. Although Starwood generally seeks to
maintain sufficient control of any joint venture, Starwood may be unable to take
action without the approval of its joint-venture partners. Alternatively, these
joint-venture partners could take actions binding on the joint venture without
Starwood's consent. Additionally, should a joint-venture partner become
bankrupt, Starwood could become liable for such partner's share of joint-venture
liabilities.
ALTHOUGH STARWOOD HAS ENTERED INTO DEFINITIVE AGREEMENTS TO SELL SUBSTANTIALLY
ALL ITS GAMING ASSETS, STARWOOD FACES RISKS RELATED TO GAMING OPERATIONS UNTIL
THOSE SALES ARE COMPLETED.
REGULATION OF GAMING OPERATIONS. Pending the completion of the sale of
Caesars World, Inc. ("Caesars World") and the Desert Inn Hotel & Resort (the
"Desert Inn"), Starwood owns and operates several casino gaming facilities,
including Caesars Palace and the Desert Inn in Las Vegas, Nevada; Caesars
Atlantic City in Atlantic City, New Jersey; and Caesars Tahoe in Stateline,
Nevada. Other gaming facilities are located in Delaware, Indiana and
Mississippi, in six foreign countries and on the cruise ships S.S. Crystal
Harmony and S.S. Crystal Symphony while they are in international waters. Each
of these gaming operations is subject to extensive licensing, permitting and
regulatory requirements administered by various governmental entities.
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Starwood cannot assure you that the sale of Caesars World or the sale of the
Desert Inn will be completed under the terms of the current agreements or
completed at all. Either sale may be terminated, postponed or delayed for
numerous reasons, including the failure to obtain approval from the appropriate
gaming regulatory authorities.
Typically, gaming regulatory authorities have broad powers with respect to
the licensing of gaming operations. They may revoke, suspend, condition or limit
gaming approvals and licenses and those of gaming subsidiaries, impose
substantial fines and take other actions, any of which could have a material
adverse effect on the business and the value of Starwood's hotel/casinos.
Starwood's directors, officers and some key employees, together with those of
the gaming subsidiaries, are subject to licensing or suitability determinations
by various gaming authorities. If any of those gaming authorities were to find
someone unsuitable, Starwood could have to sever its relationship with that
person.
INCREASED GAMING COMPETITION. Starwood is facing significant domestic and
international competition from both established casinos and newly emerging
gaming operations. Starwood's competitors have made a significant number of
proposals for casinos, both land-based and on navigable waters, in a number of
jurisdictions and large metropolitan areas. If gaming were legalized in new
jurisdictions, Starwood's competitors would have additional opportunities to
expand. This could have a negative impact on existing gaming operations.
Starwood believes that if legalized gaming is adopted in any jurisdiction near
Nevada (particularly California or the Southwestern states) or near New Jersey
(particularly New York or Pennsylvania) or on nearby Native American lands, this
could have a material adverse effect on operations in Las Vegas and Atlantic
City, respectively.
In November 1998, California voters approved a ballot initiative that
mandates that the California governor sign compacts relating to gaming on tribal
lands with California tribes upon their request. The initiative also amended
current California law to permit gambling devices, including slot machines,
banked card games and lotteries, at tribal casinos. The Supreme Court of
California has stayed the implementation of this initiative, and its ultimate
impact on gaming operations is uncertain.
RISKS ASSOCIATED WITH HIGH-END GAMING. The high-end gaming business is more
volatile than other forms of gaming. Variability in high-end gaming could have a
positive or negative impact on cash flow, earnings and other financial measures
in any given quarter. In addition, a substantial portion of Starwood's table
gaming revenue from Caesars Palace and Desert Inn operations is attributable to
the play of a relatively small number of international customers. The loss of,
or a reduction in play of, the most significant of such customers (because of
recessionary conditions in Asia or otherwise) could have a material adverse
effect on future operating results.
REDEMPTION PURSUANT TO GAMING LAWS. Although Starwood's gaming operations
are currently discontinued, Starwood cannot assure you that the sale of Caesars
World or the sale of the Desert Inn will be completed. If these sales are not
completed, Starwood will continue to be subject to state gaming regulatory
authorities. Some state gaming regulatory authorities reserve the right to
require beneficial owners of securities issued by gaming companies or their
affiliates to be licensed or found qualified or suitable to hold such
securities. Because Starwood has a significant presence in the gaming industry
through its subsidiary, Caesars World, if a gaming authority required you to be
licensed or found qualified or suitable to hold or own units of Starwood stock,
you would either have to obtain such a license or be found qualified or
suitable, or you would have to dispose of the units. If you were required to
dispose of the units and failed to do so within the time period specified by the
gaming authority, Starwood would have the right to redeem your units.
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THE MERGER
GENERAL
We are furnishing this information statement/prospectus to you in connection
with the proposed merger of Vistana with Fire Acquisition Corp., a Florida
corporation and wholly owned subsidiary of Starwood formed for the purpose of
effecting the merger (referred to in this information statement/ prospectus as
the "merger sub"), with the merger sub surviving the merger as a wholly owned
subsidiary of Starwood. This merger will be carried out as provided in the
Agreement and Plan of Merger, dated as of July 18, 1999, as amended August 16,
1999, among Starwood, the merger sub and Vistana (referred to as the "merger
agreement"). A copy of the merger agreement is attached as Appendix A to this
information statement/prospectus and is incorporated by reference in this
information statement/prospectus. This information statement/prospectus has been
sent to you because on July 18, 1999, the date on which the controlling
shareholders executed a written consent adopting the merger agreement and
approving the merger, you were a holder of Vistana common stock, par value $.01
per share.
In the merger, each publicly outstanding share of Vistana stock will be
converted into $5.00 in cash and a fraction of a unit of Starwood stock equal to
an exchange ratio (as described below under "The Merger Agreement--Consideration
to be Received in the Merger; Exchange Ratio"). If the number of units of
Starwood stock that you would receive under the exchange ratio includes a
fraction of a unit of Starwood stock, rather than give you a fractional unit of
Starwood stock, Starwood will instead pay you an amount in cash equal to the
value on the date of the merger of that fractional interest.
This information statement/prospectus is to inform you of the merger. Your
vote is not required for the merger, because the controlling shareholders of
Vistana, Raymond L. Gellein, Jr., Jeffrey A. Adler and certain of their
affiliates, executed and delivered to Vistana on July 18, 1999 a written consent
in lieu of a meeting of shareholders approving and adopting the merger agreement
and the merger. At the time the controlling shareholders signed the written
consent, they held of record, in the aggregate, 12,414,500 shares of Vistana
common stock (entitled to one vote per share). This means that the controlling
shareholders represented the requisite majority of the votes entitled to be cast
at a meeting of Vistana's shareholders to consider the merger agreement and the
merger. As a result, no meeting or further approval or consent of shareholders
of Vistana is necessary to effect the merger. The merger will become effective
no earlier than 20 business days after this information statement/ prospectus is
mailed to Vistana shareholders, and only after satisfaction or waiver of the
conditions to the merger contained in the merger agreement.
This information statement/prospectus also constitutes a prospectus of
Starwood and the Trust, which is a part of the Registration Statement on Form
S-4 filed by Starwood and the Trust with the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended, in order to register
the units of Starwood stock to be issued to Vistana shareholders in the merger.
BACKGROUND OF THE MERGER
Following the completion of its initial public offering in February 1997,
Vistana adopted a growth oriented business strategy that focused on internal
development of Vistana-branded resorts, joint ventures and other strategic
relationships and acquisitions of operating companies.
During 1997 and 1998, Vistana held discussions with a number of companies in
the timeshare, hospitality and leisure business about potential joint ventures,
acquisitions and other strategic transactions.
In August 1998, Barry Sternlicht, Starwood's Chairman and Chief Executive
Officer, telephoned Mr. Gellein to suggest that the parties meet to explore the
possibility of a business combination or strategic relationship.
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Later that month, Messrs. Gellein and Charles E. Harris, the Vice Chairman
and Chief Financial Officer of Vistana, met in Orlando with representatives of
Bear, Stearns & Co. Inc. to discuss the possibility of entering into a
transaction with Starwood. The representatives of Bear Stearns and Vistana
agreed that Bear Stearns would serve as financial advisor to Vistana in any
negotiations with Starwood.
On August 21, 1998, Mr. Gellein met in Orlando with Mr. Sternlicht to
explore the possible benefits of a business combination or strategic
relationship between Vistana and Starwood. On August 26, 1998, Mr. Gellein
advised the Vistana board on his meeting with Mr. Sternlicht.
On September 14, 1998, Starwood and Vistana entered into a confidentiality
agreement. On September 14 and 15, 1998, representatives of Starwood met in
Orlando with representatives of Vistana to review financial and operating
information about Vistana. Following the meeting, Vistana provided additional
financial information to Starwood.
On September 23, 1998, Vistana's directors were advised about the status of
the Starwood discussions at a regular board meeting held on that date.
On October 13, 1998, Mr. Sternlicht telephoned Mr. Gellein to express
further interest in pursuing a business combination with Vistana.
On October 29, 1998, Vistana's board held a special session in Atlanta to
review Vistana's strategic choices and opportunities. At the meeting, Vistana's
directors discussed a number of topics, including management's assumptions and
beliefs about the vacation ownership industry and the key strategic factors
necessary for future success. The directors also considered the strategic
alternatives available to Vistana with respect to brands, points-based vacation
ownership systems, ownership and financing. During the meeting, the directors
reached informal consensus with respect to several points, including the
following:
- Brands, scale and points-based ownership systems would be increasingly
important to Vistana's future success.
- Marketing and sales would likely become more sophisticated over time,
increasing the importance of database and affinity marketing programs in
reducing costs.
- Internal growth and acquisitions of smaller companies alone would be
unlikely to build scale and branding opportunities fast enough to meet
Vistana's strategic goals.
- Emphasis should be placed on exploring acquisitions or peer mergers with
public companies or, alternatively, exploring the sale of Vistana.
On November 24, 1998, Bear Stearns presented information about Vistana to
Starwood. On the same date at a regularly-scheduled board meeting, the Vistana
directors held further discussions regarding Vistana's strategic alternatives.
On December 7, 1998, Messrs. Gellein and Harris met at Starwood's
headquarters with Mr. Sternlicht and other Starwood representatives to discuss
the possible benefits of a business combination or strategic relationship.
On December 11, 1998, Mr. Gellein and Mr. Adler met with Mr. Sternlicht to
discuss possible benefits of a business combination or strategic relationship.
During the period from November 1998 through January 1999, Mr. Gellein
explored possible relationships with several publicly traded companies and
responded to any expressions of interest received from third parties regarding
strategic alliances or business combinations.
On January 22, 1999, Vistana made a proposal to Starwood relating to a
strategic relationship between the parties. The proposal provided, among other
things, for the parties to form a joint venture to develop and sell vacation
ownership interests at Starwood hotels and resorts, for Starwood to license
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its brands for use at Vistana's resorts and for Starwood to make an investment
of approximately $100 million in Vistana debentures and stock. On January 26,
1999, Messrs. Sternlicht, Gellein and Harris and a representative of Bear
Stearns met in New York City to discuss the proposal. Starwood rejected the
joint venture and licensing structure proposal.
On January 28, 1999, Vistana engaged counsel in connection with its
negotiations with Starwood and other strategic alternatives.
On February 19, 1999, Starwood made an alternative proposal to Vistana. The
proposal provided, among other things, for Starwood to acquire control of
Vistana by purchasing all the shares of Vistana common stock owned by the public
and a portion of the shares owned by Vistana's management. The proposal also
provided for Starwood to receive an option to purchase the remaining shares
owned by Vistana's management. Vistana rejected this approach.
On March 12, 1999, Mr. Sternlicht and Mr. Gellein met in Atlanta to discuss
the structure and financial terms of a possible business combination between
Vistana and Starwood.
During this period, Mr. Gellein continued to have conversations with other
publicly-traded companies about possible business combinations or strategic
relationships with Vistana.
On March 23, 1999, Starwood's investment banker communicated certain key
transaction terms and delivered a due diligence request list to Bear Stearns. On
March 25, 1999, Vistana responded to the Starwood proposal. Vistana did not
respond to Starwood's due diligence request list at this time, pending
additional negotiation of the proposal. During the ensuing weeks, the parties
and their representatives held various telephone discussions concerning the
terms of a possible business combination.
On March 25, 1999, the Vistana directors discussed the status of
management's conversations with Starwood and others and discussed other
strategic alternatives generally.
From March through June 1999, Vistana held preliminary discussions with a
number of hospitality or leisure companies regarding possible interest in a
business combination or other strategic relationship with Vistana. None of these
discussions resulted in proposals.
On April 5, 1999, the Vistana board held a special meeting to discuss the
status of the strategic discussions with Starwood and other parties regarding
possible business combinations or joint venture relationships. During the
meeting, the board appointed a special committee consisting of Vistana's three
non-management directors (James G. Brocksmith, Jr., Laurence S. Geller and
Steven J. Heyer, with Mr. Geller as chairman), to assist in the board's
evaluation of strategic transaction proposals. The special committee was
authorized to retain separate legal counsel and a financial advisor. The special
committee retained counsel and held a telephonic meeting on April 9, 1999.
During the meeting, counsel advised the committee as to its role in considering
a strategic transaction and the appropriate procedures to be followed in
connection with the evaluation of any transaction. The special committee also
engaged Salomon Smith Barney as the special committee's financial advisor and
discussed with representatives of Salomon Smith Barney the potential valuation
methodologies to be used in analyzing the fairness, from a financial point of
view, of the consideration payable in a transaction. Between April 9, 1999, and
July 18, 1999 (the date the merger agreement was signed), the special committee
held nine meetings, including two joint meetings with the full Vistana board.
On April 13, 14, 15 and 16, representatives of Starwood met in Orlando with
representatives of Vistana to conduct a due diligence investigation of Vistana.
Over a period of weeks after this meeting, Vistana delivered additional due
diligence materials to Starwood and Starwood and its advisors conducted
additional due diligence with respect to Vistana.
On April 21, 1999, Starwood's counsel delivered an initial draft of a merger
agreement to Vistana's counsel and management.
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On April 28, 1999, Vistana's directors discussed the status of Vistana's
strategic alternatives at a regular board meeting held on that date.
During this period, management continued to have discussions with third
parties regarding possible business combinations or joint venture relationships.
On May 5, 6 and 7, Messrs. Adler, Gellein and Harris traveled to New York
City to hold negotiations about the merger agreement with representatives of
Starwood. On May 6, 1999, Vistana's counsel met with Starwood's counsel to
discuss the draft merger agreement. During this meeting, Starwood's counsel
advised that Starwood would require as conditions that the controlling
shareholders deliver written shareholder consents and irrevocable proxies when
the merger agreement was signed, and that the controlling shareholders indemnify
Starwood for any breaches by Vistana of its representations and warranties in
the merger agreement. No agreement as to those conditions was reached by
Starwood and Vistana at this point. Additional communications between Mr.
Sternlicht and Mr. Gellein and further negotiations between the parties and
their representatives continued the following week.
On May 27, 1999, Vistana's directors considered the status of Vistana's
strategic alternatives at a regular board meeting held on that date, including
discussions with one third party expressing interest in acquiring Vistana for a
price of $16.00 per share, which represented the high end of the range that the
potential purchaser was willing to pay, and with another third party expressing
interest in acquiring approximately 31% of Vistana's outstanding shares (15.5%
from Vistana and 15.5% from Messrs. Adler and Gellein) at a price equal to 95%
of fair market value with options to acquire the balance and joint ventures for
certain vacation ownership projects.
On June 8, 1999, Messrs. Adler and Gellein met in New York with Mr.
Sternlicht to discuss Starwood's business strategies, post-merger management
structure, and potential operating synergies with Vistana. Negotiations between
the parties continued during the weeks following the meeting. During the ensuing
negotiations, Starwood indicated that it would consider paying a higher price to
Vistana's shareholders and would eliminate any termination breakup fee if
Messrs. Adler and Gellein would agree to deliver written consents and
irrevocable proxies when the merger agreement was signed and to indemnify
Starwood against any breach by Vistana of certain of its representations and
warranties in the merger agreement.
On June 25, 1999, Messrs. Adler, Gellein and Harris met with representatives
of Starwood at its headquarters to review Starwood's financial prospects and
related due diligence matters and to discuss business issues relating to the
merger.
On June 30, 1999, Vistana's board held its regular meeting in New York City.
During this session, a joint meeting of the board and the special committee was
held to consider Starwood's acquisition proposal and review Vistana's other
possible strategic alternatives. Management provided an update concerning the
status of discussions with Starwood and others. Counsel reviewed the terms of
the latest draft of the Starwood merger agreement and related documents. Bear
Stearns reviewed the process and negotiations with Starwood and discussions with
other potential strategic partners and acquisition proposals. Salomon Smith
Barney provided financial and market information with respect to Vistana and
Starwood and reviewed its preliminary valuation methodologies and results.
Neither the board nor the special committee took any action with respect to the
Starwood proposal or any alternative transaction. However, members of the board
expressed concern about the lack of a termination right for Vistana based upon a
decline in the price of Starwood's units, and management was encouraged to seek
such a provision. Following the board meeting, material terms to the merger
agreement remained to be negotiated and when agreement could not be reached,
Vistana's management returned to Orlando.
During the week of July 6, 1999, negotiations between Vistana and Starwood
resumed and revised draft agreements were exchanged.
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On July 14, 1999, a special telephonic meeting of Vistana's board was held
to consider the status of the Starwood negotiations. The board did not take any
action with respect to the Starwood transaction. On July 15, 1999, a further
special telephonic meeting of Vistana's board was held to consider the status of
the Starwood negotiations. During a recess in the board meeting, a special
meeting of the board compensation committee was held to review executive
employment and compensation matters relating to the Starwood merger, and the
committee approved several of these matters.
Following these meetings, negotiations continued between Vistana and
Starwood. The parties finalized negotiations during the evening on July 16,
1999.
On July 18, 1999, a joint telephonic special meeting of Vistana's board and
special committee was held to consider approval of the merger agreement, the
merger, and related matters. Management provided an update about the status of
the negotiations. Counsel reviewed the final terms and conditions of the merger
agreement and related documents. Salomon Smith Barney made a financial
presentation and rendered its oral opinion (subsequently confirmed by delivery
of a written opinion dated July 18, 1999) to the effect that, as of that date
and based on and subject to the matters described in its opinion, the merger
consideration was fair, from a financial point of view, to holders of Vistana
common stock (other than those shareholders who delivered as of the date of the
opinion written consents in respect of the merger, as to whom Salomon Smith
Barney was not requested to express an opinion). The board was also informed
that the controlling shareholders were in favor of the transaction and had
agreed to execute a written consent to the merger and to indemnify Starwood to
the extent provided in the shareholders agreements (see "The Merger--General"
and "Shareholders Agreements.") During a recess in the board meeting, the board
compensation committee considered and approved, or recommended that the board
approve, certain executive employment and compensation matters relating to the
merger (see "The Merger--Interests of Certain Persons in the Merger"). During
this recess, the special committee also held a separate meeting to consider the
merger agreement and the merger. The special committee unanimously recommended
that the board approve the merger agreement and the merger. Following this
recess, the board unanimously:
- determined that the merger is in furtherance of and consistent with
Vistana's long-term business strategies and in the best interest of its
shareholders;
- approved the merger agreement, the merger and related documents; and
- approved certain executive employment and compensation matters related to
the merger.
The parties thereafter executed and delivered the merger agreement, and the
controlling shareholders executed and delivered the written consent approving
the merger agreement and the merger, thereby providing the shareholder approval
required by Florida law.
On July 19, 1999, Vistana and Starwood issued a joint press release
announcing the execution of the merger agreement.
On August 16, 1999, Starwood, merger sub and Vistana amended the merger
agreement in certain minor respects.
VISTANA'S REASONS FOR THE MERGER; APPROVAL OF THE VISTANA BOARD
The following factors were among those considered by Vistana's special
committee in reaching its decision to recommend the merger agreement to the
Vistana board and by Vistana's board in reaching its decision to approve the
merger agreement and the merger.
- the merger will provide Vistana shareholders with an investment in a
larger and more diversified enterprise;
- the merger is expected to provide Vistana shareholders with cash and
Starwood units at a premium over the average market price for shares of
Vistana stock over the past year;
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- the merger is expected to be partially tax free to Vistana shareholders;
- the merger will provide Vistana shareholders with greater liquidity due to
the more active trading market for Starwood units; and
- the merger is expected to improve Vistana's competitive position and
future scale by providing access to Starwood's brands, frequency program,
customer base and resort development opportunities.
The board and the committee also considered the following additional
factors:
- the risks and benefits associated with Vistana continuing as an
independent company, including trading value and liquidity issues;
- the other strategic alternatives available to Vistana;
- the judgment, advice and analysis of Vistana's controlling shareholders
and senior management, including their favorable recommendation of the
merger and the fact that Vistana's controlling shareholders approved of
the transaction;
- discussions with Vistana's senior management, legal advisors and
investment bankers regarding the terms of the merger agreement, including
those provisions required by Starwood as a condition to its signing the
merger agreement which preclude consideration of alternative transactions;
- information concerning the financial and operating performance and
condition, business operations, debt and capital levels, asset quality and
prospects of Vistana and Starwood;
- current industry, economic and market conditions and trends, including the
likelihood of continuing expansion by branded entities in the vacation
ownership industry;
- the importance of market position, significant scale and financial
resources to a company's ability to compete effectively in the changing
environment in the vacation ownership industry;
- the opinion dated July 18, 1999 of Salomon Smith Barney described below
under "Opinion of Salomon Smith Barney" as to the fairness, from a
financial point of view, of the merger consideration to the holders of
Vistana common stock (other than those shareholders who delivered as of
the date of the opinion written consents in respect of the merger, as to
whom Salomon Smith Barney was not requested to express an opinion);
- the ability of the parties to complete the merger, including, in
particular, the likelihood of obtaining regulatory approvals; and
- the belief that the corporate cultures of the two companies would be
complementary.
The Vistana board and special committee also considered the following
negative factors:
- the fact that fluctuations in the market value of Starwood's units prior
to the closing of the merger may result in Vistana shareholders receiving
total consideration of less than $19 per share in value;
- the fact that the closing price of Starwood's units was below the $30
price floor used in calculating the exchange ratio when the merger
agreement was executed;
- the interests of Vistana's management in the merger as described in
"Interests of Certain Persons in the Merger";
- the provisions of the merger agreement and the shareholders agreement
which preclude subsequent consideration of alternative transactions; and
- the impact that any failure to complete the merger would have on Vistana's
business, shareholders and employees.
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The foregoing discussion of the information and factors considered by the
Vistana board is not intended to be exhaustive but is believed to include all
material factors considered by Vistana's board. In view of the complexity and
wide variety of information and factors, both positive and negative, considered
by Vistana's board, they did not find it practical to quantify, rank or
otherwise assign relative or specific weights to the factors considered. In
addition, the Vistana board did not reach any specific conclusion with respect
to each of the factors considered, or any aspect of any particular factor, but,
rather, conducted an overall analysis of the factors described above, including
discussions with Vistana's management and legal, financial and accounting
advisors. In considering the factors described above, individual members of
Vistana's board may have given different weight to different factors. Vistana's
board considered all these factors as a whole and believed the factors supported
its determination to approve the merger. After taking into consideration all the
factors set forth above, Vistana's board concluded that the merger was in
furtherance of and consistent with Vistana's long-term business strategies and
in the best interests of its shareholders and that Vistana should proceed with
the merger.
STARWOOD'S REASONS FOR THE MERGER
The Starwood board believes that the merger is in the best interest of
Starwood and its shareholders. Starwood expects to benefit from Vistana's
products, market presence, know how and people. Starwood believes that the
addition of Vistana will enable Starwood to take advantage of numerous synergies
between its hotel businesses and Vistana's vacation ownership resort business,
thereby creating positive prospects for both increased shareholder value and
improved customer satisfaction.
OPINION OF SALOMON SMITH BARNEY
Vistana retained Salomon Smith Barney to act as the special committee's
financial advisor in connection with the proposed merger. In connection with its
engagement, the special committee requested that Salomon Smith Barney evaluate
the fairness, from a financial point of view, to the holders of Vistana common
stock of the merger consideration provided for in the merger. On July 18, 1999,
at a joint meeting of the Vistana board and special committee held to evaluate
the proposed merger, Salomon Smith Barney delivered to the Vistana board and
special committee an oral opinion to the effect that, as of that date and based
on and subject to the matters described in its opinion, the merger consideration
was fair, from a financial point of view, to the holders of Vistana common stock
(other than those shareholders who delivered as of the date of the opinion
written consents in respect of the merger, as to whom Salomon Smith Barney was
not requested to express an opinion). Salomon Smith Barney confirmed its oral
opinion by delivery of a written opinion dated July 18, 1999, a copy of which is
attached as Appendix D to this information statement/prospectus.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement and related documents;
- held discussions with senior officers, directors and other representatives
and advisors of Vistana and senior officers, representatives and advisors
of Starwood concerning the businesses, operations and prospects of Vistana
and Starwood;
- examined publicly available business and financial information relating to
Vistana and Starwood;
- examined financial forecasts for Vistana and publicly available financial
forecasts for Starwood and other information and data for Vistana and
Starwood which were provided to or otherwise discussed with Salomon Smith
Barney by the managements of Vistana and Starwood;
- reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of Vistana
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common stock and units of Starwood stock, the historical and projected
earnings and other operating data of Vistana and Starwood, the
capitalization of Vistana and Starwood, and the financial condition of
Vistana and Starwood;
- considered, to the extent publicly available, the financial terms of other
transactions recently effected that it considered relevant in evaluating
the merger;
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations it
considered relevant in evaluating those of Vistana and Starwood; and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as it deemed appropriate in arriving at its
opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, on the accuracy and completeness of all financial and
other information and data that it reviewed or considered. With respect to these
financial forecasts and other information and data, the managements of Vistana
and Starwood advised Salomon Smith Barney that they were prepared on bases
reflecting reasonable estimates and judgments as to the future financial
performance of Vistana and Starwood and the other matters covered thereby.
Salomon Smith Barney assumed, with Vistana's consent, that the merger will
qualify at the corporate level as a tax-free reorganization for federal income
tax purposes. Salomon Smith Barney also assumed, with Vistana's consent, that
the Trust was organized and has operated in conformity with the requirements for
qualification as a REIT for federal income tax purposes and that the merger and
the related transactions will not adversely affect the REIT status or operations
of the Trust. Salomon Smith Barney did not express any opinion as to what the
value of the units of Starwood stock actually will be when issued in the merger
or the prices at which the units of Starwood stock will trade after the merger.
Salomon Smith Barney did not make and was not provided with an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Vistana or Starwood, and Salomon Smith Barney did not make any physical
inspection of the properties or assets of Vistana or Starwood.
Salomon Smith Barney was not requested to, and did not, participate in the
negotiation or structuring of the merger, and Salomon Smith Barney was not
requested to, and did not, solicit third party indications of interest in the
possible acquisition of all or a part of Vistana. Salomon Smith Barney expressed
no view as to, and its opinion does not address, the relative merits of the
merger as compared to any alternative business strategies that might exist for
Vistana or the effect of any other transaction in which Vistana might engage.
Salomon Smith Barney's opinion was necessarily based on information available,
and financial, stock market and other conditions and circumstances existing and
disclosed, to Salomon Smith Barney as of the date of its opinion. Although
Salomon Smith Barney evaluated the merger consideration from a financial point
of view, Salomon Smith Barney was not asked to and did not recommend the
specific consideration payable in the merger, which was determined through
negotiation between Vistana and Starwood. No other instructions or limitations
were imposed by Vistana on Salomon Smith Barney with respect to the
investigations made or procedures followed by Salomon Smith Barney in rendering
its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED JULY 18, 1999,
WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN AND IS ATTACHED TO THIS DOCUMENT AS APPENDIX D, IS
INCORPORATED INTO THIS DOCUMENT BY REFERENCE. SALOMON SMITH BARNEY'S OPINION IS
DIRECTED TO THE VISTANA BOARD AND SPECIAL COMMITTEE AND RELATES ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER WITH RESPECT TO ANY MATTER
RELATING TO THE PROPOSED MERGER.
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In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Vistana and Starwood. No company, transaction or business used in those analyses
as a comparison is identical to Vistana, Starwood or the proposed merger, nor is
an evaluation of those analyses entirely mathematical; rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Salomon Smith Barney's analyses
and estimates are inherently subject to substantial uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the Vistana board and special committee in their evaluation of the
merger and should not be viewed as determinative of the views of the Vistana
board and special committee or management with respect to the merger
consideration or the proposed merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion dated July
18, 1999. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF
THE FINANCIAL ANALYSES. IN ORDER TO UNDERSTAND FULLY SALOMON SMITH BARNEY'S
FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. CONSIDERING THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE FULL
NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE METHODOLOGIES AND
ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING OR INCOMPLETE
VIEW OF SALOMON SMITH BARNEY'S FINANCIAL ANALYSES.
PUBLIC MARKET ANALYSIS. Using publicly available information, Salomon Smith
Barney analyzed the market values and trading multiples of the following three
publicly traded companies in the timeshare industry:
- Fairfield Communities, Inc.
- Sunterra Corporation
- Trendwest Resorts, Inc.
Salomon Smith Barney compared, among other things, equity values as a
multiple of estimated calendar years 1999 and 2000 earnings per share, commonly
called "EPS," and enterprise values, calculated as equity value, plus total debt
and minority interests, less cash, as multiples of latest 12 months and
estimated calendar 1999 earnings before interest, taxes, depreciation and
amortization,
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commonly called "EBITDA." All multiples were based on closing stock prices on
July 16, 1999. Estimated financial data for the selected timeshare companies
were based on publicly available research analysts' estimates and estimated
financial data for Vistana were based on internal estimates of the management of
Vistana.
Applying a range of multiples derived from the selected timeshare companies
of estimated calendar 1999 and 2000 EPS and latest 12 months and estimated
calendar 1999 EBITDA to corresponding financial data of Vistana resulted in an
implied equity reference range for Vistana of approximately $12.05 to $18.26 per
share, as compared to the equity value implied by the merger consideration of
approximately $18.56 per share based on the closing stock price of a unit of
Starwood stock on July 16, 1999.
Using publicly available information, Salomon Smith Barney also analyzed the
market values and trading multiples of Starwood and the following four publicly
traded companies in the lodging industry:
- Four Seasons Hotels Inc.
- Hilton Hotels Corporation
- Marriott International, Inc.
- Promus Hotels Corporation
Salomon Smith Barney compared, among other things, equity values as a
multiple of estimated calendar years 1999 and 2000 EPS, and enterprise values as
a multiple of latest 12 months and estimated calendar year 1999 EBITDA. All
multiples were based on closing stock prices on July 16, 1999. Estimated
financial data for Starwood and the selected lodging companies were based on
publicly available research analysts' estimates. This analysis indicated the
following implied high, low and average multiples for Starwood and the selected
lodging companies:
<TABLE>
<CAPTION>
SELECTED LODGING COMPANIES
-----------------------------------
HIGH AVERAGE LOW STARWOOD
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Estimated calendar 1999 EPS............................................. 28.9x 20.3x 12.8x 19.0x
Estimated calendar 2000 EPS............................................. 26.2x 18.1x 12.1x 15.2x
Latest 12 months EBITDA................................................. 23.6x 13.9x 7.5x 9.2x
Estimated calendar 1999 EBITDA.......................................... 23.6x 13.2x 7.3x 8.7x
</TABLE>
PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available information,
Salomon Smith Barney reviewed the purchase prices and implied transaction value
multiples paid or proposed to be paid in the following six selected transactions
in the lodging industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- - Equivest Finance Inc. - Eastern Resorts Corp.
- - Vistana - The Success Companies and Points of Colorado
- - Fairfield Communities Inc. - Vacation Break U.S.A.
- - Signature Resorts Inc. - LSI Group Holdings plc
- - Signature Resorts Inc. - Plantation Resort Group Inc.
- - Signature Resorts Inc. - AVCOM International Inc.
</TABLE>
Salomon Smith Barney compared purchase prices in the selected transactions
as a multiple of latest 12 months and one-year forward EPS, and transaction
values as a multiple of one-year forward EBITDA. All multiples were based on
publicly available financial information for the relevant transaction.
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Applying a range of multiples derived from the selected transactions of
latest 12 months EPS and one-year forward EBITDA to the latest 12 months and
estimated calendar year 1999 EPS and estimated calendar year 1999 EBITDA of
Vistana resulted in an implied equity reference range for Vistana of
approximately $14.09 to $23.96 per share, as compared to the equity value
implied by the merger consideration of approximately $18.56 per share based on
the closing stock price of a unit of Starwood stock on July 16, 1999.
NET PRESENT VALUE ANALYSIS. Salomon Smith Barney performed a net present
value analysis of selected resorts of Vistana, excluding unannounced planned
resorts under development, in order to determine the aggregate net present value
of the equity cash flows of those resorts, net of the full payment of
outstanding debt balances. Estimated financial data for the resorts were based
on internal estimates of the management of Vistana. A terminal value multiple of
5.0x was applied to the projected annualized management fee income in the final
month in which timeshare units for the selected resorts were expected to be
fully sold. The equity cash flows were then discounted to present value using
discount rates ranging from 14.0% to 18.0%. This analysis resulted in an implied
reference range for the aggregate value of the selected resorts of approximately
$8.00 to $11.12 per Vistana share. The results of this analysis are not, and
should not be interpreted as, a valuation of Vistana as a going concern.
PREMIUMS ANALYSIS. Salomon Smith Barney analyzed the premiums paid in 22
selected cash and stock merger and acquisition transactions announced since July
1, 1994 that had transaction values between $500 million and $1.0 billion. The
premiums paid in the selected transactions were calculated based on the target
company's stock price one day, one week and four weeks prior to public
announcement of the transaction. Applying a range of selected premiums derived
from the selected transactions to the closing stock price of Vistana common
stock one day, one week and four weeks prior to public announcement of the
merger resulted in an implied equity reference range for Vistana of
approximately $18.49 to $20.99 per share, as compared to the equity value
implied by the merger consideration of approximately $18.56 per share based on
the closing stock price of a unit of Starwood stock on July 16, 1999.
OTHER FACTORS. In rendering its opinion, Salomon Smith Barney also reviewed
and considered, among other things:
- a business, financial and shareholder profile of Vistana and Starwood;
- historical and current price to earnings trading multiples for Vistana and
selected timeshare companies;
- the relationship between movements in Vistana common stock and movements
in the common stock of selected companies in the lodging and timeshare
industries and the relationship between movements in units of Starwood
stock, movements in selected companies in the lodging industry and
movements in the S&P 400 Index; and
- selected analysts' reports on Starwood, including calendar years 1999 and
2000 EPS estimates of those analysts.
MISCELLANEOUS. Pursuant to the terms of its engagement, Vistana has agreed
to pay Salomon Smith Barney in connection with the delivery of its opinion an
aggregate fee of $675,000. Vistana has also agreed to reimburse Salomon Smith
Barney for its travel and other reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its legal counsel, and to indemnify Salomon
Smith Barney and related persons against liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
Salomon Smith Barney has advised Vistana that, in the ordinary course of
business, Salomon Smith Barney and its affiliates may actively trade or hold the
securities of Vistana and Starwood for their own
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account or for the account of customers and, accordingly, may at any time hold a
long or short position in those securities. Salomon Smith Barney has in the past
provided investment banking services to Vistana and Starwood unrelated to the
proposed merger, for which services Salomon Smith Barney has received
compensation. In addition, Salomon Smith Barney and its affiliates, including
Citigroup Inc. and its affiliates, may maintain relationships with Vistana,
Starwood and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by Vistana based on its experience, expertise and
familiarity with Vistana and its business. Salomon Smith Barney regularly
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
EMPLOYMENT AGREEMENTS
JEFFREY A. ADLER. Mr. Adler serves as President of Vistana pursuant to the
terms of an employment agreement dated as of December 27, 1996 between Mr. Adler
and Vistana. Under the agreement, Mr. Adler is entitled to a base salary of
$430,000 per year, which is to be automatically increased each year by the
percentage increase in the Consumer Price Index and which may be further
increased from time to time by the Vistana board. The agreement also provides
that Mr. Adler shall be paid an annual bonus of up to 100% of adjusted base
salary, to be determined under a formula similar to that used by Vistana to
determine the annual bonuses for other senior executive officers. Under the
agreement, Mr. Adler is entitled to the employee benefits generally made
available by Vistana to similar level management employees including pension or
other retirement benefits, health, hospitalization and similar insurance and
group or individual life insurance.
The initial term of Mr. Adler's employment agreement is for four years
beginning on the completion of Vistana's public offering of its common stock in
March, 1997. The term may be extended by written agreement of Mr. Adler and
Vistana. If Mr. Adler's employment is terminated during the term of the
agreement for any reason, he will be entitled only to the compensation and
benefits provided under the agreement through the date of his termination and
will not be entitled to any additional severance pay.
The agreement generally restricts Mr. Adler from disclosing confidential
information of Vistana during or after the term of the agreement and from
competing with Vistana or soliciting any employees of Vistana for a period of
two years following the termination of his employment.
Mr. Adler and Vistana have entered into a new employment agreement dated
July 18, 1999 that will become effective and will supersede the employment
agreement dated December 27, 1996 on the effective date of the merger. Under the
new employment agreement, Mr. Adler will serve as President and Co-Chief
Executive Officer of Vistana and shall, with Mr. Gellein, be one of the two
highest ranking time-share executives within the Starwood group. Mr. Adler will
report to the Chief Executive Officer or Chief Operating Officer of Starwood or
Starwood's Hotel Group. Under the new employment agreement, Mr. Adler will be
entitled to a base salary of $430,000 per year, which may be increased from time
to time by the Vistana board. Mr. Adler is also entitled to an annual bonus
which, for 1999, will be determined under the terms of Vistana's Annual
Performance Incentive Plan as in effect on July 18, 1999 and using the payout
percentages in effect on such date, but with EPS goals converted to EBITDA goals
and exclusion of the transaction costs of the merger and other extraordinary
items. For 2000 and future years, Mr. Adler's annual bonus will be determined
under Starwood's annual incentive plan with a target bonus equal to 100% of base
salary. Performance targets and measures applicable to Mr. Adler's annual bonus
for 2000 and future years are to be agreed upon by Starwood and Mr. Adler based
upon achievement of Vistana's budget and Starwood's objectives. The new
employment agreement also provides that Mr. Adler is to be provided cash
long-term
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incentive compensation opportunities in accordance with Starwood's executive
compensation policies. In addition, Mr. Adler is to be granted nonqualified
options under Starwood's 1999 Long-Term Incentive Compensation Plan for not less
than 100,000 units in equal installments of not less than 25,000 units annually
over the term of the new employment agreement beginning on the effective date of
the merger and on subsequent anniversaries thereof. Such options will have a
ten-year term, will become exercisable at the rate of 25% per year beginning on
the first anniversary on the date of grant and will be governed by the terms of
Starwood's 1999 Long-Term Incentive Compensation Plan.
The term of the new employment agreement is for four years beginning on the
effective date of the merger, subject to automatic extension for additional
one-year periods unless either Vistana or Mr. Adler shall give written notice to
the contrary to the other party not less than 90 days prior to the date on which
the term would otherwise be extended. The new employment agreement also provides
that Mr. Adler is to receive credit for his service with Vistana prior to the
effective date of the merger for purposes of his entitlement to employee
benefits following the effective date of the merger. Mr. Adler is also entitled
to be reimbursed by Vistana for his reasonable attorneys' fees incurred in the
negotiation of the new employment agreement.
In the event Mr. Adler's employment is terminated during the term of the new
employment agreement, Mr. Adler will be entitled to the following benefits and
payments:
1. If Mr. Adler's employment is terminated by Vistana for "cause," his
base salary would be prorated through the date of termination.
2. If Mr. Adler's employment is terminated by Vistana without cause or
by Mr. Adler for "good reason", (i) his base salary would be prorated
through the date of termination, (ii) his annual bonus earned for the year
in which his employment terminates, if any, would be prorated through the
date of termination, (iii) the vesting of his stock options and other
employee benefits subject to vesting would be accelerated, (iv) the Company
would pay his COBRA health insurance premiums for 12 months thereafter and
(v) his base salary would continue for 12 months after his termination date.
3. If Mr. Adler's employment is terminated by his voluntary resignation,
his base salary would be prorated through the date of termination.
4. If Mr. Adler's employment is terminated for any other reason, such as
by reason of Mr. Adler's death or permanent disability, he or a beneficiary
designated by Mr. Adler would receive his base salary prorated through the
date of termination plus his annual bonus earned for the year in which his
employment terminates, if any, prorated through the date of termination.
"Good reason" is defined to include (i) any reduction in Mr. Adler's
authority, title or rank, with Mr. Gellein, as one of the two highest ranking
time-share executives within the Starwood group, (ii) any change in Mr. Adler's
reporting relationship, (iii) relocation of Mr. Adler's place of employment more
than 35 miles from its current location, provided that Mr. Adler is to spend
such time as reasonably necessary in connection with Vistana's business at
Starwood's principal executive offices without being deemed to be relocated, or
(iv) any material breach by Vistana or Starwood of the new employment agreement.
"Cause" is defined as (a) the commission of an act of fraud, embezzlement or
willful breach of a fiduciary duty to Vistana or Starwood (including, but not
limited to, the unauthorized disclosure of confidential or proprietary material
information of Vistana or Starwood); (b) the commission of a breach of any
material covenant, provision, term, condition, understanding or undertaking set
forth in his employment agreement; (c) the commission (other than in the
capacity as an agent of the Vistana) of a crime constituting a felony under
applicable law (or a plea of NOLO CONTENDERE in lieu thereof); (d) the exposure
of Vistana, Starwood or any of their affiliates to any civil liability which is
determined by an arbitrator or court in a final and nonappealable decision to
constitute unlawful discrimination or
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harassment in employment; (e) any gross negligence or willful misconduct in the
performance of his duties to Vistana where such conduct results in a material
detriment to Vistana; or (f) habitual abuse of alcohol or any use by the
employee of an unlawful controlled substance (other than use in compliance with
a current prescription); PROVIDED, HOWEVER, that in the event of a termination
falling solely within clause (b) of this definition (and excluding termination
for breach of the confidentiality, non-competition or non-solicitation
provisions), Vistana, prior to terminating the employee's employment, will give
the employee written notice of the conduct or event that Vistana asserts
constitutes a breach of a material covenant, provision, term, condition,
understanding or undertaking and afford the employee 15 days after receipt of
such notice to cure such breach; PROVIDED FURTHER, that the employee will be
deemed terminated for cause unless any such breach is cured within such 15-day
period.
The new employment agreement also generally restricts Mr. Adler from
disclosing confidential information of Vistana, Starwood or any member of the
Starwood group during or after the term of the agreement and from competing with
Vistana or with the time-share business of the Starwood group or soliciting the
employees of Vistana, Starwood or any member of the Starwood group for a period
equal to the longer of two years following the termination of his employment or
six years following the effective date of the merger.
The new employment agreement provides for binding arbitration of any
disputes between Mr. Adler and Vistana thereunder, other than disputes regarding
the confidentiality, noncompetition and nonsolicitation provisions.
RAYMOND L. GELLEIN, JR. Mr. Gellein serves as Chairman of the Board of
Vistana pursuant to the terms of an employment agreement dated as of December
27, 1996 between Mr. Gellein and Vistana that is substantially identical to that
of Mr. Adler. Mr. Gellein and Vistana have entered into a new employment
agreement dated July 18, 1999 that will become effective and will supersede the
employment agreement dated December 27, 1996 on the effective date of the
merger. Under the new employment agreement, which is substantially identical to
Mr. Adler's, Mr. Gellein will serve as Chairman and Co-Chief Executive Officer
of Vistana and shall, with Mr. Adler, be one of the two highest ranking
time-share executives within the Starwood group.
CHANGE OF CONTROL PROVISIONS IN EXECUTIVE OFFICER AGREEMENTS
Vistana has employment agreements with the following executive officers of
Vistana that contain change of control provisions:
NAME AND PRINCIPAL POSITION
Charles E. Harris
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
Susan Werth
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Under the terms of the employment agreement with Mr. Harris, dated as of
November 18, 1997, if Mr. Harris voluntarily terminates employment with Vistana
within 90 days after a change of control, Mr. Harris is entitled to receive a
payment equal to three times the sum of his then-current annual base salary and
the higher of (i) his annual bonus payment for the immediately preceding year
and (ii) his annual bonus payment for the year in which the change of control
occurs, plus an amount equal to certain taxes required to be paid by Mr. Harris
in connection with his receipt of the change of control payment and the
acceleration of any of the stock options granted to him by Vistana or its
controlling shareholders.
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<PAGE>
Under the terms of the employment agreement with Ms. Werth, dated December
27, 1996, if Ms. Werth voluntarily terminates employment with Vistana within 90
days after a change of control, Ms. Werth is entitled to receive a payment equal
to 120% of her then-current base salary multiplied by two.
For purposes of Mr. Harris' and Ms. Werth's employment agreements, "change
of control" is defined as the occurrence of any one of the following events:
- any (A) consolidation or merger of Vistana in which Vistana is not the
continuing or surviving corporation or which contemplates that all or
substantially all of the business and/or assets of Vistana will be
controlled by another corporation or (B) a recapitalization (including an
exchange of Vistana equity securities), in either case, in which any
"person" (as used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934), other than the controlling shareholders of Vistana
(identified in the agreement as Mr. Gellein, Mr. Adler and the JGG
Holdings Trust), becomes the beneficial owner (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934) of securities of Vistana
representing more than 50% of the combined voting power of Vistana's
then-outstanding securities ordinarily having the right to vote in the
election of directors;
- any sale, lease, exchange or transfer (in one transaction or a series of
transactions) of all or substantially all the assets of Vistana and its
affiliates;
- approval by the shareholders of Vistana of any plan or proposal for
liquidation or dissolution of the Company, unless such plan or proposal is
abandoned within 60 days following such approval; or
- any "person" (as used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) other than the controlling shareholders of Vistana
(identified in the agreement as Mr. Gellein, Mr. Adler and the JGG
Holdings Trust) becomes the beneficial owner of securities of Vistana
representing more than 50% of the combined voting power of Vistana's
then-outstanding securities ordinarily having the right to vote in the
election of directors.
Mr. Harris and Ms. Werth have entered into stay agreements with Vistana
pursuant to which they have waived their rights to receive severance under their
employment agreements upon a change of control (see "Interests of Certain
Persons in the Merger--Stock Options--Stay Agreements).
STOCK OPTIONS
VISTANA STOCK OPTIONS. No later than the effective time, each outstanding
option granted by Vistana under its stock option plan to purchase shares of
Vistana common stock will be assumed by Starwood and will constitute an option
to acquire, on the same terms and subject to the same conditions as applied to
the Vistana stock option prior to the effective time, the number, rounded to the
nearest whole number, of shares of Starwood units determined by multiplying:
- the number of shares of Vistana common stock subject to the option
immediately before the effective time, by
- the exchange ratio.
The exercise price of each of these options will be a price per share equal
to the difference between:
- the exercise price per share of Vistana common stock immediately before
the effective time divided by the exchange ratio, and
- $5.00 divided by the exchange ratio.
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Except as described above with regard to the conversion of Vistana options
into options to purchase units of Starwood stock, the merger will not materially
affect options granted the Vistana employees, including Vistana executive
officers or non-employee directors of Vistana. The Vistana stock option plan
will continue to govern the substitute options. Under the terms of the plan,
Vistana options granted that are not exercisable prior to the effective time of
the merger will become exercisable at the time of the merger.
Prior to the effective time, Vistana intends to reduce the exercise price of
stock options granted by Vistana to Charles E. Harris to purchase 180,000 shares
of Vistana common stock from $24.625 per share to $12.00 per share. In addition,
Messrs. Gellein and Adler intend to reduce the exercise price of certain stock
options granted by them to several Vistana employees with respect to Vistana
common stock that they own, provided that, in order to receive the increased
spread resulting from such reductions, the merger must occur and the respective
employee must continue to be employed at the time of the payment. In addition,
the increased spread resulting from the reduction in those exercise prices shall
be payable in annual installments ranging from two to four years after the
merger, depending upon the employee. Specifically with respect to the executive
officers of Vistana, Messrs. Gellein and Adler intend to reduce the exercise
price of the stock option granted to (1) Charles E. Harris to purchase 400,000
shares of Vistana stock from $24.625 per share to $12.00 per share, with 50% of
the increased spread being payable at the time of the merger and 50% being
payable in two equal annual installments beginning with the first anniversary of
the merger, and (2) Susan Werth to purchase 125,000 shares of Vistana stock from
$12.00 to $9.60 per share, with the increased spread being payable in three
equal annual installments beginning with the first anniversary of the merger.
STARWOOD STOCK OPTIONS. In addition to those options to purchase Starwood
units granted to Messrs. Gellein and Adler pursuant to their new employment
agreements, at the effective time, Starwood will grant options to purchase
Starwood units under Starwood's 1999 Long-Term Incentive Compensation Plan to
the following executive officers of Vistana:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION NUMBER OF UNITS
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Charles E. Harris............................................................ 200,000
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
Susan Werth.................................................................. 75,000
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Mark E. Patten............................................................... 30,000
VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
</TABLE>
Each of these options will remain in effect for 10 years and will become
exercisable at a rate of 25% per year beginning on the first anniversary of the
date of grant. The exercise price will be the fair market value of Starwood
units on the date of grant.
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<PAGE>
STAY AGREEMENTS. Vistana has entered into stay agreements that will provide
for the payment of a one-time cash bonus to each of the following executive
officers of Vistana:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION CASH BONUS AMOUNT
- ------------------------------------------------------------------------- -------------------
<S> <C>
Charles E. Harris........................................................ $ 2,110,000
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
Susan Werth.............................................................. $ 660,000
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Mark E. Patten........................................................... $ 150,000
VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
</TABLE>
With respect to Mr. Harris and Ms. Werth, the cash bonus will be payable if the
individual waives his or her rights to receive severance under his or her
employment agreement upon a change of control resulting from the merger and
either (1) continues to be employed by Vistana through the effective date of the
merger and enters into an amendment to his or her employment agreement extending
the term of the employment agreement for a specified period after the effective
date of the merger or (2) the individual is terminated without cause prior to
the effective date and the merger takes place. With respect to Mr. Patten, the
cash bonus will be payable if (a) he continues to be employed by Vistana through
the six month anniversary of the effective date of the merger and enters into an
amendment to his employment agreement extending the term of the employment
agreement for a specified period after the effective date of the merger or (b)
he is terminated without cause prior to the six-month anniversary of the
effective date of the merger.
EXTENSION OF EMPLOYMENT AGREEMENTS. Vistana intends to enter into
amendments of the existing employment agreements with the following executive
officers of Vistana extending the terms of these employment agreements as
provided below:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION EXTENSION
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Charles E. Harris.................................................................. 4 years
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
Susan Werth........................................................................ 4 years
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Mark E. Patten..................................................................... 4 years
VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
</TABLE>
TAX GROSS-UP PAYMENT. Vistana (or the surviving corporation in the merger)
will pay Charles E. Harris an amount equal to the total federal excise tax
amount payable by Mr. Harris as a result of (i) his $2,110,000 stay bonus, (ii)
any gain attributable to the stock options granted to Mr. Harris by Vistana or
Messrs. Gellein and Adler and (iii) other compensation and benefits paid under
the terms of his employment agreement dated November 18, 1997. See "Interests of
Certain Persons in the Merger--Stock Options" and "--Stay Agreements."
EFFECTIVE TIME OF THE MERGER
On the day of the closing of the merger, which will occur no later than the
second business day after satisfaction or waiver of all the conditions to the
merger, the merger will become effective upon filing of the articles of merger
with the Department of State of the State of Florida (or on such later date and
time as may be specified in the articles of merger). See "The Merger Agreement--
Conditions."
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ARTICLES OF INCORPORATION AND BYLAWS
At the effective time, the articles of incorporation and bylaws of the
merger sub as in effect immediately prior to the effective time will be the
articles of incorporation and bylaws of the surviving corporation (except that
the articles of incorporation shall be amended at the effective time to provide
that the name of the surviving corporation will be "Vistana, Inc.") until
thereafter changed or amended as provided in the articles of incorporation or by
applicable law. The directors of the merger sub will be the directors of the
surviving corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified.
The merger agreement provides that the articles of incorporation of the
surviving corporation will contain provisions with respect to indemnification
and exculpation from liability of officers and directors to the extent set forth
in Vistana's articles of incorporation on the date of the merger agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the merger and certain additional federal income tax consequences of owning
units of Starwood stock. This summary is based upon the Code, applicable
Treasury Regulations under the Code and judicial and administrative
interpretations of the Code, all of which are subject to change, including
changes that may be retroactive. This summary does not purport to deal with all
aspects of taxation that may be relevant to shareholders of Vistana in light of
their personal investment or tax circumstances. Except as specifically provided,
the discussion below does not address foreign, state, or local tax consequences,
nor does it specifically address the tax consequences to taxpayers subject to
special treatment under the federal income tax laws. The discussion below
assumes that the shares of Vistana common stock and the units of Starwood stock
(each of which consists of one share of common stock of Starwood (a "Common
Share") and one class B share of the Trust (a "Class B Share")) are, as of the
effective time, held as "capital assets" within the meaning of Section 1221 of
the Code.
Sidley & Austin, counsel for Starwood, is opining on certain federal income
tax consequences of the merger for Starwood and Battle Fowler LLP, counsel for
Vistana, is opining on certain federal income tax consequences of the merger for
Vistana shareholders. These opinions have been filed as exhibits to the
registration statement of which this information statement/prospectus is a part.
Sidley & Austin's and Battle Fowler LLP's opinions rely upon and are premised
on, without independent investigation, the accuracy of factual statements and
representations made by Starwood and Vistana, which statements and
representations are incorporated by reference into Sidley & Austin's and Battle
Fowler LLP's opinion letters.
WE URGE EACH OF YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF THE MERGER.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. In the opinion of Sidley &
Austin, counsel to Starwood, and Battle Fowler LLP, counsel to Vistana, the
merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. Accordingly, no gain or loss
will be recognized by Vistana, Starwood or the shareholders of Starwood as a
result of the merger.
You will recognize gain, but not loss, on the exchange of your shares of
Vistana common stock for the merger consideration in an amount equal to the
lesser of (a) the gain realized on the exchange (I.E., the amount by which the
sum of the cash (excluding any cash received in lieu of a fractional Common
Share) and the fair market value as of the date of the effective time of the
units of Starwood stock received exceeds your adjusted tax basis in your shares
of Vistana stock) and (b) the amount of cash (including any cash received
instead of a fractional Class B Share but not including any cash received
instead of a fractional Common Share) and the fair market value of the Class B
Shares you receive.
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<PAGE>
Any gain recognized by you will constitute capital gain. If you are an
individual, then you may be entitled to lower capital gains tax rates, if you
have held your shares of Vistana common stock for more than one year as of the
effective time. In general, your aggregate tax basis in your Common Shares
(including the fractional Common Share for which cash is received) will be equal
to your aggregate tax basis in the Vistana shares you exchange, decreased by the
amount of cash (including any cash received instead of a fractional Class B
Share but not including any cash received instead of a fractional Common Share)
and the fair market value of the Class B Shares you receive and increased by the
amount of any gain recognized by you by reason of the receipt of such cash and
the Class B Shares. In addition, you should recognize capital gain or loss in an
amount equal to the difference, if any, between the amount of any cash received
instead of a fractional Common Share and the basis allocable to the fractional
Common Share. Your tax basis in your Class B Shares will be the fair market
value of the Class B Shares as of the effective time. Your holding period for
the Common Shares you receive (including the fractional Common Share for which
cash is received) will include the holding period of the Vistana shares you
exchange. Starwood will tell you the approximate fair market value, as of the
effective time, of the Class B Shares that you receive. Based on current market
conditions and Starwood's current financial condition, Starwood expects that the
value of each Class B Share as of the effective time should be approximately
$4.50.
FEDERAL INCOME TAXATION OF HOLDERS OF UNITS OF STARWOOD STOCK
FEDERAL INCOME TAXATION OF TAXABLE U.S. HOLDERS OF UNITS OF STARWOOD
STOCK. As used herein, the term "U.S. Shareholder" means a holder of units of
Starwood stock who is: (i) a citizen or resident of the United States; (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof; or (iii) any
estate or trust described in Section 7701(a)(30) of the Code (taking into
account effective dates, transition rules and elections). As long as the Trust
qualifies as a REIT, distributions made by the Trust to U.S. Shareholders up to
the amount of the Trust's current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by U.S.
Shareholders as ordinary income and will not be eligible for the
dividends-received deduction for corporations. Distributions that are properly
designated by the Trust as capital gain dividends will be taxed as long-term
capital gain (to the extent they do not exceed the Trust's actual net capital
gain for the taxable year) without regard to the period for which the U.S.
Shareholders have held their stock. Any dividend declared by the Trust in
October, November or December of any year payable to a U.S. Shareholder of
record on a specified date in any such month will be treated as both paid by the
Trust and received by the U.S. Shareholder on December 31 of such year, provided
that the dividend is actually paid by the Trust during January of the following
calendar year.
If the Trust elects to retain and pay tax on its net capital gains, the
Trust's U.S. Shareholders will be required to include their proportionate share
of the undistributed long-term capital gains in income and will receive a credit
for their share of the tax paid by the Trust. The basis of the Trust's U.S.
Shareholders' Class B Shares will be increased by a corresponding amount.
In general, a U.S. Shareholder will recognize capital gain or loss on the
disposition of units of Starwood stock equal to the difference between the
amount realized on such disposition and the U.S. Shareholder's adjusted basis in
those units. Such gain or loss will generally constitute long-term capital gain
or loss if the U.S. Shareholder held the units of Starwood stock for more than
one year. However, any loss upon a sale or exchange of Class B Shares by a U.S.
Shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from the Trust that are treated by such U.S. Shareholder
as long-term capital gain.
FEDERAL INCOME TAXATION OF TAX-EXEMPT HOLDERS OF UNITS OF STARWOOD
STOCK. In general, distributions by the Trust will not, subject to certain
exceptions, be unrelated business taxable income
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<PAGE>
("UBTI") to a qualified plan, IRA or other tax-exempt entity (a "Tax-Exempt
Shareholder") provided the Tax-Exempt Shareholder has not held its Class B
Shares as "debt financed property" within the meaning of the Code. Similarly,
income from the sale of the Class B Shares or Common Shares will not, subject to
certain exceptions, constitute UBTI unless the Tax-Exempt Shareholder has held
such Class B Shares or Common Shares as a dealer (under Section 512(b)(5)(B) of
the Code) or as "debt-financed property" within the meaning of Section 514 of
the Code.
FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS OF UNITS OF STARWOOD STOCK. The
rules governing the federal income taxation of the ownership and disposition of
stock by persons that are, for purposes of such taxation, non-resident alien
individuals, foreign corporations, foreign partnerships, or foreign estates or
trusts (collectively, "Non-U.S. Shareholders") are complex, and no attempt is
made herein to provide more than a brief summary of such rules.
Treasury Regulations were issued on October 14, 1997 (the "1997 Final
Regulations") that will affect the United States federal income taxation of
distributions by the Trust to Non-U.S. Shareholders. The 1997 Final Regulations
are generally effective for payments made after December 31, 2000. In addition,
the 1997 Final Regulations will replace a number of current tax certification
forms (including IRS Form W-8 and IRS Form 4224) with a single, revised IRS Form
W-8 (which, in certain circumstances, requires more information than previously
required). The discussion below does not include a complete discussion of the
1997 Final Regulations, and prospective Non-U.S. Shareholders are urged to
consult their tax advisors concerning the tax consequences of their investment
in light of the 1997 Final Regulations.
In general, a Non-U.S. Shareholder will be subject to regular United States
income tax with respect to its investment in units of Starwood stock if the
income or gain attributable to such investment is "effectively connected" with
the Non-U.S. Shareholder's conduct of a trade or business in the United States.
A corporate Non-U.S. Shareholder that receives income that is (or is treated as)
effectively connected with a United States trade or business may also be subject
to the branch profits tax under Section 884 of the Code, which is payable in
addition to regular United States corporate income tax. The following discussion
will apply to Non-U.S. Shareholders whose income or gain attributable to such
investment in units of Starwood stock is not so effectively connected.
DISTRIBUTIONS. Distributions by the Trust to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Trust of United
States real property interests nor designated by the Trust as capital gains
dividends will be treated as dividends of ordinary income. The Trust expects to
withhold United States income tax at the rate of 30% on the gross amount of any
distributions made to a Non-U.S. Shareholder unless (i) a lower rate is provided
for under an applicable tax treaty and the shareholder files the required form
evidencing eligibility for that reduced rate with the Trust or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 (or, pursuant to the 1997 Final Regulations,
a revised IRS Form W-8) with the Trust claiming that the distribution is
"effectively connected" income.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Trust of United States real property interests will
cause the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders will thus generally be taxed at the same rates applicable to U.S.
Shareholders. Also, such gain will be subject to a 30% branch profits tax in the
hands of a Non-U.S. Shareholder that is a corporation and that is not entitled
to an exemption under a tax treaty. The Trust is required to withhold and remit
to the IRS 35% of any distribution that could be designated a capital gains
dividend. That amount is creditable against the Non-U.S. Shareholder's United
States federal income tax liability.
SALE OF UNITS OF STARWOOD STOCK. Gain recognized by a Non-U.S. Shareholder
upon a sale or other disposition of units of Starwood stock generally will not
be subject to United States federal income tax
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<PAGE>
if (i) in the case of Class B Shares, the Trust is a "domestically controlled
REIT" or (ii)(a) the units of Starwood stock are regularly traded on an
established securities market (such as the New York Stock Exchange, where the
units of Starwood stock are traded) and (b) the selling Non-U.S. Shareholder
held 5% or less of the outstanding units of Starwood stock at all times during
the specified period, unless, in the case of a Non-U.S. Shareholder who is a
non-resident alien individual, such individual is present in the United States
for 183 days or more and certain other conditions apply. A domestically
controlled REIT is defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Trust believes that it qualifies as a
domestically controlled REIT.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. Under certain
circumstances, U.S. Shareholders will be subject to backup withholding at a rate
of 31% on payments made with respect to, or on cash proceeds of a sale or
exchange of, units of Starwood stock. Backup withholding will apply only if the
holder: (i) fails to furnish its taxpayer identification number ("TIN") (which,
for an individual, would be his or her Social Security number); (ii) furnishes
an incorrect TIN; (iii) is notified by the IRS that the holder has failed to
report properly payments of interest and dividends; or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that the holder has
furnished a correct TIN and has not been notified by the IRS that the holder is
subject to backup withholding for failure to report interest and dividend
payments. Backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax-exempt organizations. In
addition, the Trust will be required to withhold a portion of capital gain
distributions made to any holders who fail to certify their non-foreign status.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting, in
accordance with generally accepted accounting principles (commonly called
"GAAP"). Under the purchase method of accounting, the aggregate consideration
paid by Starwood for the shares of Vistana common stock, together with the
direct costs of the merger, will be allocated to the assets acquired and
liabilities assumed based upon their estimated relative fair values, with the
excess consideration allocated to goodwill. The results of Starwood's operations
will include the results of operations of Vistana from the date of completion of
the merger.
REGULATORY APPROVALS
Because of the nature of Vistana's business, certain filings must be made
with and certain approvals must be obtained from government authorities,
relating to federal and state land development, mortgage servicing and
telemarketing laws, state time share laws, state securities laws applicable to
the sale or offer of vacation ownership interests, and seller of travel and
travel agency laws. We believe that all material notifications, filings and
approvals have been made or obtained, or will be made or obtained prior to the
date of the merger (or, if appropriate, after the merger is effective).
LISTING OF UNITS OF STARWOOD STOCK ON THE NYSE
In the merger agreement, Starwood has agreed to use all reasonable efforts
to cause the units of Starwood stock which are to be issued pursuant to the
merger agreement and upon exercise of options granted to employees of Vistana
and its subsidiaries to be listed for trading on the New York Stock Exchange.
Such authorization for listing is a condition to the obligations of Starwood,
the merger sub and Vistana to consummate the merger.
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<PAGE>
RESALE OF UNITS OF STARWOOD STOCK ISSUED IN THE MERGER; AFFILIATES
The units of Starwood stock to be issued to Vistana shareholders in
connection with the merger will be freely transferable under the Securities Act
of 1933, as amended, except for units of Starwood stock issued to any person
deemed to be an affiliate of Vistana for purposes of Rule 145 under the
Securities Act of 1933, as amended, at the time of the execution and delivery of
the written consent by the controlling shareholders on July 18, 1999. Those
affiliates may not sell their units of Starwood stock acquired in connection
with the merger except pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering such shares, or in compliance with
Rule 145 promulgated under the Securities Act of 1933, as amended, or another
applicable exemption from the registration requirements of the Securities Act of
1933, as amended.
Pursuant to the merger agreement, Vistana has delivered to Starwood a letter
identifying all persons who at the time of the execution and delivery of the
written consent may be deemed to be affiliates under Rule 145. Vistana has
further agreed to use its best efforts to cause each person who is so identified
as an affiliate in such letter to deliver to Starwood on or prior to the
effective time a written agreement that such affiliate will not sell, pledge,
transfer or otherwise dispose of any units of Starwood stock received in the
merger in violation of the Securities Act of 1933, as amended. In addition, the
units of Starwood stock received in the merger by Messrs. Gellein and Adler and
certain of their affiliates are subject to additional restrictions on transfer
set forth in the shareholders agreements (see "Shareholders Agreements") and may
be subject to additional restrictions on transfer under the Securities Act of
1933, as amended.
NO APPRAISAL RIGHTS
Under Florida law, shareholders of a company whose shares are traded as
Nasdaq National Market securities are not entitled to appraisal rights in a
merger. Accordingly, holders of Vistana stock are not entitled to appraisal
rights in connection with the merger because the shares of Vistana common stock
are designated as Nasdaq National Market securities.
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THE MERGER AGREEMENT
In this section of the information statement/prospectus, we describe the
material provisions of the merger agreement. We have attached a copy of the
merger agreement as Appendix A to this information statement/prospectus and
incorporate the merger agreement into this information statement/prospectus by
reference. The summary of the merger agreement we provide below is qualified in
its entirety by reference to the merger agreement. We encourage you to read the
merger agreement because it is the legal document that governs the merger.
THE MERGER
Under the terms and subject to the conditions set forth in the merger
agreement, Vistana will merge with and into the merger sub, with the merger sub
continuing as the surviving corporation. The surviving corporation will be a
wholly owned subsidiary of Starwood after the merger, and will have the name
"Vistana, Inc."
CONSIDERATION TO BE RECEIVED IN THE MERGER; EXCHANGE RATIO
At the effective time, each share of Vistana common stock, except for
treasury stock and stock held by Starwood, the merger sub or any wholly owned
subsidiary of Vistana or Starwood, will be converted into the right to receive
$5.00 in cash and a fraction of a unit of Starwood stock equal to the applicable
exchange ratio. The exchange ratio is based on the average trading price (I.E.,
the average of the high and low prices for each trading day) of units of
Starwood stock on the New York Stock Exchange over a twenty-trading-day period
ending on the sixth trading day prior to the effective time. The exchange ratio
will be:
- .4667, if the average trading price of a unit of Starwood stock is $30 or
less;
- $14.00 divided by the average trading price of a unit of Starwood stock,
if the average trading price of a unit of Starwood stock is greater than
$30 but less than $36; or
- .3889, if the average trading price of a unit of Starwood stock is $36 or
greater.
As of the effective time, all shares of Vistana common stock to be exchanged
for the merger consideration will be automatically canceled and will cease to
exist, and each holder of a certificate representing any of these shares will
cease to have any rights in respect of those shares except the right to receive
the merger consideration. See "Procedures for Surrender of Vistana Certificates;
Fractional Shares." The merger consideration was determined through arms'-length
negotiations between Vistana and Starwood.
TREATMENT OF VISTANA STOCK HELD BY VISTANA, STARWOOD AND MERGER SUB. Each
share of Vistana stock held by Vistana as treasury stock, by Starwood, by the
merger sub or by any wholly owned subsidiary of Starwood or Vistana shall be
canceled and no cash, units of Starwood stock or other consideration shall be
delivered in exchange for such shares.
PROCEDURES FOR SURRENDER OF VISTANA CERTIFICATES; FRACTIONAL SHARES
SURRENDER OF VISTANA CERTIFICATES. As soon as practicable after the
effective time, ChaseMellon Shareholder Services, L.L.C., Ridgefield, New
Jersey, Starwood's exchange agent for the merger, will send a letter of
transmittal and instructions with respect to the surrender by Vistana
shareholders of their Vistana stock certificates to each former Vistana
shareholder. Starwood will deposit with ChaseMellon certificates representing
the units of Starwood stock to be issued in the merger, and will make available
to ChaseMellon, as required from time to time by ChaseMellon, cash merger
consideration, cash payable in lieu of fractional units of Starwood stock, and
cash or other property to make dividend or other payments (as provided in the
merger agreement). The certificates and cash remaining after one year will be
returned to Starwood, and the former holders of Vistana stock shall
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thereafter look only to Starwood, and not to ChaseMellon, for payment of their
claim for cash and units of Starwood stock.
Upon surrender by the Vistana shareholders of their stock certificates
representing shares of Vistana stock together with a duly executed letter of
transmittal and other documents, the Vistana shareholders will be entitled to
receive the cash merger consideration and stock certificates representing whole
units of Starwood stock which such holder has the right to receive pursuant to
the merger agreement in respect of shares of Vistana stock formerly evidenced by
such Vistana certificate, together with a cash payment in lieu of fractional
units of Starwood stock, if any.
After the merger, until so surrendered to the exchange agent, each
certificate that previously represented shares of Vistana stock will represent
only the right to receive upon surrender the cash merger consideration and a
certificate evidencing whole shares of Starwood common stock into which such
shares of Vistana stock were converted in the merger and cash in lieu of
fractional units of Starwood stock, if any.
Holders of certificates previously representing shares of Vistana stock will
not be paid any cash merger consideration, cash in lieu of fractional units of
Starwood stock or dividends or other distributions payable to holders of record
of units of Starwood stock as of any record date after the effective time, until
their certificates are surrendered to the exchange agent. When such certificates
are surrendered, any cash merger consideration, any cash in lieu of fractional
units of Starwood stock and any unpaid dividends with a record date after the
effective time but prior to such surrender (however such unpaid dividends will
be paid on the payment date for such dividends, if later than the time when the
certificates are surrendered) with respect to whole units of Starwood stock will
be paid without interest.
We will close Vistana's stock transfer books at the effective time, and no
further transfers of shares of Vistana stock will be recorded on its stock
transfer books. If a transfer of ownership of Vistana stock that is not
registered in the transfer records of Vistana has occurred, a certificate
representing the proper number of units of Starwood stock will be issued to a
person other than the person in whose name the certificate so surrendered is
registered, together with the cash merger consideration, a cash payment in lieu
of fractional units of Starwood stock, if any, and payment of dividends or
distributions, if any, so long as the Vistana stock certificates are accompanied
by all documents required to evidence and effect the transfer and the person
requesting such payment pays any transfer or other taxes required by reason of
the issuance of units of Starwood stock or establishes to Starwood's
satisfaction that such taxes have been paid.
FRACTIONAL SHARES. No fractional units of Starwood stock will be issued to
any Vistana shareholder upon surrender of certificates previously representing
Vistana stock. Instead, the exchange agent will pay to each of those
shareholders an amount in cash determined by multiplying the fractional unit
interest to which the holder would otherwise be entitled by the closing sale
price of a unit of Starwood stock on the New York Stock Exchange composite tape
on the date of the effective time.
REPRESENTATIONS AND WARRANTIES
Starwood, the merger sub and Vistana have made representations and
warranties in the merger agreement relating to, among other things:
- their corporate organization, standing and power;
- their capital structures;
- the authorization, execution, delivery, and enforceability of the merger
agreement and related matters, including approval of the merger agreement
and the merger by the Starwood board, the Vistana board and the
controlling shareholders of Vistana, and the absence of a requirement for
a shareholder vote in connection with the merger agreement and the merger;
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- required consents, approvals, orders and authorizations of governmental
authorities relating to, and non-contravention of certain agreements as a
result of, the merger agreement;
- documents filed by each of Starwood and Vistana with the SEC and the
accuracy of the information contained in such documents;
- absence of certain material changes or events with respect to Vistana and
Starwood since December 31, 1998;
- compliance with applicable laws, permits and licensing requirements;
- qualification of the merger as a reorganization for tax purposes;
- engagement of and payment of fees to brokers, investment bankers, finders
and financial advisors in connection with the merger agreement; and
- accuracy of information to be provided in this information
statement/prospectus.
The merger agreement also contains certain representations and warranties of
Vistana, relating to, among other things:
- taxes and tax returns;
- litigation and other proceedings;
- employee benefit plans and compliance with the Employee Retirement Income
Security Act of 1974;
- the absence of undisclosed liabilities;
- intellectual property;
- properties, title to properties and related matters, including matters
specific to Vistana's business;
- customer warranties;
- environmental matters;
- insurance;
- mortgages receivable;
- excess parachute payments;
- the opinion of its financial advisor; and
- exemption of the merger from the requirements of Sections 607.0901 through
607.0903 of the Florida Business Corporation Act, and the inapplicability
of other state takeover laws.
The representations and warranties made by the parties to the merger
agreement will not survive the effective time, but they form the basis of a
condition to closing regarding the obligations of Starwood and the merger sub,
on the one hand, and Vistana, on the other hand. Certain of these
representations and warranties are also the basis for the representations and
warranties contained in the shareholders agreements, as described below, which
will survive the effective time.
COVENANTS
CONDUCT OF BUSINESS PENDING THE MERGER. The merger agreement provides that,
except as contemplated by the merger agreement or unless Starwood agrees in
writing, Vistana will carry on its business in the usual, regular and ordinary
course in substantially the same manner as conducted in the past, and, except as
contemplated by the merger agreement, will not, among other things, without the
written consent of Starwood:
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- declare or pay any dividends, or purchase or redeem any shares of capital
stock (including options) or other securities;
- except for shares of Vistana common stock issued pursuant to a certain
existing earnout agreement as in effect on January 1, 1999, issue,
deliver, sell, pledge or dispose of any shares of its capital stock,
including options or warrants (other than the issuance of shares of
capital stock upon the exercise of employee stock options outstanding on
the date the merger agreement was executed);
- amend its articles of incorporation or bylaws;
- acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, any business, or (ii) except for
certain pending development projects and purchases of inventory in the
ordinary course of business, any material assets or properties;
- sell, lease or mortgage any of its assets, except in connection with the
securitization pending on the date of the merger agreement, or the sale
and financing of inventory, customer contracts and mortgages receivable;
- incur, issue or guarantee any indebtedness, other than (i) certain
indebtedness incurred in the financing of customer contracts and mortgage
receivables; (ii) indebtedness in connection with certain pending
development projects in accordance with Vistana's budgets; (iii)
indebtedness or other loans among Vistana and its wholly-owned
subsidiaries; (iv) other indebtedness in a maximum aggregate principal
amount not exceeding $10 million; (v) indebtedness incurred in connection
with the issuance of certain construction, utility and other bonds; and
(vi) the borrowing of up to $20 million in working capital under Vistana's
unsecured line of credit;
- alter the corporate structure or ownership of Vistana or any of its
non-wholly-owned subsidiaries;
- enter into or adopt any, or amend any existing, severance plan, agreement
or arrangement or enter into or amend any benefit plan or employment or
consulting agreement, except for (i) employment agreements with terms of
less than 2 years and an annual base salary of less than $125,000, (ii)
consulting agreements terminable on no more than 90 days notice, (iii)
stay agreements with certain specified officers of Vistana and (iv)
amendments or extensions of employment agreements with certain specified
officers of Vistana;
- increase the compensation payable or to become payable to its officers or
other employees, except for increases required by employment agreements
existing on the date the merger agreement was executed and increases in
the ordinary course of business consistent with past practice in salaries
or wages of such officers or other employees;
- grant or award any stock options, restricted stock, performance shares,
stock appreciation rights or other equity-based incentive awards;
- take any action other than reasonable actions in the ordinary course of
business and consistent with past practice, with respect to accounting
policies (unless required by GAAP);
- make or agree to make any capital expenditure that is not disclosed in the
budgets for certain pending developments or Vistana's 1999 capital
expenditure plan or committed to prior to the date of execution of the
merger agreement, except capital expenditures not in excess of $1 million
individually or $8 million in the aggregate;
- pay, discharge or satisfy any claims, liabilities or obligations other
than liabilities reflected or reserved against in Vistana's financial
statements or incurred in the ordinary course of business consistent with
past practice;
- settle or compromise any material liability under any tax law or
environmental law; or
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- enter into any contract requiring the lease or purchase of equipment or
materials in excess of $100,000 individually or $1 million in the
aggregate over a period of more than 12 months, except for certain
expenditures budgeted for in connection with planned projects.
NO SOLICITATION. The merger agreement provides that neither Vistana nor its
officers, directors, employees, advisors or agents shall (i) solicit, initiate
or encourage the submission of any proposal for a merger, sale of substantially
all the assets of or other business combination involving Vistana or any
proposal or offer to acquire an equity interest in excess of 15% in Vistana (any
such proposal is referred to as a "Takeover Proposal"), (ii) enter into any
agreement with respect to or approve or recommend any Takeover Proposal or (iii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal.
The merger agreement requires Vistana to promptly advise Starwood of any
Takeover Proposal or any inquiry which could lead to a Takeover Proposal and to
keep Starwood advised of the material terms of such Takeover Proposal and the
identity of the person making such Takeover Proposal. Vistana will also keep
Starwood promptly and fully informed of the status, changes in and details of
such Takeover Proposal.
The merger agreement prohibits Vistana from terminating, amending, modifying
or waiving the provisions of any confidentiality, standstill or similar
agreement to which it is a party. Vistana will also enforce, to the fullest
extent permitted by law, the provisions of any such agreements.
REORGANIZATION. The merger agreement provides that neither Starwood nor
Vistana will take any action, or fail to take any action, that would jeopardize
the qualification of the merger as a reorganization under Section 368(a) of the
Code, or would cause any of the representations and warranties in the tax
certificates of either Starwood or Vistana to be untrue or incorrect in any
material respect.
EMPLOYEE BENEFITS. In the merger agreement, Starwood agreed, for one year
following the effective time, to cause the surviving corporation to maintain
Vistana's employee benefit plans in effect on the date of the merger agreement,
or to provide benefits to the employees of Vistana that are not in the aggregate
less favorable to Vistana's employees than the employee benefit plans in effect
at the effective time. Starwood has also agreed to provide severance pay and
other benefits owing to any employee terminated at or after the effective time
as a result of the transactions contemplated by the merger agreement. For the
first year after the effective time, such severance pay and other benefits will
be determined in accordance with Vistana's severance policy, if more favorable
than Starwood's severance policy after the effective time.
Starwood has also agreed to honor in accordance with their terms all
benefits vested as of the date of the merger agreement under Vistana's employee
benefit plans, although this does not limit Starwood's ability to amend or
terminate any of such benefit plans or require Starwood to continue (other than
as required by its terms) any written employment contract or any employee of
Vistana or its subsidiaries. Vistana's employees' service prior to the effective
time shall be considered service with the surviving corporation for purposes of
eligibility, vesting and level of benefits under any plan, program or
arrangement maintained or contributed to by the surviving corporation.
VISTANA STOCK OPTIONS. The parties have agreed to convert the outstanding
options to purchase Vistana common stock under the Vistana Stock Plan as
described under "Interest of Certain Persons in the Merger--Stock Options."
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. If the merger is
consummated, Starwood has agreed to cause the surviving corporation to indemnify
the directors and officers of Vistana for a period of six years to the same
extent such persons are indemnified under Vistana's articles of
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incorporation and bylaws and any indemnity agreements, and to maintain for a
period of six years Vistana's existing directors and officers insurance.
Starwood has also agreed to indemnify the officers and directors of Vistana for
a period of six years to the same extent such persons are indemnified under
Vistana's articles of incorporation and bylaws and any indemnity agreements for
acts or omissions in furtherance of the merger agreement, the merger, the
shareholders agreements with the controlling shareholders and all agreements and
actions contemplated therein.
FEES AND EXPENSES. Pursuant to the merger agreement, whether or not the
merger is completed, Starwood and Vistana will pay their own costs and expenses
incurred in connection with the merger and the merger agreement.
ACCOUNTING MATTERS. Starwood and Vistana have agreed to use all reasonable
efforts to cause their respective independent public accountants to deliver
comfort letters to the other party at the closing.
STOCK EXCHANGE LISTING. Starwood will use all reasonable efforts to list on
the New York Stock Exchange, upon official notice of issuance, the units of
Starwood stock to be issued in the merger and upon exercise of substitute
Vistana stock options, as described under "Vistana Stock Options" above.
PUBLIC ANNOUNCEMENTS. Starwood and Vistana have agreed not to issue any
press release or other written public statement with respect to the transactions
contemplated by the merger agreement without prior consultation with the other
party, except as required by applicable law, or pursuant to any listing
agreement with a national securities exchange.
ALL REASONABLE EFFORTS. Upon the terms and subject to the conditions of the
merger agreement, each party has agreed to use all reasonable efforts to take or
cause to be taken all actions necessary, proper or advisable to consummate and
make effective, in the most expeditious manner possible, the merger and other
transactions contemplated by the merger agreement including:
- making all necessary registrations and filings with all third parties and
governmental entities;
- obtaining all necessary consents, approvals or waivers from third parties;
- defending any lawsuits or other legal proceedings challenging the merger
agreement or the consummation of the transactions contemplated by the
merger agreement; and
- executing and delivering all additional instruments necessary to complete
the transactions contemplated by, and to carry out the purpose of, the
merger agreement.
Neither Starwood nor Vistana shall take or fail to take any action that
might reasonably be expected to (i) cause any of its representations or
warranties to be untrue in any material respect, (ii) result in a breach of any
covenant made by it, (iii) result directly or indirectly in any of the
conditions to the merger not being satisfied, or (iv) impair the ability of the
parties to consummate the merger at the earliest time possible.
ADDITIONAL COVENANTS. The merger agreement provides for additional
covenants relating to, among other things:
- the preparation and mailing of the notice to Vistana's shareholders
required under Florida law and Vistana's bylaws;
- the preparation and filing of this information statement/prospectus and
the registration statement on Form S-4 of which it is a part;
- the filing and other actions required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended;
- obtaining comfort letters from the independent accountants of both
Starwood and Vistana;
- access to information and confidentiality;
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- payment of transfer taxes;
- actions with respect to state takeover statutes;
- notifying the other parties of certain breaches of representations and
warranties, certain failures to comply with the covenants of the merger
agreement and any event that would reasonably be expected to have a
material adverse effect on Starwood or Vistana;
- conduct of any shareholder litigation;
- obtaining regulatory approvals with respect to land development, mortgage
servicing and telemarketing laws, state time share laws, state securities
laws applicable to the sale or offer of vacation ownership interests, and
seller of travel or travel agency laws; and
- establishing a commercial paper conduit facility.
CONDITIONS
MUTUAL CONDITIONS. The obligations of Vistana and Starwood to effect the
merger are subject to the satisfaction or waiver of the following conditions:
- the units of Starwood stock issuable in the merger shall have been
authorized for listing on the New York Stock Exchange, subject to official
notice of issuance;
- all authorizations, consents or approvals of, or registrations with, any
governmental entity, where the failure to obtain or make would have the
effect of making the merger illegal or would have a material adverse
effect on Vistana (assuming the merger had taken place), shall have been
obtained or shall have been made;
- the registration statement covering the units of Starwood stock to be
issued in the merger (of which this information statement/prospectus is a
part) shall have become effective in accordance with the provisions of the
Securities Act of 1933, as amended;
- no court or other governmental entity shall have enacted or issued any law
or order making the merger or any of the transactions contemplated by the
merger agreement illegal; and
- at least 20 calendar days have passed since the mailing of this
information statement/prospectus.
CONDITIONS OF VISTANA'S OBLIGATION TO EFFECT THE MERGER. The obligations of
Vistana to effect the merger will be subject to the satisfaction or waiver of
the following additional conditions:
- Starwood and the merger sub shall have performed in all material respects
each of their agreements contained in the merger agreement and each of the
representations and warranties of Starwood and the merger sub contained in
the merger agreement that are qualified as to materiality shall be true
and correct at the effective time and each of the representations and
warranties that is not so qualified shall be true and correct in all
material respects at the effective time;
- Vistana shall have received an opinion from Battle Fowler LLP to the
effect that, for federal income tax purposes, the merger will constitute a
"reorganization" and Vistana, the merger sub and Starwood will each be a
party to that reorganization, all within the meaning of Section 368(a) of
the Code;
- Vistana shall have received certain "comfort letters" from Starwood's
independent accountants; and
- employment agreements with certain executives of Vistana shall have been
executed by Starwood or the merger sub and shall be in full force and
effect.
CONDITIONS OF STARWOOD'S OBLIGATION TO EFFECT THE MERGER. The obligations
of Starwood to effect the merger will be subject to the satisfaction or waiver
of the following additional conditions:
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- Vistana shall have performed in all material respects each of its
agreements contained in the merger agreement and each of the
representations and warranties of Vistana contained in the merger
agreement that are qualified as to materiality shall be true and correct
at the effective time and each of the representations and warranties that
is not so qualified shall be true and correct in all material respects at
the effective time;
- Starwood shall have received an opinion from Sidley & Austin to the effect
that, for federal income tax purposes, the merger will constitute a
"reorganization" and Vistana, the merger sub and Starwood will each be a
party to that reorganization, all within the meaning of Section 368(a) of
the Code;
- Vistana shall have obtained the consent or approval of each person that is
not a governmental entity whose consent or approval (i) is specified in
the schedules to the merger agreement or (ii) shall be required in
connection with the transactions contemplated by the merger agreement
under any loan or credit agreement, note, mortgage, indenture or other
agreement, except as to which the failure to obtain such consents and
approvals would not be expected to have a material adverse effect on
Vistana or upon the consummation of the transactions contemplated in the
merger agreement;
- there shall not be pending or threatened any suit that has a significant
likelihood of success (i) challenging the acquisition by Starwood or the
merger sub of any shares of common stock of Vistana, seeking to restrain
or prohibit the consummation of the merger or seeking to obtain from
Vistana, Starwood or the merger sub any damages that are material, (ii)
seeking to prohibit or limit the ownership or operation by Vistana or
Starwood of any material portion of the business of Vistana or Starwood,
(iii) seeking to impose limitations on the ability of Starwood or merger
sub to acquire or hold, or exercise full rights of ownership of, any
shares of common stock of Vistana, (iv) seeking to prohibit Starwood from
effectively controlling in any material respect the business or operations
of Vistana or (v) which otherwise would reasonably be expected to have a
material adverse effect on Vistana;
- Starwood shall have received certain "comfort letters" from Vistana's
independent accountants;
- since the date of the merger agreement, there shall have been no material
adverse effect with respect to Vistana (which shall not include any delays
incurred in constructing or opening certain projects under development,
the termination of Vistana's joint venture with Promus Hotels, Inc., or
any termination of Vistana's proposed joint venture to develop timeshare
units on Paradise Island, the Bahamas except because of a material breach
or failure to perform by Vistana); and
- employment agreements with the following executives of Vistana shall have
been executed by such executives and shall be in full force and effect:
Raymond L. Gellein, Jr., Jeffrey A. Adler, Charles E. Harris, Carol A.
Lytle, William J. McLaughlin, Donald J. Dubin, Susan Werth and Mark E.
Patten.
TERMINATION
The merger agreement may be terminated at any time prior to the effective
time:
- by mutual written consent;
- by either Starwood or Vistana if the other of them shall have failed to
comply in any material respect with any of its covenants or agreements
contained in the merger agreement;
- by either Starwood or Vistana if there has been a breach by the other of
them of any representation or warranty that: (i) is not qualified as to
materiality, which breach has the effect of making such representation or
warranty not true and correct in all material respects or (ii) is
qualified as to materiality;
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- by either Starwood or Vistana if: (i) the merger has not been effected on
or prior to the close of business on January 31, 2000; or (ii) any court
or other governmental entity shall have issued an order, decree or ruling
permanently enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement and such order, decree or ruling
shall have become final and non-appealable;
- by either Starwood or Vistana if the closing price of units of Starwood
stock on the trading day immediately preceding the closing date is less
than $23; PROVIDED, HOWEVER, that neither Starwood nor Vistana may
terminate the merger agreement pursuant to this provision unless (i)
either party has delivered a notice of termination, and (ii) during each
of the ten business days following delivery of such notice, the closing
price of units of Starwood stock is less than $23; PROVIDED, FURTHER, that
if the closing price of units of Starwood stock is greater than or equal
to $23 on any of such ten trading days, then the closing of the merger
shall occur on the first business day after the date on which the closing
price of units of Starwood stock is greater than or equal to $23; or
- by either Starwood or Vistana if the average of the high and low prices
for each trading day of units of Starwood stock on the New York Stock
Exchange over the twenty-trading-day period ending with the sixth trading
day prior to the date that would, but for this termination right, be the
closing date of the merger, is less than $23.
Upon termination, the merger agreement will become void and there will be no
liability on the part of Vistana, Starwood or the merger sub, or their
respective officers or directors (except for provisions relating to
confidentiality, brokers, fees and expenses, and general provisions), however
nothing contained in the merger agreement will relieve any party from any
liability for any willful breach of a representation or warranty, or any breach
of a covenant, in the merger agreement.
AMENDMENTS
The parties to the merger agreement may amend the merger agreement, but any
amendment that by law or in accordance with the rules of any relevant stock
exchange requires further approval by the Vistana shareholders will not be made
without the further approval of those shareholders. To the extent such Vistana
shareholder approval is required, the controlling shareholders have the voting
power to approve any such amendment without the vote of any other shareholder.
Any amendment must be in writing.
EXTENSION; WAIVER
The merger agreement permits Vistana and Starwood each to extend the time
for performance of any of the obligations of the other parties, to waive any
inaccuracies in the representations and warranties of the other parties and
waive compliance with any of the agreements or conditions contained in the
merger agreement. Any extension or waiver is valid only if set forth in a
written instrument duly executed by the party making such extension or waiver.
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SHAREHOLDERS AGREEMENTS
The description of the shareholders agreements set forth below does not
purport to be complete and is qualified in its entirety by reference to those
agreements. Copies of the shareholders agreements are attached as Appendices B
and C to this information statement/prospectus and are incorporated by reference
herein.
As an inducement for Starwood to enter into the merger agreement, each of
Vistana's controlling shareholders entered into a shareholders agreement. Mr.
Gellein and certain of his affiliates entered into the shareholders agreement
set forth as Appendix B, and Mr. Adler and certain of his affiliates entered
into the shareholders agreement set forth as Appendix C. Both shareholders
agreements contain substantially identical terms and provisions. Set forth below
is a brief summary of the principal terms of the shareholders agreements.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS; INDEMNIFICATION. The
controlling shareholders represented and warranted, among other things, that, to
their knowledge, certain of the representations and warranties of Vistana in the
merger agreement are true and correct. This representation and warranty
terminates:
- one year from the date of the effective time, with respect to those
representations and warranties made by Vistana with respect to (i)
compliance with applicable laws, permits and licensing requirements, (ii)
litigation and other proceedings, (iii) certain employee benefits
agreements and (iv) customer warranties; and
- at the earlier of (x) March 31, 2001 and (y) the date of delivery by
Starwood's independent accountants of an audit report on Starwood's
December 31, 2000 financial statements, with respect to those
representations and warranties made by Vistana with respect to (i)
accuracy of documents filed with the SEC, (ii) absence of certain material
changes or events with respect to Vistana since December 31, 1998 and
(iii) absence of undisclosed liabilities.
Messrs. Gellein and Adler and certain of their affiliates have agreed to
indemnify Starwood against and in respect of any and all losses and expenses
resulting from any inaccuracy in or breach of any warranty or representation, or
any nonfulfillment of any agreement on the part of any shareholder under the
shareholders agreement. However, the aggregate liability of each of Mr. Gellein
and his affiliates and Mr. Adler and his affiliates for any inaccuracy in or
breach of any representation or warranty is limited to $20,000,000, except that
under certain circumstances the aggregate liability of each of Mr. Gellein and
his affiliates and Mr. Adler and his affiliates shall be limited to $30,000,000.
Furthermore, each of Mr. Gellein and his affiliates and Mr. Adler and his
affiliates will be liable only if the aggregate losses and expenses incurred by
Starwood exceed $2,500,000 in the aggregate, and only for the amount that such
losses and expenses exceed $2,500,000. In addition, if one or more of the
controlling shareholders provides notice to Starwood of any fact or event that
has caused or may cause any representation or warranty to be untrue or
inaccurate in any material respect, and Starwood nonetheless elects to proceed
with the merger, then none of the controlling shareholders will be liable for
losses caused by such facts or events, but 50% of those losses will be counted
for determining whether all losses in the aggregate exceed $2,500,000.
COVENANTS; IRREVOCABLE PROXY. Each shareholders agreement provides that
until the earlier of (i) the effective time or (ii) the valid termination of the
shareholders agreement:
- The controlling shareholders will vote all shares of Vistana common stock
they own or have voting control over in favor of the merger.
- The controlling shareholders will vote against (i) any other Takeover
Proposal, (ii) certain proposals or transactions that would in any manner
impede the merger and (iii) any action or agreement which would result in
a breach of the merger agreement.
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- The controlling shareholders will not (i) sell or transfer any shares of
Vistana common stock they own at the time the merger agreement is executed
or (ii) enter into any voting arrangement.
- The controlling shareholders will not (i) solicit, initiate or encourage
the submission of any Takeover Proposal, (ii) enter into any agreement
with respect to or approve or recommend any Takeover Proposal or (iii)
participate in any discussions or negotiations regarding, or furnish to
any person any non-public information with respect to, any Takeover
Proposal.
- The controlling shareholders irrevocably appoint Starwood as their
attorney and proxy to vote all shares of Vistana common stock that the
shareholders are entitled to vote in favor of the merger.
TRANSFER RESTRICTIONS. Each of Mr. Gellein and certain of his affiliates
and Mr. Adler and certain of his affiliates agree that they will not sell,
transfer or encumber any of the units of Starwood stock they receive in the
merger, except that:
- the restrictions on transfer will lapse with respect to 20% of the units
six months after the effective time of the merger;
- the restrictions on transfer will lapse with respect to an additional 20%
of the units twelve months after the effective time of the merger;
- the restrictions on transfer will lapse with respect to an additional 30%
of the units eighteen months after the effective time of the merger; and
- the restrictions on transfer will lapse with respect to the balance of the
units twenty-four months after the effective time of the merger.
The transfer restrictions will terminate with respect to Messrs. Gellein or
Adler immediately upon the valid termination of such person's employment by
Vistana without cause or by such person for good reason. The transfer
restrictions will not prevent Messrs. Gellein or Adler and certain of their
affiliates from transferring units in satisfaction of certain options granted by
Messrs. Gellein and Adler and certain of their affiliates to certain employees
of the company.
FORFEITURE. If Messrs. Gellein's or Adler's employment with Vistana is
terminated for any reason other than (i) by Vistana without cause, (ii) by
Messrs. Gellein or Adler for good reason or (iii) as a result of Messrs.
Gellein's or Adler's death or permanent disability during the period commencing
on the date of the merger and ending on the day immediately prior to the first
anniversary of the date of the merger, then Messrs. Gellein or Adler, as the
case may be, shall surrender and forfeit (and immediately deliver to Starwood
for cancellation) a number of units of Starwood stock equal to the Forfeiture
Number (as defined below).
If Messrs. Gellein's or Adler's employment with Vistana is terminated for
any reason other than (i) by Vistana without cause, (ii) by Messrs. Gellein or
Adler for good reason or (iii) as a result of Messrs. Gellein's or Adler's death
or permanent disability during the period commencing on the first anniversary of
the date of the merger and ending on the day immediately prior to the second
anniversary of the date of the merger, then Messrs. Gellein or Adler, as the
case may be, shall surrender and forfeit (and immediately deliver to Starwood
for cancellation) a number of units of Starwood stock equal to the product of
(i) the Forfeiture Number and (ii) one-half.
For purposes of the shareholders agreements, the "Forfeiture Number" means a
number equal to (i) $10,000,000 divided by (ii) the average of the high and low
prices for each trading day of a unit of Starwood stock on the New York Stock
Exchange over a twenty-trading day period ending with the sixth trading day
prior to the effective time.
OTHER PROVISIONS. The shareholders agreements also include confidentiality,
non-competition and non-solicitation provisions restricting Messrs. Gellein and
Adler for a period of six years after the effective time.
TERMINATION. The shareholders agreements will terminate only upon a valid
termination of the merger agreement pursuant to its terms.
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COMPARISON OF SHAREHOLDER RIGHTS
Starwood and the Trust are both organized under and governed by the laws of
Maryland. Starwood is also governed by its articles of incorporation and bylaws,
and the Trust is governed by its declaration of trust and bylaws. Vistana is
incorporated under and governed by the laws of Florida, and also by its articles
of incorporation and bylaws. If the merger is consummated, you will become a
shareholder of Starwood and of the Trust and your rights will be governed by
Maryland law, the articles of incorporation and bylaws of Starwood and the
declaration of trust and bylaws of the Trust. The following is a summary of the
material differences between the rights of shareholders of Starwood and the
Trust on the one hand, and Vistana on the other hand. This summary does not
purport to be a complete discussion of, and is qualified in its entirety by
reference to, Maryland and Florida law, the articles of incorporation and bylaws
of Starwood, the declaration of trust and bylaws of the Trust, and the articles
of incorporation and bylaws of Vistana.
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SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF VISTANA
SHAREHOLDERS AND RIGHTS THOSE SHAREHOLDERS WILL HAVE AS STARWOOD
AND TRUST SHAREHOLDERS FOLLOWING THE MERGER
<TABLE>
<CAPTION>
<S> <C> <C>
STARWOOD SHAREHOLDER RIGHTS VISTANA SHAREHOLDER RIGHTS
<CAPTION>
<S> <C> <C>
AUTHORIZED CAPITAL Starwood's authorized capital Vistana's authorized capital stock
STOCK: stock consists of 1,000,000,000 consists of 100,000,000 shares of
shares of common stock, par value common stock, par value $.01 per
$.01 per share, 200,000,000 shares share, and 5,000,000 shares of
of preferred stock, par value $.01 preferred stock, par value $.01 per
per share, 50,000,000 shares of share.
excess common stock, par value $.01
per share, and 100,000,000 shares of
excess preferred stock, par value
$.01 per share. In connection with
Starwood's adoption of a rights
agreement (see "Shareholder Rights
Plan" below), 1,000,000 of the
authorized shares of preferred stock
have been designated Series A Junior
Participating Preferred Stock.
The beneficial interest in the
Trust consists of 5,000 class A
shares, par value $.01 per share,
1,000,000,000 class B shares, par
value $.01 per share, 30,000,000
class A exchangeable preferred
shares, par value $.01 per share,
15,000,000 class B exchangeable
preferred shares, par value $.01 per
share, 55,000,000 undesignated
preferred shares, par value $.01 per
share, 200,000,000 excess trust
shares, par value $.01 per share,
and 50,000,000 excess preferred
shares, par value $.01 per share.
Each unit of Starwood stock
consists of one share of Starwood
common stock and one class B share
of the Trust, which shares are
attached and trade together as a
unit on the New York Stock Exchange.
</TABLE>
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<TABLE>
<S> <C> <C>
NUMBER OF DIRECTORS; Maryland corporate law requires Vistana's bylaws provide that
CLASSIFICATION: that a corporation with at least there will be between three and
three shareholders have at least nine directors on the Vistana board.
three directors. Starwood's and the The Vistana board currently consists
Trust's bylaws provide that the of six members.
Starwood board and the Trust board Vistana's articles of
shall each have between three and incorporation and bylaws both
twenty members. Each board currently provide that the board be divided
consists of the same sixteen into three classes, with each class
members. serving a staggered three-year term.
Starwood's articles of
incorporation and bylaws and the
Trust's declaration of trust and
bylaws provide that the Starwood
board and the Trust board be divided
into three classes, with each class
serving a staggered three-year term.
VOTING STOCK: Starwood's outstanding voting Vistana's outstanding voting stock
stock consists solely of Starwood consists solely of Vistana common
common stock. stock.
The Trust's class A shares, all
outstanding shares of which are held
by Starwood, are generally the only
outstanding shares entitled to vote.
The class B shares, the class A
exchangeable preferred shares and
the class B exchangeable preferred
shares are entitled to vote, as a
single class, upon only matters
materially and adversely affecting
the rights of holders of class B
shares disproportionately to the
effect on holders of class A shares.
REMOVAL OF DIRECTORS Maryland law provides that a Florida law and Vistana's bylaws
OR TRUSTEES: director or trustee may be provide that directors may be
removed, with or without cause, by a removed with or without cause by the
majority of all votes entitled to be holders of a majority of the shares
cast in the election of directors or entitled to vote for the election of
trustees, unless otherwise specified the director being considered for
in the articles of incorporation or removal, unless the articles of
declaration of trust. Starwood's incorporation provide that a
articles of incorporation provide director may be removed only for
that directors may be removed only cause.
for cause, and only by the
affirmative vote of two-thirds of
the votes entitled to be cast for
the election of directors. The
Trust's declaration of trust
provides that trustees may be
removed with or without cause by the
holders of two-thirds of outstanding
voting shares of the Trust.
</TABLE>
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<TABLE>
<S> <C> <C>
STANDARDS OF CONDUCT Maryland corporate law requires a Florida corporate law requires a
FOR DIRECTORS AND director of a Maryland corporation director of a Florida corporation to
TRUSTEES: to perform his duties as a director perform his duties as a director in
in good faith, in a manner he good faith, in a manner he
reasonably believes to be in the reasonably believes to be in the
best interests of the corporation best interests of the corporation
and with the care that an ordinarily and with the care that an ordinarily
prudent person in a like position prudent person in a like position
would use under similar would use under similar
circumstances. The Maryland REIT law circumstances. Florida law also
does not contain any similar allows a director to consider, in
provision concerning the standard of discharging his duties, such factors
conduct for trustees. However, the as the director deems relevant,
declaration of trust provides that including the long-term prospects
the Maryland corporate law standard and interests of the corporation and
of conduct for directors and court its shareholders, and the social,
decisions on the subject shall be economic, legal, or other effects of
fully applicable to the Trust and any action on the employees,
its trustees. suppliers, customers of the
corporation or its subsidiaries, the
communities and society in which the
corporation or its subsidiaries
operate, and the economy of the
state and the nation. Under Florida
law, if a director performs his
duties in compliance with these
standards, then the director will
not be liable for any action taken
as a director.
</TABLE>
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<TABLE>
<S> <C> <C>
INDEMNIFICATION OF Starwood's articles of Florida law permits a corporation
DIRECTORS, TRUSTEES incorporation and the Trust's to indemnify the following persons
AND OFFICERS: declaration of trust provide that (using a case-by-case determination)
Starwood and the Trust, against liabilities arising in the
respectively, shall indemnify, to following circumstances:
the fullest extent permitted by law, - any person who is or was party
all persons who may be indemnified to any proceeding by reason of his
pursuant to Maryland law. Maryland or her service as a director,
law requires a corporation (unless officer, employee or agent of
its articles of incorporation the corporation; or
provide otherwise, which Starwood's - any person serving in such
articles of incorporation do not) to capacity, at the request of the
indemnify a director or officer who corporation, for another
has been successful, on the merits corporation or business entity.
or otherwise, in the defense of any To be indemnified, a person
proceeding to which he is made a seeking indemnification must have
party by reason of his service in acted in good faith and in a manner
that capacity. Maryland REIT law he or she reasonably believed to be
permits a Maryland REIT to indemnify in, or not opposed to, the best
and advance expenses to its trustees interests of the corporation. With
and officers to the same extent respect to any criminal action or
permitted by the Maryland corporate proceeding, such person must have
law for directors and officers of had no reasonable cause to believe
Maryland corporations. Maryland his or her conduct was unlawful.
corporate law permits a corporation Under Florida law the corporation
to indemnify its present and former can indemnify such a person who is a
directors and officers, among party to any proceeding by or in the
others, against judgments, right of the corporation against
penalties, fines, settlements and expenses and amounts paid in
reasonable expenses actually settlement which were actually and
incurred by them in connection with reasonably incurred in connection
any proceedings to which they may be with the defense or settlement of
made a party by reason of their the proceeding. Such indemnification
service in those or other capacities may not exceed the board of
unless it is established that: directors' estimated expense of
- the act or omission of the litigating the matter to a
director or officer was material to conclusion. No indemnification shall
the matter giving rise to the be made in respect of any issue as
proceeding and (i) was committed to which such person shall have been
in bad faith or (ii) was the adjudged to be liable unless, and
result of active and deliberate only to the extent that, a court
dishonesty; shall determine, in view of all
- the director or officer actually circumstances, that such person is
received an improper personal fairly and reasonably entitled to
benefit in money, property or indemnity for such expenses which
services; or such court shall deem proper.
- in the case of any criminal
proceeding, the director or
officer had reasonable cause to
believe that the act or omission
was unlawful.
</TABLE>
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<TABLE>
<S> <C> <C>
However, under Maryland corporate Under Florida law, indemnification
law, a Maryland corporation may not for expenses actually and reasonably
indemnify for an adverse judgment in incurred in the defense of any
a suit by or in the right of the proceeding is mandatory to the
corporation or for a judgment of extent that a director, officer,
liability on the basis that personal employee or agent is successful in
benefit was improperly received, such defense. Expenses of an officer
unless in either case a court orders or director may be paid by the
indemnification and then only for corporation in advance, upon receipt
expenses. of an undertaking by or on behalf of
In addition, Maryland corporate such director or officer to repay
law permits a corporation to advance such amounts if he or she is
reasonable expenses to a director or ultimately found not to be entitled
officer upon the receipt by the to indemnification. Florida law also
corporation of: allows a corporation to provide any
- a written affirmation by the other or further indemnification or
director or officer of his good advancement of expenses to its
faith belief that he has met the directors, officers, employees or
standard of conduct necessary agents; however such indemnification
for indemnification by the or advancement of expenses may not
corporation and extend to situations where a final
- a written undertaking by or on adjudication establishes that such
his behalf to repay the amount paid person's actions were material to
or reimbursed by the corporation the cause of action so adjudicated
if it shall ultimately be and constitute:
determined that the standard of - a criminal violation, unless
conduct was not met. such person had reasonable cause to
Starwood and the Trust have believe his conduct was lawful
entered into indemnification or had no reasonable cause to
agreements with their directors, believe his conduct was
trustees and executive officers unlawful;
providing for the maintenance of - a transaction from which such
directors, trustees and officers person derived an improper
liability insurance, subject to personal benefit;
certain conditions, and the - a circumstance under which the
indemnification of and advancement director would be liable for
of expenses to such directors, authorizing an improper
trustees and executive officers. distribution; or
- willful misconduct or conscious
disregard for the best interests
of the corporation in a
proceeding by or in the right of
the corporation to procure a
judgment in its favor, or in a
proceeding by or in the right of
a shareholder.
</TABLE>
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<TABLE>
<S> <C> <C>
Vistana's articles of
incorporation provide that Vistana
shall indemnify all its directors,
officers, employees and agents to
the fullest extent permitted by
Florida law. Vistana's articles of
incorporation also provide that no
amendment to such section of the
articles shall adversely affect any
right to indemnification arising
from any act or omission occurring
prior to the time of such amendment.
Vistana has also entered into
indemnification agreements with its
directors and certain officers
providing for the indemnification of
and advancement of expenses to such
directors and officers.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
EXCULPATION OF Maryland law permits a Maryland Florida corporate law provides
DIRECTORS AND corporation or a Maryland REIT to that directors are not personally
OFFICERS: include in its articles of liable for monetary damages to the
incorporation or declaration of corporation or any other person,
trust a provision limiting the unless the director breached or
liability of its directors, trustees failed to perform his or her duties
or officers to the corporation or as a director, and the director's
the trust and their shareholders for breach of or failure to perform
money damages except for liability those duties constituted any of the
resulting from (a) actual receipt of following:
an improper benefit or profit in - a violation of the criminal law
money, property or services or (b) (unless the director had
active and deliberate dishonesty reasonable cause to believe his
established by a final judgment as or her conduct was lawful or had
being material to the cause of no reasonable cause to believe
action. Starwood's articles of his or her conduct was
incorporation and the Trust's unlawful);
declaration of trust contain - a transaction from which the
provisions which eliminate such director derived an improper
liability to the maximum extent personal benefit, either
permitted by Maryland law (in the directly or indirectly;
case of the Trust, for acts or - a circumstance under which the
omissions after June 6, 1988). director would be liable for
The declaration of trust authorizing an improper
provides that no trustee, officer or distribution;
agent of the Trust shall be liable - in a proceeding by or in the
or held to any personal liability right of the corporation or a
whatsoever for an obligation or shareholder, conscious disregard
contract of the Trust. In addition, for the best interest of the
the declaration of trust provides corporation or willful
that the provisions of Maryland law misconduct; or
which set forth the standard of care - in a proceeding by or in the
required of directors of right of someone other than the
corporations organized under the corporation or shareholder,
laws of Maryland, and all other recklessness or an act or
statutory or decisional law which omission which was committed in
sets forth the standard of care bad faith or with malicious
required of officers, employees and purpose or in a manner
agents of corporations organized exhibiting wanton and willful
under the laws of Maryland, shall be disregard of human rights,
fully applicable to the Trust, and safety or property.
to trustees, officers, employees and Vistana's articles of
agents of the Trust, as if the Trust incorporation provide that, to the
were a corporation organized under fullest extent permitted by Florida
the laws of Maryland and its law, a director of Vistana is not
trustees, officers, employees and liable to Vistana or its
agents were, respectively, shareholders for monetary damages
directors, officers, employees and for breach of fiduciary duty as a
agents of such corporation. director. Vistana's articles of
incorporation also provide that no
amendment to, or repeal of such
provisions will apply to or have any
effect on the liability or alleged
liability of any director of Vistana
for or with respect to any act or
omission of such director occurring
prior to such amendment. Vistana's
articles of incorporation also
require at least a two-thirds vote
to amend such provision.
</TABLE>
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<TABLE>
<S> <C> <C>
AMENDMENT OF Under Maryland law, unless Under Florida law, unless a
ARTICLES OF otherwise provided in the articles greater vote or a vote by voting
INCORPORATION: of incorporation or declaration of groups is required by Florida law,
trust, a proposed amendment to the the articles of incorporation, or
articles of incorporation or the board of directors, any
declaration of trust requires substantive amendment to the
approval by the holders of two- articles of incorporation must be
thirds of the votes entitled to be approved by a majority of the votes
cast on the matter. Starwood's entitled to be cast on the amendment
articles of incorporation and the by any voting group that would have
Trust's declaration of trust require dissenters' rights because of the
only a majority vote to approve an amendment, and the votes of every
amendment (although two-thirds is other voting group entitled to vote
required to amend certain on the amendment. Vistana's articles
provisions). of incorporation do not contain
provisions concerning amendment,
except that they require that any
provision changing the
classification of the Vistana board
or the exculpation of Vistana's
directors be approved by the
affirmative vote of the holders of
at least two-thirds of the voting
power of all shares of Vistana
entitled to vote generally in the
election of directors.
</TABLE>
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<TABLE>
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AMENDMENT OF BYLAWS: Under Maryland corporate law, the Florida law provides that a
power to change the bylaws may be corporation's board of directors may
left with the shareholders, vested amend or repeal that corporation's
exclusively in the directors or bylaws unless (i) the articles of
shared by both groups. Starwood's incorporation or Florida law reserve
bylaws provide that the bylaws may the power to amend the bylaws
be amended only by the vote or generally or a specific provision
written consent of the Starwood exclusively to the shareholders or
Board. The Trust's bylaws provide (ii) the shareholders, in amending
that the bylaws may be amended only or repealing the bylaws generally or
by the vote or written consent of a particular provision, provide
the Trust board. Starwood's and the expressly that the board of
Trust's shareholders have no power directors may not amend or repeal
to amend Starwood's bylaws or the the bylaws or that bylaw provision.
Trust's bylaws. Florida law also provides that the
shareholders have the right to amend
or repeal the bylaws even though the
bylaws may also be amended or
repealed by its board of directors.
Vistana's articles of incorporation
and bylaws provide that both
Vistana's board and Vistana's
shareholders have the power to
amend, repeal or otherwise alter the
bylaws.
CERTAIN Under Maryland corporate law any Under Florida law, any merger (or
EXTRAORDINARY merger (or similar transaction) similar transaction), other than a
TRANSACTIONS: requires approval by holders of short- form merger, requires the
two-thirds of the shares of the approval of a majority of the shares
corporation entitled to vote on such of each class entitled to vote with
matter, unless the articles of each such class voting separately.
incorporation provide for a greater
or lesser percentage, which
percentage may not be less than a
majority of all votes entitled to be
cast on the matter. The Maryland
REIT law also requires approval of
two-thirds of all votes entitled to
be cast to approve a merger, unless
the declaration of trust provides
for a greater or lesser percentage,
which percentage may not be less
than a majority of all votes
entitled to be cast on the matter.
Starwood's articles of incorporation
and the Trust's declaration of trust
each require the affirmative vote of
a majority of all votes entitled to
be cast to approve such a
transaction.
</TABLE>
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<TABLE>
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APPRAISAL AND Under Maryland law, shareholders Florida law provides that a
DISSENTER RIGHTS: of a corporation are entitled to dissenting shareholder of a
appraisal rights in certain mergers corporation participating in certain
(and similar transactions), as well transactions, under varying
as when the corporation amends its circumstances, may receive cash in
articles of incorporation in a way the amount of the fair value of his
which alters the contractual rights or her shares (as determined by a
of any outstanding shares as court) in lieu of the consideration
expressly set forth in the articles otherwise receivable in the
of incorporation, and substantially transaction. Florida law provides
adversely affects such shareholders' these dissenters' rights in
rights, if the right to do so is not connection with certain corporate
reserved in the articles of actions including, but not limited
incorporation. However, except with to, the following:
respect to certain transactions - mergers, if the shareholders are
involving an interested shareholder, entitled to vote on the merger;
shareholders generally have no - sales of substantially all a
appraisal rights with respect to corporation's assets;
their shares if (i) the shares are - amendment to the articles of
listed on a national securities incorporation that may adversely
exchange or are designated as a affect certain rights or
Nasdaq national market system preferences of shareholders; and
security, or (ii) the shares are - control share acquisitions.
those of the successor in the Unless the articles of
merger, unless (a) the merger alters incorporation provide otherwise,
the contractual rights of the shares under Florida law dissenters' rights
as expressly set forth in the are not available with respect to a
articles of incorporation, and the plan of merger or share exchange or
articles of incorporation do not a proposed sale or exchange of
reserve the right to do so, or (b) property to holders of shares of any
the shares are to be changed or class or series which, on the
converted in whole or in part in the relevant record date were one of the
merger into something other than following:
either shares in the successor or - registered on a national
cash, scrip or other rights or securities exchange;
interests arising out of provisions - designated as a Nasdaq national
for the treatment of fractional market system security; or
shares in the successor. The - held of record by not fewer than
Maryland REIT law provides for 2,000 shareholders.
appraisal rights for shareholders of
a Maryland REIT only in the case of
a merger and with respect to certain
transactions involving an interested
shareholder and only to the extent
available to an objecting
shareholder under Maryland corporate
law.
</TABLE>
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<TABLE>
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LIMITATION ON Starwood's articles of There are no restrictions on the
OWNERSHIP OF SHARES incorporation and the Trust's ownership of shares of Vistana
OR UNITS: declaration of trust each provide common stock in either the Vistana
that as long as the Trust maintains articles of incorporation or the
its REIT status: Vistana bylaws.
- no person shall beneficially own
units of Starwood stock in
excess of 8%, by value, vote or
number of such shares;
- any transfer resulting in
beneficial ownership of greater than
such 8% value shall be void, AB
INITIO, as to the shares in
excess of such 8% value;
- any transfer resulting in
beneficial ownership of units of
Starwood stock by fewer than 100
persons (determined without
reference to any rules of
attribution) shall be void, AB
INITIO; and
- any transfer of units of
Starwood stock resulting in the
Trust being "closely held"
within the meaning of Section
856(h) of the Code shall be
void, ab initio, as to the
number of units of Starwood
stock that shall cause the Trust
to be "closely held."
The Starwood board and the Trust
board may exempt a person from the
8% ownership limit.
Starwood's articles of
incorporation also provide that:
- all Starwood securities are
subject to redemption by Starwood to
the extent necessary to prevent
the loss or to secure the
reinstatement of any casino
gaming license held by Starwood
or any of its subsidiaries in
any jurisdiction;
- all Starwood securities are held
subject to the condition that if
a holder thereof is found by a
gaming authority in any such
jurisdiction to be disqualified
or unsuitable pursuant to any
gaming law, such holder will be
required to dispose of all
Starwood securities held by such
holder; and
- it will be unlawful for any such
disqualified person to (a)
receive payments of interest or
dividends on any Starwood
securities, (b) exercise,
directly or indirectly, any
rights conferred by any Starwood
securities or (c) receive any
remuneration in any form for
services rendered or otherwise
from the subsidiary that holds
the gaming license in such
jurisdiction.
</TABLE>
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<TABLE>
<S> <C> <C>
BUSINESS Maryland corporate law prohibits Florida corporate law requires
COMBINATIONS certain business combinations, that, in addition to any vote
INVOLVING INTERESTED including a merger, between a required by Florida law and the
SHAREHOLDERS: Maryland corporation or a Maryland corporation's articles of
REIT and any "interested incorporation and subject to certain
shareholder" or any affiliate of the exceptions, any "affiliated
interested shareholder for five transaction" between a Florida
years after the interested corporation and any beneficial owner
shareholder becomes an interested of 10 percent or more of the
shareholder. An "interested corporation's outstanding voting
shareholder" is any person who shares be approved by two-thirds of
beneficially owns 10% or more of the the voting shares other than the
voting power of the corporation's shares beneficially owned by the
shares or shares of beneficial interested shareholder, or, in the
interest of the Maryland REIT or an absence thereof, that a statutory
affiliate or associate (as defined "fair price" be paid to shareholders
under Maryland corporate law) of the in the transaction. This requirement
corporation or Maryland REIT who, at does not apply if:
any time within the two-year period - the transaction was approved by
prior to the date in question, was a majority of the corporation's
the beneficial owner of 10% or more disinterested directors;
of the voting power of the then - the corporation did not have
outstanding voting stock of the more than 300 shareholders of record
corporation or shares of beneficial at any time during the preceding
interest of the Maryland REIT. three years;
Thereafter, any such business - the affiliated shareholder has
combination must be recommended by been the beneficial owner of at
the board of directors or board of least 80% of the corporation's
trustees and approved by 80% of the outstanding voting shares for
votes entitled to be cast by the past five years;
outstanding voting shares voting - the affiliated shareholder is
together as a single group, and the beneficial owner of at least 90%
two-thirds of the votes entitled to of the corporation's outstanding
be cast by holders of voting shares voting shares, exclusive of
other than voting shares held by the those acquired in a transaction
interested shareholder who (or whose not approved by a majority of
affiliate) will be party to the disinterested directors; or
business combination or by an - the consideration received by
affiliate or associate of the each shareholder in connection with
interested shareholder, voting the transaction satisfies the
together as a single voting group, "fair price" provisions of the
unless, among other conditions, the statute.
common shareholders receive a This statute applies to any
minimum price (as defined under corporation governed by Florida
Maryland corporate law) for their law unless the articles of
shares and the consideration is incorporation or bylaws contain
received in cash or in the same form a provision expressly electing
as previously paid by the interested not to be governed by this
shareholder for its shares. These statute. Such an mendment to the
provisions of Maryland law do not articles of incorporation or
apply, however, to business bylaws must be approved by the
combinations that are approved or affirmative vote of a majority
exempted by the board of directors of disinterested shareholders.
of the corporation or board of The merger is not subject to
trustees of the Maryland REIT prior this prohibition because it has
to the time that the interested been approved by a majority of
shareholder becomes an interested the disinterested directors on
shareholder. Each of Starwood and the Vistana board.
the Trust has exempted from the
business combination provisions of
Maryland law all business
combinations involving any person.
As a result, an interested
shareholder may be able to enter
into business combinations with
Starwood and the Trust--without
compliance by Starwood or the Trust
with the supermajority vote
requirements of Maryland law--that
may not be in the best interest of
Starwood or Trust shareholders.
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CONTROL SHARE Maryland corporate law provides Under Florida law, voting rights
ACQUISITIONS: that "control shares" have no voting for "control shares" must be
rights except to the extent approved approved by a majority of each class
by a two-thirds vote of the votes of voting securities, not including
entitled to be cast on the matter, the shares held by interested
excluding shares of stock owned by parties. "Control shares" are shares
the acquiror, or by officers or whose acquisition entitles the
directors who are employees. acquiror to between 1/5 and 1/3,
"Control shares" are voting shares between 1/3 and 1/2, or greater than
whose acquisition would entitle the 1/2 of a corporation's voting power.
acquiror to exercise or direct the If a shareholder has acquired
exercise of (except solely by virtue control shares with a majority of
of a revocable proxy) between 1/5 all voting power and these shares
and 1/3, between 1/3 and a majority, have been given voting rights, all
or greater than a majority of a shareholders who did not vote in
corporation's voting power. If favor of according voting rights to
voting rights are not approved, the the acquired shares are entitled to
corporation may redeem the control dissenter's rights. Florida law
shares. If voting rights are exempts certain acquisitions from
approved for control shares at a these provisions, including an
meeting and the holder becomes acquisition of shares of an issuing
entitled to exercise a majority of public corporation if the
the corporation's voting power, all acquisition has been approved by the
other shareholders may exercise public corporation's board of
appraisal rights. A person who has directors before the acquisition
made or proposes to make a control occurs, or a merger where the
share acquisition, upon satisfaction corporation is a party to the
of certain conditions, may compel a governing merger agreement.
special meeting of shareholders to
be held within 50 days of demand to
consider the voting rights of the
shares. The control share
acquisition statute does not apply
(a) to shares acquired in a merger,
consolidation or share exchange if
the corporation is a party to the
transaction or (b) to acquisitions
approved or exempted by a provision
in the charter or bylaws of a
corporation adopted before the
acquisition of shares. Starwood's
and the Trust's bylaws exempt all
control share acquisitions involving
any person from these restrictions.
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SHAREHOLDER RIGHTS On March 15, 1999, Starwood Vistana does not have a
PLAN: adopted a rights agreement and shareholder or similar rights
declared a dividend distribution of plan.
one right for each outstanding share
of Starwood's common stock to
shareholders of record at the close
of business on April 5, 1999. Each
right entitles the registered holder
to purchase from Starwood one one-
thousandth of a share of Series A
Junior Participating Preferred
Stock, par value $.01 per share, at
a purchase price of $125 per
fraction of preferred stock, subject
to adjustment. The description and
terms of the rights are set forth in
a rights agreement dated as of March
15, 1999, between the Corporation
and ChaseMellon Shareholder
Services, L.L.C., as rights agent.
Each unit of Starwood stock to be
issued in the merger will also have
attached one preferred stock
purchase right.
SHAREHOLDER Notice of a nomination for a Vistana's articles of
NOMINATIONS AND director of Starwood or for a matter incorporation and bylaws do not
PROPOSALS FOR of business to be brought before an establish any procedures for advance
BUSINESS: annual meeting must contain notice of shareholder nominations or
information specified in Starwood's proposals.
bylaws, and must be delivered to
Starwood's Secretary not later than
75 days nor earlier than 100 days
prior to the first anniversary of
the preceding year's annual meeting,
unless the date of the annual
meeting is advanced by more than 30
days or delayed by more than 60 days
from such anniversary. The Trust's
bylaws provide that nominations and
proposals may be made only by a
shareholder entitled to vote at the
applicable meeting. Starwood is the
only shareholder of the Trust
generally entitled to vote at Trust
meetings, and the holders of class B
shares are not entitled to make
nominations or proposals.
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ACTION BY WRITTEN Under Maryland law and Starwood's Florida law and Vistana's bylaws
CONSENT bylaws, action may be taken by the permit action by shareholders to be
shareholders only if all taken without a meeting if the
shareholders entitled to vote sign a action is taken by holders of the
written consent, and all outstanding stock of each voting
shareholders entitled to notice of a group entitled to vote on the action
meeting but not entitled to vote having not less than the minimum
sign a waiver of any right to number of votes that would be
dissent. The Trust's bylaws contain required at a meeting, deliver
a similar provision, although the signed written consents, and notice
declaration of trust allows the is given to all other shareholders
holders of a majority of the within ten days after obtaining such
outstanding shares (or a larger written consent.
percentage if a larger percentage
approval would be required at a
shareholder meeting) to take action
by written consent without a
meeting.
SPECIAL MEETINGS OF Special meetings of Starwood Special meetings of Vistana
SHAREHOLDERS: shareholders may be called only by shareholders may be called by the
the Starwood board, the chairman of chairman of the board, the
the board, any two or more president, a majority of the board
directors, or shareholders entitled of directors, or by the holders of
to cast a majority of the votes at least 30% of the shares entitled
entitled to be cast. Special to vote at the meeting.
meetings of Trust shareholders may
be called by the trustees, the
chairman of the Trust, any two or
more trustees, or shareholders
holding at least a majority of the
outstanding shares.
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EXPERTS
The consolidated balance sheets of Starwood as of December 31, 1998 and 1997
and the consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998, and schedules, incorporated by reference in this information
statement/prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein, in reliance upon their authority as experts in accounting and
auditing in giving said reports.
The consolidated balance sheets of Vistana as of December 31, 1998 and 1997
and the consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1998 in
the Annual Report on Form 10-K of Vistana for the year ended December 31, 1998,
incorporated by reference in this information statement/prospectus, have been so
incorporated in reliance on the report of KPMG LLP, independent accountants,
given on the authority of that firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the units of Starwood stock to be issued in the merger will
be passed upon for Starwood by Ballard Spahr Andrews & Ingersoll, LLP,
Baltimore, Maryland, special Maryland counsel to Starwood. Certain legal matters
with respect to the federal income tax consequences of the merger will be passed
upon for Starwood by Sidley & Austin, New York, New York. Certain legal matters
with respect to the federal income tax consequences of the merger will be passed
upon for Vistana by Battle Fowler LLP, New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
You can obtain current information on the exchange ratio by calling
toll-free 1-800-431-9643.
Vistana and Starwood file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that we have filed at the SEC's public
reference rooms. Please call the SEC at 1-800-SEC-0330 for information on the
public reference rooms or visit the following locations of the SEC:
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Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, DC 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Our SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
Starwood filed a registration statement on Form S-4 to register with the SEC
the units of Starwood stock that will be issued to Vistana shareholders in the
merger. This information statement/ prospectus is a part of that registration
statement and constitutes a prospectus of Starwood in addition to being an
information statement of Vistana. As allowed by SEC rules, this information
statement/ prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows Vistana and Starwood to "incorporate by reference"
information into this information statement/prospectus, which means important
information may be disclosed to you by referring you to another document filed
separately with the SEC. The information incorporated by
70
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reference is deemed to be part of this information statement/prospectus, except
for any information superseded by information in (or incorporated by reference
in) this information statement/prospectus. This information statement/prospectus
incorporates by reference the documents set forth below that have been
previously filed with the SEC. These documents contain important information
about our companies and their financial condition.
<TABLE>
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STARWOOD'S AND THE TRUST'S SEC FILINGS DESCRIPTION OR
(FILE NOS. 1-6828 AND 1-7959) PERIOD/AS OF DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998, as amended by the Form
10-K/A filed May 17, 1999
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999 and June 30, 1999
Current Reports on Form 8-K Filed on July 23, 1999, July 21, 1999, May 28, 1999, May
7, 1999, March 15, 1999, January 21, 1999 and January 8,
1999
Registration Statements on Form 8-A Dated March 15, 1999, December 21, 1998 and October 3,
1986 (description of Starwood's and the Trust's
authorized capital stock)
Proxy Statement Dated April 20, 1999
</TABLE>
<TABLE>
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VISTANA SEC FILINGS DESCRIPTION OR
(FILE NOS. 0-29114) PERIOD/AS OF DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999, as amended by the Form
10-Q/A filed May 18, 1999, and June 30, 1999
Current Reports on Form 8-K Filed on July 21, 1999
Proxy Statement Dated March 17, 1999
</TABLE>
Vistana and Starwood are also incorporating by reference additional
documents that either company may file with the SEC pursuant to the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder,
between the date of this information statement/prospectus and the effective
time. These include periodic reports, such as annual reports on Form 10-K,
quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as
proxy statements.
Starwood has supplied all information contained or incorporated by reference
in this information statement/prospectus relating to Starwood, and Vistana has
supplied all such information relating to Vistana.
If you are a shareholder, Starwood and Vistana may have sent you some of the
documents incorporated by reference, but you can obtain any of them through us,
the SEC, or the SEC Internet worldwide web site as described above. Documents
incorporated by reference are available from us without charge, excluding all
exhibits unless we have specifically incorporated by reference an exhibit in
this information statement/prospectus. Shareholders may obtain documents
incorporated by reference in
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this information statement/prospectus by requesting them in writing or by
telephone from the appropriate party at the following address:
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Vistana, Inc. Starwood Hotels & Resorts Worldwide,
Inc.
8801 Vistana Centre Drive 777 Westchester Avenue
Orlando, Florida White Plains, New York 10604
Telephone: (407) 239-3568 Telephone: (914) 640-8100
Attention: Investor Relations Attention: Shareholder Relations
</TABLE>
If you would like to request documents from us, please do so by September
22, 1999 to receive them before the effective time. If you request any
incorporated documents from us, we will mail them to you by first class mail, or
another equally prompt means, within one business day after we receive your
request.
The name "Starwood Hotels & Resorts" is the designation of Starwood Hotels &
Resorts and its trustees (as trustees but not personally) under a declaration of
trust dated August 25, 1969, as amended and restated as of January 6, 1999, as
amended, and all persons dealing with Starwood Hotels & Resorts must look solely
to Starwood Hotels & Resorts' property for the enforcement of any claims against
Starwood Hotels & Resorts, as the trustees, officers, agents and security
holders of Starwood Hotels & Resorts assume no personal obligations of Starwood
Hotels & Resorts, and their respective properties shall not be subject to claims
of any person relating to such obligation.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE PROPOSED MERGER INVOLVING OUR COMPANIES THAT DIFFERS
FROM OR ADDS TO THE INFORMATION CONTAINED IN THIS INFORMATION
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS OUR COMPANIES HAVE PUBLICLY FILED WITH
THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT OR ADDITIONAL
INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
INFORMATION STATEMENT/PROSPECTUS OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS INFORMATION
STATEMENT/ PROSPECTUS DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
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APPENDIX A
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
AMONG
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,
FIRE ACQUISITION CORP.
AND
VISTANA, INC.
DATED AS OF JULY 18, 1999
AND AS AMENDED AS OF AUGUST 16, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER....................................................................................... 1
Section 1.1 The Merger................................................................................... 1
Section 1.2 Effective Time............................................................................... 2
Section 1.3 Effects of the Merger........................................................................ 2
Section 1.4 Charter and By-laws; Directors............................................................... 2
Section 1.5 Conversion of Securities..................................................................... 2
Section 1.6 Parent to Make Certificates Available........................................................ 3
Section 1.7 Dividends; Transfer Taxes; Withholding....................................................... 3
Section 1.8 No Fractional Securities..................................................................... 4
Section 1.9 Return of Exchange Fund...................................................................... 4
Section 1.10 Adjustment of Exchange Ratio................................................................ 5
Section 1.11 No Further Ownership Rights in Company Common Stock......................................... 5
Section 1.12 Closing of Company Transfer Books........................................................... 5
Section 1.13 Lost Certificates........................................................................... 5
Section 1.14 Further Assurances.......................................................................... 5
Section 1.15 Closing..................................................................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................................................ 6
Section 2.1 Organization, Standing and Power............................................................. 6
Section 2.2 Capital Structure............................................................................ 7
Section 2.3 Authority.................................................................................... 8
Section 2.4 Consents and Approvals; No Violation......................................................... 8
Section 2.5 SEC Documents and Other Reports.............................................................. 9
Section 2.6 Registration Statement and Information Statement............................................. 10
Section 2.7 Absence of Certain Changes or Events......................................................... 10
Section 2.8 Permits and Compliance....................................................................... 10
Section 2.9 No Required Vote of Parent Stockholders...................................................... 11
Section 2.10 Reorganization; Parent Tax Certificate...................................................... 11
Section 2.11 Brokers..................................................................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 11
Section 3.1 Organization, Standing and Power............................................................. 11
Section 3.2 Capital Structure............................................................................ 12
Section 3.3 Authority.................................................................................... 12
Section 3.4 Consents and Approvals; No Violation......................................................... 13
Section 3.5 SEC Documents and Other Reports.............................................................. 14
Section 3.6 Registration Statement and Information Statement............................................. 14
Section 3.7 Absence of Certain Changes or Events......................................................... 14
Section 3.8 Permits and Compliance....................................................................... 15
Section 3.9 Tax Matters.................................................................................. 16
Section 3.10 Actions and Proceedings..................................................................... 16
Section 3.11 Certain Agreements.......................................................................... 17
Section 3.12 ERISA....................................................................................... 17
Section 3.13 Liabilities................................................................................. 18
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Section 3.14 Intellectual Property....................................................................... 18
Section 3.15 Properties, Title and Related Matters....................................................... 19
Section 3.16 Customer Warranties......................................................................... 19
Section 3.17 Environmental Matters....................................................................... 20
Section 3.18 Insurance................................................................................... 21
Section 3.19 Mortgages Receivable........................................................................ 21
Section 3.20 Parachute Payments to Disqualified Individuals.............................................. 21
Section 3.21 Opinion of Financial Advisor................................................................ 22
Section 3.22 State Takeover Statutes..................................................................... 22
Section 3.23 Reorganization.............................................................................. 22
Section 3.24 Brokers..................................................................................... 22
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS....................................................... 22
Section 4.1 Conduct of Business by the Company Pending the Merger........................................ 22
Section 4.2 No Solicitation.............................................................................. 25
Section 4.3 Third Party Standstill Agreements............................................................ 26
Section 4.4 Reorganization............................................................................... 26
ARTICLE V ADDITIONAL AGREEMENTS............................................................................ 26
Section 5.1 Notice to Shareholders....................................................................... 26
Section 5.2 Filings; Other Actions....................................................................... 26
Section 5.3 Comfort Letters.............................................................................. 27
Section 5.4 Access to Information........................................................................ 27
Section 5.5 Compliance with the Securities Act........................................................... 28
Section 5.6 Stock Exchange Listings...................................................................... 28
Section 5.7 Fees and Expenses............................................................................ 28
Section 5.8 Company Stock Options........................................................................ 28
Section 5.9 Reasonable Efforts........................................................................... 29
Section 5.10 Public Announcements........................................................................ 29
Section 5.11 Real Estate Transfer and Gains Tax.......................................................... 29
Section 5.12 State Takeover Laws......................................................................... 30
Section 5.13 Indemnification; Directors and Officers Insurance........................................... 30
Section 5.14 Notification of Certain Matters............................................................. 30
Section 5.15 Employee Benefit Plans...................................................................... 31
Section 5.16 Shareholder Litigation...................................................................... 31
Section 5.17. Additional Matters......................................................................... 31
ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER.............................................................. 32
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger................................... 32
Section 6.2 Conditions to Obligation of the Company to Effect the Merger................................. 33
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger............................. 33
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............................................................. 35
Section 7.1 Termination.................................................................................. 35
Section 7.2 Effect of Termination........................................................................ 36
Section 7.3 Amendment.................................................................................... 36
Section 7.4 Waiver....................................................................................... 36
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ARTICLE VIII GENERAL PROVISIONS.......................................................................... 37
Section 8.1 Non-Survival of Representations and Warranties............................................... 37
Section 8.2 Notices...................................................................................... 37
Section 8.3 Interpretation............................................................................... 37
Section 8.4 Counterparts................................................................................. 38
Section 8.5 Entire Agreement; No Third-Party Beneficiaries............................................... 38
Section 8.6 Governing Law................................................................................ 38
Section 8.7 Assignment................................................................................... 38
Section 8.8 Severability................................................................................. 38
Section 8.9 Enforcement of this Agreement................................................................ 38
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 18, 1999 (this "Agreement"),
among Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation
("Parent"), Fire Acquisition Corp., a Florida corporation and a wholly-owned
subsidiary of Parent ("Sub"), and Vistana, Inc., a Florida corporation (the
"Company"; together with Sub (the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of the Company with and into Sub (the "Merger"), upon
the terms and subject to the conditions set forth herein, whereby each issued
and outstanding share of common stock, par value $.01 per share, of the Company
("Company Common Stock"), not owned by Parent, the Company or their respective
wholly-owned Subsidiaries (as hereinafter defined) will be converted into (i)
shares of common stock, par value $.01 per share, of Parent ("Parent Common
Stock"), and Class B Shares, par value $.01 per share ("Class B Shares" and,
when attached to shares of Parent Common Stock pursuant to the Amended and
Restated Intercompany Agreement dated as of January 6, 1999, between Parent and
the Trust (as hereinafter defined), "Units"), of Starwood Hotels and Resorts, a
Maryland real estate investment trust and a subsidiary of Parent (the "Trust"
and, together with Parent, the "Parent Companies"), and (ii) cash;
WHEREAS the Board of Directors of the Company, upon the recommendation of
the Special Committee thereof constituted on April 5, 1999 by such Board of
Directors (the "Special Committee"), has unanimously approved this Agreement and
submitted this Agreement to each of Raymond L. Gellein, Jr. and Jeffrey A. Adler
and certain of their respective affiliated or associated entities (collectively,
the "Principal Shareholders"), as the owners of an aggregate of approximately 53
percent of the currently outstanding shares of the voting common stock of the
Company, for their consent, and the Principal Shareholders have caused to be
executed a written shareholders' consent (the "Shareholders' Consent") pursuant
to Section 607.0704 of the Florida 1989 Business Corporation Act (the "FBCA")
approving this Agreement and the Merger;
WHEREAS Parent and each of the Principal Shareholders have entered into a
Shareholder Agreement (including an irrevocable proxy) of even date herewith
with Parent (the "Shareholder Agreements"), which agreements the Board of
Directors of the Company, upon the unanimous recommendation thereof by the
Special Committee, has approved;
WHEREAS the respective Boards of Directors of each of Parent and the Company
have determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is in the best interest of their
respective stockholders or shareholders, as the case may be; and
WHEREAS for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth herein, and in accordance with the FBCA, the Company shall be merged with
and into Sub at the Effective Time (as hereinafter defined). Following the
Merger, the separate corporate existence of the Company shall cease and Sub
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of the Company in
accordance with the FBCA. Notwithstanding anything to the contrary herein, at
the election of Parent, Parent or any wholly-owned
<PAGE>
Subsidiary of Parent may be substituted for Sub as a constituent corporation in
the Merger. In such event, the parties agree to execute an appropriate amendment
to this Agreement, in form and substance reasonably satisfactory to Parent and
the Company, in order to reflect such substitution.
Section 1.2 EFFECTIVE TIME. The Merger shall become effective when
articles of merger (the "Articles of Merger"), executed in accordance with the
relevant provisions of the FBCA, are filed with the Department of State of the
State of Florida; PROVIDED, HOWEVER, that, upon mutual consent of the
Constituent Corporations, the Articles of Merger may provide for a later date of
effectiveness of the Merger not more than 30 days after the date the Articles of
Merger are filed. When used in this Agreement, the term "Effective Time" shall
mean the date and time at which the Articles of Merger are accepted for record
or such later time established by the Articles of Merger. The filing of the
Articles of Merger shall be made on the date of the Closing (as hereinafter
defined).
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 607.1106 of the FBCA.
Section 1.4 CHARTER AND BY-LAWS; DIRECTORS. (a) At the Effective Time, the
Articles of Incorporation of Sub, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law; PROVIDED, HOWEVER, that the Articles of Incorporation of Sub
shall include provisions substantially identical to ARTICLE VII, Section B and
ARTICLE VIII of the Articles of Incorporation of the Company existing as of the
date of this Agreement; and PROVIDED FURTHER that at the Effective Time Article
I of the Articles of Incorporation of Sub shall be amended to read in its
entirety as follows: "The corporate name that satisfies the requirements of
Section 607.0401 of the 1989 Business Corporation Act is: Vistana, Inc." At the
Effective Time, the By-laws of Sub, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or in the Articles of
Incorporation.
(b) The directors of Sub at the Effective Time shall be the directors of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
Section 1.5 CONVERSION OF SECURITIES. As of the Effective Time, by virtue
of the Merger and without any action on the part of Sub, the Company or the
holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value $.01
per share, of Sub shall be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
(b) All shares of Company Common Stock that are held in the treasury of
the Company and shares of Company Common Stock owned by Parent or Sub or by
any wholly-owned Subsidiary of Parent or of the Company shall be cancelled
and no cash, capital stock of Parent or other consideration shall be
delivered in exchange therefor.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof, each
share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be cancelled in accordance with
Section 1.5(b)) shall as of the Effective Time be converted into the right
to receive the Exchange Ratio (as defined below) of validly issued, fully
paid and nonassessable Units plus $5.00 in cash. The "Exchange Ratio" shall
be a number equal to the quotient, rounded to the nearest ten thousandth, or
if there shall not be a nearest ten thousandth, the next higher ten
thousandth, of (x) $14.00 divided by (y) the Market Price (as hereinafter
defined) of a Unit on the fifth New York Stock Exchange, Inc. ("NYSE")
trading day prior to the date of the Effective Time; PROVIDED, HOWEVER, that
in no event shall the Exchange Ratio be (A) less than an amount equal to
$14.00 divided by $36.00 or (B) greater than an amount equal to
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$14.00 divided by $30.00. All such shares of Company Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist and each holder thereof or of
a certificate representing any such shares shall cease to have any rights
with respect thereto, except that each holder of such a certificate shall
have the right to receive (i) any dividends and other distributions (paid
with respect to Units) in accordance with Section 1.7, (ii) certificates
representing the Units into which such shares are converted, (iii) cash into
which such shares are converted pursuant to this Section 1.5(c), without
interest, and (iv) any cash, without interest, in lieu of fractional Units
to be issued or paid in consideration therefor in accordance with Section
1.8, all upon the surrender of such certificate in accordance with Section
1.6. The "Market Price" of a Unit on any date means the average of the
Average Prices (as hereinafter defined) for the 20 consecutive NYSE trading
days immediately preceding such date. The "Average Price" for any date means
the average of the daily high and low prices per Unit as reported on the
NYSE Composite Transactions reporting system (as published in The Wall
Street Journal or, if not published therein, in another authoritative source
mutually selected by the Company and Parent).
Section 1.6 PARENT TO MAKE CERTIFICATES AVAILABLE.
(a) EXCHANGE OF CERTIFICATES. Prior to the Effective Time, Parent shall
authorize a commercial bank (or such other person or persons as shall reasonably
be acceptable to Parent and the Company) to act as Exchange Agent hereunder (the
"Exchange Agent"). Parent shall deposit with the Exchange Agent, in trust for
the holders of shares of Company Common Stock converted in the Merger, (i) as
soon as practicable after the Effective Time, certificates representing the
Units issuable pursuant to Section 1.5(c) in exchange for outstanding shares of
Company Common Stock, and (ii) as required from time to time after the Effective
Time to enable the Exchange Agent to make such payments on Parent's behalf, cash
payable pursuant to Section 1.5(c) in exchange for outstanding shares of Company
Common Stock, cash required to make payments in lieu of any fractional shares
pursuant to Section 1.8 and cash or other property to pay or make any dividends
or distributions pursuant to Section 1.7 (such cash and Units, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund"). The Exchange Agent shall deliver the Units contemplated
to be issued and the cash payable pursuant to Section 1.5(c) out of the Exchange
Fund. The Exchange Fund shall not be used for any other purpose except as
provided for in this Agreement.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each record holder of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock converted in the Merger (the
"Certificates"), a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon actual delivery of the Certificates to the Exchange Agent, and shall
contain instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Units and cash payable or other property
distributable pursuant to Section 1.5(c)). Upon surrender for cancellation to
the Exchange Agent of all Certificates held by any record holder of a
Certificate, together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor cash and a
certificate representing that number of whole Units into which the shares
represented by the surrendered Certificate shall have been converted at the
Effective Time pursuant to this Article I, cash in lieu of any fractional Units
in accordance with Section 1.8 and any dividends or other distributions in
accordance with Section 1.7, and any Certificate so surrendered shall forthwith
be cancelled by the Exchange Agent.
Section 1.7 DIVIDENDS; TRANSFER TAXES; WITHHOLDING. No dividends or other
distributions that are declared on or after the Effective Time on the Units, or
are payable to the holders of record thereof on or after the Effective Time,
will be paid to any person entitled by reason of the Merger to receive a
certificate representing Units until such person surrenders the related
Certificate or Certificates, as provided in Section 1.6, and no cash payment
pursuant to Section 1.5(c) or 1.8 will be paid to any such
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person until such person shall so surrender the related Certificate or
Certificates. Subject to the effect of applicable law, there shall be paid to
each record holder of a new certificate representing such Units: (i) at the time
of such surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions theretofore paid with respect to the Units
represented by such new certificate and having a record date on or after the
Effective Time and a payment date prior to such surrender; (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount of
any dividends or other distributions payable with respect to such Units and
having a record date on or after the Effective Time but prior to such surrender
and a payment date on or subsequent to such surrender; and (iii) at the time of
such surrender or as promptly as practicable thereafter, the amount of any cash
payable pursuant to Section 1.5(c) or 1.8 to which such holder is entitled. In
no event shall the person entitled to receive such dividends or other
distributions or cash be entitled to receive interest on such dividends or other
distributions or cash. If any certificate representing Units or cash or other
property is to be issued or delivered in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such Units in a
name other than that of the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as Parent
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or under any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by Parent or
the Exchange Agent.
Section 1.8 NO FRACTIONAL SECURITIES. No certificates or scrip
representing fractional Units shall be issued upon the surrender for exchange of
Certificates pursuant to this Article I, and no Parent or Trust dividend or
other distribution or stock split shall relate to any fractional share, and no
fractional share shall entitle the owner thereof to vote or to any other rights
of a securityholder of Parent or Trust. In lieu of any such fractional share,
each holder of Company Common Stock who would otherwise have been entitled to a
fraction of a Unit upon surrender of Certificates for exchange pursuant to this
Article I will be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (i) the per share closing price on the
NYSE of a Unit (as reported in the NYSE Composite Transactions) on the date of
the Effective Time or, if the Units do not trade on the NYSE on such date, the
first date of trading of Units on the NYSE after the Effective Time) by (ii) the
fractional interest to which such holder would otherwise be entitled. As
promptly as practicable after the determination of the amount of cash to be paid
to holders of fractional share interests, the Exchange Agent shall so notify
Parent, and Parent shall deposit such amount with the Exchange Agent and shall
cause the Exchange Agent to forward payments to such holders of fractional share
interests subject to and in accordance with the terms of Section 1.7 and this
Section 1.8. For purposes of paying such cash in lieu of fractional shares, all
Certificates surrendered for exchange by a Company shareholder shall be
aggregated, and no such Company shareholder will receive cash in lieu of
fractional shares in an amount equal to or greater than the value of one full
Unit with respect to such Certificates surrendered.
Section 1.9 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund that
remains undistributed to the former shareholders of the Company for one year
after the Effective Time shall be delivered to Parent, upon demand of Parent,
and any such former shareholders who have not theretofore complied with this
Article I shall thereafter look only to Parent for payment of their claim for
Units, any cash payable pursuant to Sections 1.5(c) and 1.8 and any dividends or
distributions with
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respect to Units. None of Parent, Trust or the Surviving Corporation shall be
liable to any former holder of Company Common Stock for any such Units, cash and
dividends and distributions held in the Exchange Fund that is delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.10 ADJUSTMENT OF EXCHANGE RATIO. In the event of any
reclassification, stock split, combination or stock dividend with respect to the
Units, any change or conversion of Units into other securities or any other
dividend or distribution with respect to the Units other than the declaration
and payment of cash dividends not in the aggregate in excess of $1.00 per Unit
(or if a record date with respect to the foregoing should occur) prior to the
Effective Time, appropriate and proportionate adjustments, if any, shall be made
to the Exchange Ratio, and all references to the Exchange Ratio in this
Agreement shall be deemed to be to the Exchange Ratio as so adjusted.
Section 1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
Units and cash issued or paid upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to Sections
1.5(c) and 1.8) shall be deemed to have been issued in full satisfaction of all
rights pertaining to the shares of Company Common Stock represented by such
Certificates.
Section 1.12 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or the Parent, such Certificates shall be
cancelled and exchanged as provided in this Article I.
Section 1.13 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent or the Exchange Agent, the posting by such person of a bond, in such
reasonable amount as Parent or the Exchange Agent may direct as indemnity
against any claim that may be made against them with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Units, any cash payable pursuant to Section 1.5(c) or
1.8 to which the holders thereof are entitled and any dividends or other
distributions to which the holders thereof are entitled pursuant to Section 1.7.
Section 1.14 FURTHER ASSURANCES. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
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Section 1.15 CLOSING. Unless this Agreement is otherwise terminated in
accordance with the provisions hereof, subject to Section 7.1(e), the closing of
the Merger (the "Closing" and the date on which the Closing occurs being the
"Closing Date") and all actions contemplated by this Agreement to occur at the
Closing shall take place at the offices of Sidley & Austin, 875 Third Avenue,
New York, New York, at 10:00 a.m., local time, on a date to be specified by the
parties, which (subject to fulfillment or waiver of the conditions set forth in
Article VI) shall be no later than the second business day following the day on
which the last of the conditions set forth in Article VI shall have been
fulfilled or waived, or at such other time and place as Parent and the Company
shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub represents and warrants to the Company as follows:
Section 2.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization and has the requisite corporate power and
authority to carry on its business as now being conducted. Each Subsidiary of
Parent is duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is organized and has the requisite corporate (in
the case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or authority,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect (as hereinafter defined) on Parent. Parent and each of
its Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on Parent.
For all purposes of this Agreement, any reference to any state of facts,
event, change or effect having a "Material Adverse Effect" on or with respect to
Parent or the Company, as the case may be, means that such state of facts,
event, change or effect has had, or could reasonably be expected to have, a
material adverse effect on the business, properties, assets, results of
operations or condition (financial or otherwise) of Parent and its Subsidiaries,
taken as a whole, or the Company and its Subsidiaries, taken as a whole, as the
case may be; PROVIDED, HOWEVER, that any such adverse effect resulting from any
Proposed Accounting Change (as defined below) shall not be taken into account in
determining whether there has been a Material Adverse Effect on or with respect
to Parent or the Company. A "Proposed Accounting Change" shall mean, for all
purposes of this Agreement, any proposed change in accounting principles which
has not been adopted (with or without a later effective date) by the American
Institute of Certified Public Accountants or the Financial Accounting Standards
Board prior to the Closing Date. For all purposes of this Agreement, except as
hereinafter provided, "Subsidiary" means any corporation, partnership, limited
liability company, joint venture or other legal entity of which Parent or the
Company, as the case may be (either alone or through or together with any other
Subsidiary), (i) owns, directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation,
partnership, limited liability company, joint venture or other legal entity,
(ii) is a general partner, trustee, manager or other entity or person performing
similar functions or (iii) has control (as defined in Rule 405 under the
Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act")); PROVIDED, HOWEVER, that with
respect to the Company, neither the Company's limited partnerships relating to
Vistana Resort at World Golf Village (the "Company Venture"), nor the VOI (as
herein after defined) owner associations present at any of its resorts shall be
deemed to be a "Subsidiary" of the Company for purposes of this Agreement. For
all purposes of this Agreement, a "wholly-owned Subsidiary" of
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the Company shall be deemed to include those entities which, for regulatory or
other local law purposes, have issued nominal ownership interests to persons
other than the Company or any of its Subsidiaries.
Section 2.2 CAPITAL STRUCTURE. At the date hereof, the authorized stock of
Parent consists of (i) 1,000,000,000 shares of Parent Common Stock, (ii)
200,000,000 shares of preferred stock, par value $0.01 per share (the "Parent
Preferred Stock"), (iii) 50,000,000 shares of excess common stock, par value
$0.01 per share ("Parent Excess Common Stock"), and (iv) 100,000,000 shares of
excess preferred stock, par value $0.01 per share ("Parent Excess Preferred
Stock"). At the close of business on June 30, 1999, 178,689,625 shares of Parent
Common Stock were issued and outstanding and no shares of Parent Preferred
Stock, Parent Excess Common Stock or Parent Excess Preferred Stock were
outstanding. As of the date hereof, the authorized beneficial interest of the
Trust consists of (i) 5,000 Class A Shares, par value $.01 per share (the "Class
A Shares"), (ii) 1,000,000,000 Class B Shares, (iii) 200,000,000 Excess Trust
Shares, par value $0.01 per share ("Excess Trust Shares"), (iv) 30,000,000 Class
A Exchangeable Preferred Shares, par value $0.01 per share ("Class A EPS"), (v)
15,000,000 Class B Exchangeable Preferred Shares, par value $0.01 per share
("Class B EPS"), (vi) 55,000,000 Trust Preferred Shares, par value $0.01 per
share ("Trust Preferred Shares"), and (vii) 50,000,000 Excess Preferred Shares,
par value $0.01 per share ("Excess Trust Preferred Shares"). At the close of
business on June 30, 1999, (i) 100 Class A Shares were issued and outstanding,
(ii) 178,689,625 Class B Shares were issued and outstanding, (iii) 3,944,692
shares of Class A EPS were issued and outstanding and (iv) 3,536,871 shares of
Class B EPS were issued and outstanding and (v) no excess Trust Shares or Excess
Trust Preferred Shares were outstanding. As of the close of business on June 30,
1999, (i) no Class B Shares were held in the treasury of the Trust or by its
Subsidiaries, (ii) 24,367,652 Class B Shares were reserved for issuance pursuant
to the Parent Stock Plans (as hereinafter defined), (iii) 11,777,501 Class B
Shares were reserved for issuance pursuant to the exchange of Class A EPS and
the exchange of SLT Units (as defined below) and SLC Units (as defined below),
(iv) 3,536,871 Class A EPS were reserved for issuance pursuant to the exchange
of Class B EPS and (v) 548,665 Class B EPS were reserved for issuance pursuant
to the exchange of certain SLT Units and SLC Units. All the outstanding shares
of Parent Common Stock, Class A Shares, Class B Shares, Class A EPS and Class B
EPS are validly issued, fully paid and nonassessable and free of preemptive
rights. As of the close of business on June 30, 1999, except as set forth in
Section 2.2 of the letter dated the date hereof and delivered on the date hereof
by Parent to the Company, which letter relates to this Agreement and is
designated therein as the Parent Letter (the "Parent Letter"), and except (a)
for this Agreement, (b) for stock options issued pursuant to the Incentive and
Non-Qualified Shares Option Plan (1986) of the Trust, the Corporation Stock
Non-Qualified Stock Option Plan (1986) of the Trust, the Stock Option Plan
(1986) of Parent, the Trust Shares Option Plan (1986) of Parent, the 1995
Long-Term Incentive Plan of the Trust, the 1995 Long-Term Incentive Plan of
Parent, the 1999 Long-Term Incentive Plan of the Trust and the 1999 Long-Term
Incentive Plan of Parent (collectively, the "Parent Stock Plans") covering not
in excess of 48,776,342 shares of Parent Common Stock (collectively, the "Parent
Stock Options"), (c) for 8,318,524 shares of Parent Common Stock issuable upon
the exchange of units ("SLT Units") in SLT Realty Limited Partnership (the
"Realty Partnership") and units ("SLC Units") in SLC Operating Limited
Partnership (the "Operating Partnership"), and (d) as disclosed above, there are
no options, warrants, calls, rights, securities or agreements to which Parent is
a party or by which it is bound obligating Parent to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Parent or any of its Subsidiaries or obligating Parent, or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, security or agreement. As of the close of business on June 30, 1999,
except as disclosed in Section 2.2 of the Parent Letter, and except (a) for this
Agreement, (b) for stock options issued pursuant to the Parent Stock Plans
covering not in excess of 22,536,199 Class B Shares (collectively, the "Trust
Stock Options"), (c) for 11,777,501 Class B Shares issuable upon the exchange of
SLT Units, SLC Units and Class A EPS, (d) for 3,536,871 Class A EPS issuable
upon the conversion of Class B EPS, (e) for 548,665 Class B EPS issuable upon
the exchange of SLT Units and SLC Units and (f) as disclosed
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above, there are no options, warrants, calls, rights, securities or agreements
to which the Trust is a party or by which it is bound obligating the Trust to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of beneficial interest of the Trust or obligating the Trust to grant,
extend or enter into any such option, warrant, call, right, security or
agreement. At the date hereof, the capital stock of Sub consists of 1,000 shares
of common stock, par value $0.01 per share ("Sub Shares"), of which as of the
date of this Agreement, 1,000 Sub Shares were issued and outstanding, all of
which shares were owned directly by Parent. Each outstanding share of capital
stock of each Subsidiary of Parent that is a corporation is duly authorized,
validly issued, fully paid and nonassessable and, except as disclosed in the
Parent SEC Documents filed prior to the date of this Agreement, each such share
is owned by Parent or another Subsidiary of Parent, free and clear of all
security interests, liens, claims, pledges, mortgages, options, rights of first
refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever (each, a "Lien"). As of the date of this
Agreement, there are no outstanding contractual obligations of Parent or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or any of its Subsidiaries. Neither Parent nor any
Subsidiary of Parent beneficially owns any shares of Company Common Stock.
Except as set forth in Section 2.2 of the Parent Letter, Exhibit 21.1 to the
Annual Report on Form 10-K of Parent for the year ended December 31, 1998 (the
"Parent Annual Report"), as filed with the Securities and Exchange Commission
(the "SEC"), is a true and correct statement in all material respects of all the
information required to be set forth therein by the rules and regulations of the
SEC.
Section 2.3 AUTHORITY. Each of Parent and Sub has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the Merger and the other transactions contemplated
hereby. The respective Boards of Directors of Parent and Sub have duly approved
and adopted this Agreement. The Board of Directors of Sub recommended this
Agreement to its sole shareholder, and the sole shareholder of Sub has approved
this Agreement, all such actions being taken in accordance with the FBCA. The
execution, delivery and performance of their obligations under this Agreement by
Parent and Sub and the consummation by Parent and Sub of the Merger and the
other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub, subject to the filing
of the Articles of Merger as required by the FBCA. This Agreement has been duly
executed and delivered by each of Parent and Sub and (assuming the valid
authorization, execution and delivery of this Agreement by the Company and the
validity and binding effect of this Agreement on the Company) constitutes the
valid and binding obligation of Parent and Sub enforceable against each of them
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditor's rights and to general equity principles. The filing of a joint
registration statement on Form S-4 with the SEC by the Parent Companies under
the Securities Act for the purpose of registering the Units to be issued in
connection with the Merger as contemplated by this Agreement (together with any
amendments or supplements thereto, whether prior to or after the effective date
thereof, and including all information incorporated by reference therein, the
"Registration Statement") have been duly authorized by Parent's Board of
Directors and Trust's Board of Trustees. The issuance of the Class B Shares in
the Merger has been duly authorized by the Trust's Board of Trustees.
Section 2.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all
consents, approvals, authorizations and other actions specifically described in
this Section 2.4 have been obtained and all filings, registrations and
obligations specifically described in this Section 2.4 have been made or
satisfied, and except as set forth in Section 2.4 of the Parent Letter, the
execution and delivery of this Agreement by Parent and Sub do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not (with or without notice or lapse of time, or both),
result in any violation of, or default or loss of a material benefit under, or
give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien
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upon any of the properties, assets or operations of Parent or any of its
Subsidiaries under, any provision of (i) the articles of incorporation or
by-laws of Parent, (ii) any provision of the comparable charter or organization
documents of any Subsidiary of Parent, (iii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Subsidiaries
or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries or any of their respective
properties, assets or operations, other than, in the case of clauses (ii), (iii)
or (iv), any such violations, defaults, losses, rights or Liens that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent, materially impair the ability of Parent or Sub to perform their
respective obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal or state), foreign
or supranational court, commission, governmental body, regulatory agency,
authority, commission or tribunal (a "Governmental Entity") is required by or
with respect to Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Parent or Sub or is necessary for
the consummation of the Merger and the other transactions contemplated by this
Agreement, except (i) in connection, or in compliance, with the provisions of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act and the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act"), (ii) the filing of the Articles of Merger with the Department of State of
the State of Florida and appropriate documents with the relevant authorities of
other states in which Parent or any of its Subsidiaries is qualified to do
business, (iii) such filings, authorizations, orders and approvals as may be
required by state takeover laws (the "State Takeover Approvals"), (iv) such
filings as may be required in connection with the taxes described in Section
5.11, (v) pursuant to applicable requirements, if any, of state securities or
"blue sky" laws ("Blue Sky Laws") and the NYSE, (vi) certain filings,
authorizations, consents and approvals as may be required with or from
Governmental Entities in connection with gaming operations, such filings or
amendments as may be required by federal and state land development, mortgage
servicing and telemarketing laws, state time share laws, state securities laws
applicable to the sale or offer of VOIs, and seller of travel or travel agency
laws (the "Regulatory Approvals") and (vii) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Parent, materially impair the
ability of Parent or Sub to perform their respective obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby.
Section 2.5 SEC DOCUMENTS AND OTHER REPORTS. The Parent Companies have
filed all required documents with the SEC since January 1, 1997 (the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated (or combined
consolidated) financial statements (including, in each case, any notes thereto)
of the Parent Companies included in the Parent SEC Documents complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto as of their
respective dates of filing, were prepared in accordance with generally accepted
accounting principles (except, in the case of the unaudited statements, as
permitted by Regulation S-X of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented in all material respects the consolidated (or combined
consolidated) financial position of Trust and Parent and their consolidated
Subsidiaries as at the respective dates thereof and the consolidated (or
combined consolidated) results of their operations and their consolidated (or
combined consolidated) cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and to any
other adjustments described
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therein). Except as disclosed in the Parent SEC Documents or as required by
generally accepted accounting principles, the Parent Companies have not, since
December 31, 1998, made any change in the accounting practices or policies
applied in the preparation of their financial statements.
Section 2.6 REGISTRATION STATEMENT AND INFORMATION STATEMENT. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement or the information statement/prospectus
included therein (together with any amendments or supplements thereto, and
including all information incorporated by reference therein, the "Information
Statement") relating to this Agreement and the Shareholders Consent will (i) in
the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Information Statement, at the
time of the mailing of the Information Statement and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Parent, its officers and directors or any of its Subsidiaries shall occur that
is required to be described in the Information Statement or the Registration
Statement, such event shall be so described, and an appropriate amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of the Company. The Registration Statement will
comply (with respect to the Parent Companies) as to form in all material
respects with the provisions of the Securities Act, and the Information
Statement will comply (with respect to the Parent Companies) as to form in all
material respects with the provisions of the Exchange Act.
Section 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Documents filed prior to the date of this Agreement, since
December 31, 1998, (i) Parent and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not in
the ordinary course of business or that would reasonably be expected to result
in a Material Adverse Effect on Parent, (ii) Parent and its Subsidiaries have
not sustained any loss or interference with their business or properties from
fire, flood, windstorm, accident or other calamity (whether or not covered by
insurance) that has had or that would reasonably be expected to have a Material
Adverse Effect on Parent (iii) there has been no change in the capital stock of
the Parent Companies and no dividend or distribution of any kind declared, paid
or made by the Parent Companies on any class of its stock, except for regular
quarterly dividends declared or paid on the Class A Shares, Class B Shares,
Class A EPS, Class B EPS and common shares of beneficial interest, par value
$.01 per share, of the Trust, and (iv) there has been no other event causing a
Material Adverse Effect on Parent, nor any development that, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect on
Parent.
Section 2.8 PERMITS AND COMPLIANCE. Parent and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
charters, easements, variances, exceptions, consents, certificates, approvals
and orders of any Governmental Entity (collectively, "Permits") necessary for
Parent or any of its Subsidiaries to own, lease and operate its properties or to
carry on its business as it is now being conducted (the "Parent Permits"),
except where the failure to have any of the Parent Permits, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Parent, and, as of the date of this Agreement, no suspension or
cancellation of any of the Parent Permits is pending or, to the Knowledge of
Parent (as hereinafter defined), threatened, except where the suspension or
cancellation of any of the Parent Permits, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on Parent.
Neither Parent nor any of its Subsidiaries is in violation of (i) its respective
charter, by-laws or other organizational documents, (ii) any applicable law,
ordinance, administrative or governmental rule or regulation or (iii) any order,
decree or judgment of any Governmental Entity having jurisdiction over Parent or
any of its
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Subsidiaries, except, in the case of clauses (i), (ii) and (iii), for any
violations that, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Parent. Except as disclosed in the
Parent SEC Documents filed prior to the date of this Agreement, and except for
contracts or agreements entered into after the date hereof not in violation of
this Agreement, there is no contract or agreement that is material to the
business, properties, results of operations or condition (financial or
otherwise) of Parent and its Subsidiaries, taken as a whole. Except as set forth
in the Parent SEC Documents or Section 2.8 of the Parent Letter, no event of
default or event that, but for the giving of notice or the lapse of time or
both, would constitute an event of default exists or, upon the consummation by
Parent of the transactions contemplated by this Agreement, will exist under any
indenture, mortgage, loan agreement, note or other agreement or instrument for
borrowed money, any guarantee of any agreement or instrument for borrowed money
or any lease, license or other agreement or instrument to which Parent or any of
its Subsidiaries is a party or by which Parent or any such Subsidiary is bound
or to which any of the properties, assets or operations of Parent or any such
Subsidiary is subject, other than any defaults that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Parent. For purposes of this Agreement, "Knowledge of Parent" means the actual
knowledge, after reasonable investigation, of the individuals identified in
Section 2.8 of the Parent Letter.
Section 2.9 NO REQUIRED VOTE OF PARENT STOCKHOLDERS. No vote of the
stockholders of Parent is required by law, the organization documents of Parent
or otherwise in order for Parent to consummate the Merger and the transactions
contemplated hereby.
Section 2.10 REORGANIZATION; PARENT TAX CERTIFICATE. (a) To the Knowledge
of Parent, neither Parent nor any of its Subsidiaries has taken any action or
failed to take any action which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
(b) To the Knowledge of the Parent, the representations and warranties set
forth in the Parent Tax Certificate attached to the Parent Letter, if made on
the date hereof (assuming the Merger were consummated on the date hereof), would
be true and correct.
Section 2.11 BROKERS. No broker, investment banker or other person, other
than NationsBanc Montgomery Securities LLC, the fees and expenses of which will
be paid by Parent, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of Parent and Sub as follows:
Section 3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida and has the requisite corporate power and authority to carry on
its business as now being conducted. Each Subsidiary of the Company and the
Company Venture is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
corporate (in the case of a Subsidiary that is a corporation) or other power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power
or authority, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on the Company. The Company and each of its
Subsidiaries, and the Company Venture, are duly qualified to do business, and
are in good standing, in each jurisdiction where the character of their
properties owned or held under lease or the nature of their activities makes
such qualification necessary, except where the failure to be so qualified,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
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Section 3.2 CAPITAL STRUCTURE. At the date hereof, the authorized capital
stock of the Company consists of 100,000,000 shares of Company Common Stock and
5,000,000 shares of preferred stock, par value $.01 per share ("Company
Preferred Stock"). At the close of business on June 30, 1999, (i) 21,567,377
shares of Company Common Stock were issued and outstanding (including 251,309
shares of Company Common Stock issued and held in escrow pursuant to the
contingent share earnout arrangement (the "Points and Success Earnout") set
forth in the Agreement and Plan of Reorganization, dated as of August 15, 1997,
relating to the acquisition of The Success Companies, Success Developments,
L.L.C. and Points of Colorado, Inc., Amendment No. 1 thereto and the related
Escrow Agreement, which shares are not shown as outstanding in the Company SEC
Documents), (ii) no shares of Company Common Stock were held in the treasury of
the Company or by its Subsidiaries, (iii) 2,000,628 shares of Company Common
Stock were reserved for issuance pursuant to the Company Stock Plan and the
Company Employee Stock Purchase Plan (collectively, the "Company Stock Plans").
Except as set forth above, at the close of business on June 30, 1999, no shares
of capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding. All the outstanding shares of Company Common Stock
are validly issued, fully paid and nonassessable and free of preemptive rights.
As of the date of this Agreement, except for stock options issued pursuant to
the Company Stock Plans covering not in excess of 2,500,000 shares of Company
Common Stock (collectively, the "Company Stock Options"), there are no options,
warrants, calls, rights, securities or agreements to which the Company or any of
its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of the Company or
any of its Subsidiaries or obligating the Company or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call, right, security or
agreement. Each outstanding share of capital stock of each Subsidiary of the
Company that is a corporation is duly authorized, validly issued, fully paid and
nonassessable and, except as disclosed in Section 3.2 of the letter dated the
date hereof and delivered on the date hereof by the Company to Parent, which
letter relates to this Agreement and is designated therein as the Company Letter
(the "Company Letter"), or in the Company SEC Documents (as hereinafter defined)
filed prior to the date of this Agreement, each such share is owned by the
Company or another Subsidiary of the Company, free and clear of all Liens. As of
the date of this Agreement, the Company does not have outstanding any bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as
disclosed in Section 3.2 of the Company Letter, as of the date of this
Agreement, there are no outstanding contractual obligations of the Company or
any of its Subsidiaries, or the Company Venture, to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
Subsidiaries, or equity interests in the Company Venture. Except as set forth in
Section 3.2 of the Company Letter, Exhibit 21.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, as filed with the SEC (the
"Company Annual Report"), is a true and correct statement in all material
respects of all the information required to be set forth therein by the rules
and regulations of the SEC as of such date.
Section 3.3 AUTHORITY. The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and to consummate the Merger and the other transactions contemplated hereby. The
Board of Directors of the Company, upon the recommendation of the Special
Committee, has unanimously duly approved (i) this Agreement, the Merger and the
other transactions contemplated hereby and (ii) the execution and delivery by
the Principal Shareholders of the Shareholder Agreements (including the
irrevocable proxy) and the Shareholders' Consent. The Board of Directors of the
Company has declared the Merger advisable and fair to and in the best interests
of the Company and its shareholders. The Principal Shareholders, as the holders
of a majority of the outstanding shares of Company Common Stock, have duly
approved, by delivering the Shareholders' Consent, this Agreement and the
Merger. No further action by or vote of the shareholders of the Company is
required by law, the Articles of Incorporation or the Amended and Restated
By-laws of the Company or otherwise in order for the Company to consummate the
Merger
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and the other transactions contemplated hereby. The execution, delivery and
performance of its obligations under this Agreement by the Company and the
consummation by the Company of the Merger and the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject to notification to all shareholders of the
Company of such action in accordance with Section 607.0704(3) of the FBCA and
the Amended and Restated By-laws of the Company and the filing of the Articles
of Merger as required by Section 607.1105 of the FBCA. This Agreement has been
duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of this Agreement by Parent and Sub and
the validity and binding effect of this Agreement on Parent and Sub) constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditor's rights and to general equity principles. The filing of the
Information Statement with the SEC has been duly authorized by the Company's
Board of Directors.
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all
consents, approvals, authorizations and other actions specifically described in
this Section 3.4 or in Section 3.4 of the Company Letter have been obtained or
taken and all filings, registrations and obligations specifically described in
this Section 3.4 have been made or satisfied, the execution and delivery of this
Agreement by the Company does not and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not (with or
without notice or lapse of time, or both), result in any violation of, or
default or the loss of a material benefit under, or give to others a right of
termination, cancellation or acceleration of any obligation under, or result in
the creation of any Lien, upon any of the properties, assets or operations of
the Company or any of its Subsidiaries, or the Company Venture, under, any
provision of (i) the Articles of Incorporation or the Amended and Restated
By-laws of the Company, (ii) any provision of the comparable charter or
organization documents of any Subsidiary of the Company, or the Company Venture,
(iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement (other than employee stock option agreements under the Stock
Plans (as defined in Section 5.8), which may provide for accelerated vesting of
the underlying options upon the Effective Time and employee purchase rights
under the Company's Employee Stock Purchase Plan which accelerate the "date of
exercise" thereunder to the business day prior to the Effective Time),
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries, or the Company Venture, or (iv) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, or the Company Venture, or any of their respective
properties, assets or operations, other than, in the case of clauses (ii), (iii)
or (iv), any such violations, defaults, losses, rights or Liens that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company, materially impair the ability of the
Company to perform its obligations hereunder or prevent the consummation of any
of the transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by or
with respect to the Company or any of its Subsidiaries, or the Company Venture,
in connection with the execution and delivery of this Agreement by the Company,
is necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement or will be necessary to allow the Surviving
Corporation to operate the business of the Company in the same manner as
operated immediately prior to the Merger, except (i) in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act and the
Exchange Act, (ii) the filing of the Articles of Merger with the Department of
State of the State of Florida and appropriate documents with the relevant
authorities of other states in which the Company or any of its Subsidiaries, or
the Company Venture, is qualified to do business, (iii) State Takeover
Approvals, (iv) such filings as may be required in connection with the taxes
described in Section 5.11, (v) pursuant to applicable requirements, if any, of
Blue Sky Laws and the National Market of the National Association of Securities
Dealers, Inc. Automated Quotations System, (vi) the Regulatory Approvals and
(vii) such other consents, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made, individually or in the
aggregate,
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would not reasonably be expected to have a Material Adverse Effect on the
Company, materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed all
required documents with the SEC since January 1, 1997 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents, when taken
together with any amendment thereto filed prior to the date hereof, complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the
Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles (except, in
the case of the unaudited statements, as permitted by Regulation S-X of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as at the respective dates thereof and the consolidated results of
their operations and their consolidated cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein). Except as disclosed
in the Company SEC Documents or as required by generally accepted accounting
principles, the Company has not, since December 31, 1998, made any material
change in the accounting policies applied in the preparation of its financial
statements.
Section 3.6 REGISTRATION STATEMENT AND INFORMATION STATEMENT. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Information Statement will (i) in
the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Information Statement, at the
time of the mailing of the Information Statement and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
the Company, its officers and directors or any of its Subsidiaries, or the
Company Venture, shall occur that is required to be described in the Information
Statement or the Registration Statement, such event shall be so described, and
an appropriate amendment or supplement shall be promptly filed with the SEC and,
as required by law, disseminated to the shareholders of the Company. The
Registration Statement will comply (with respect to the Company) as to form in
all material respects with the provisions of the Securities Act, and the
Information Statement will comply (with respect to the Company) as to form in
all material respects with the provisions of the Exchange Act.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement or Section
3.7 of the Company Letter, since December 31, 1998, (A) the Company and its
Subsidiaries, and the Company Venture, have not incurred any material liability
or obligation (indirect, direct or contingent), or entered into any material
oral or written agreement or other transaction, that is not in the ordinary
course of business or that would reasonably be expected to result in a Material
Adverse Effect on the Company, (B) the Company and its Subsidiaries, and the
Company Venture, have not sustained any loss or interference with their business
or properties from fire, flood, windstorm, accident or other calamity (whether
or not covered by insurance) that has had or that would reasonably be expected
to have a Material Adverse
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Effect on the Company, (C) there has been no change in the capital stock of the
Company and no dividend or distribution of any kind declared, paid or made by
the Company on any class of its stock, (D) there has not been (x) any payment or
agreement to pay any compensation of any nature whatsoever (other than pursuant
to any agreement as in effect on the date hereof), or any award or grant under
any Company Plan (as hereinafter defined) as in effect on the date hereof, to
any executive officer of the Company or of any of its Subsidiaries listed in
Section 3.7(D)(x) of the Company Letter, or the Company Venture, (y) any
granting by the Company or any of its Subsidiaries, or the Company Venture, to
any such executive officer of any severance or termination award or (z) any
entry by the Company or any of its Subsidiaries, or the Company Venture, into
any employment, severance or termination agreement with any such executive
officer and (E) there has been no other event causing a Material Adverse Effect
on the Company, nor any development that, individually or in the aggregate,
would reasonably be expected to have resulted in a Material Adverse Effect on
the Company. Set forth in Section 3.7 of the Company Letter is a list of the
indebtedness of the Company and its Subsidiaries, and the Company Venture, as of
December 31, 1998 and May 31, 1999 and a summary of any material changes in the
terms of such indebtedness between December 31, 1998 and the date of this
Agreement. Between December 31, 1998 and the date of this Agreement, except as
set forth in Section 3.7 of the Company Letter, there have been no material
changes in the net outstanding amount of indebtedness of the Company, its
Subsidiaries and the Company Venture other than changes resulting from fundings
and payments in the ordinary course of business under lines of credit and credit
facilities existing on December 31, 1998.
Section 3.8 PERMITS AND COMPLIANCE. Each of the Company and its
Subsidiaries, and the Company Venture, is in possession of all Permits necessary
for the Company or any of its Subsidiaries, and the Company Venture, to own,
sell lease and operate its properties or to carry on its business as it is now
being conducted (the "Company Permits"), except where the failure to have any of
the Company Permits, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company, and, as of the date
of this Agreement, no suspension or cancellation of any of the Company Permits
is pending or, to the Knowledge of the Company (as hereinafter defined),
threatened, except where the suspension or cancellation of any of the Company
Permits, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the Company. Neither the Company nor any of
its Subsidiaries, nor the Company Venture, is in violation of (i) its charter,
by-laws or other organizational documents, (ii) any applicable law, ordinance,
administrative or governmental rule or regulation (including the Federal Trade
Commission Act, the Truth-in-Lending Act and Regulation Z promulgated
thereunder, the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, the Interstate Land Sales Full Disclosure Act, the Civil Rights Acts
of 1964 and 1968, Environmental Laws (as hereinafter defined), federal and state
telemarketing laws, state time share laws, state securities laws applicable to
the sale or offer of vacation ownership interests ("VOIs"), and seller of travel
or travel agency laws) or (iii) any order, decree or judgment of any
Governmental Entity having jurisdiction over the Company or any of its
Subsidiaries, or the Company Venture, except, in the case of clauses (i), (ii)
and (iii), for any violations that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company. Except
as disclosed in the Company SEC Documents filed prior to the date of this
Agreement or in Section 3.8 of the Company Letter, and except for contracts or
agreements entered into after the date hereof, not in violation of this
Agreement, there is no contract or agreement that is material to the business,
properties, results of operations or condition (financial or otherwise) of the
Company and its Subsidiaries, and the Company Venture, taken as a whole. Except
as set forth in the Company SEC Documents or Section 3.8 of the Company Letter,
no event of default or event that, but for the giving of notice or the lapse of
time or both, would constitute an event of default exists or, upon the
consummation by the Company of the transactions contemplated by this Agreement,
will exist under any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or any lease, license, declaration of covenants,
conditions and restrictions, horizontal property regime, VOI
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owners' association governing instruments or other agreement or instrument to
which the Company or any of its Subsidiaries, or the Company Venture, is a party
or by which the Company or any such Subsidiary, or the Company Venture, is bound
or to which any of the properties, assets or operations of the Company or any
such Subsidiary, or the Company Venture, is subject, other than any defaults
that, individually or in the aggregate, would not reasonably be expected to have
a Material Adverse Effect on the Company. For purposes of this Agreement,
"Knowledge of the Company" means the actual knowledge, after reasonable
investigation, of the individuals identified in Section 3.8 of the Company
Letter.
Section 3.9 TAX MATTERS. Except as otherwise set forth in Section 3.9 of
the Company Letter, (i) the Company and each of its Subsidiaries have filed all
federal, and all material state, local, foreign and provincial, Tax Returns (as
hereinafter defined) required to have been filed or appropriate extensions
therefor have been properly obtained, and such Tax Returns are correct and
complete, except to the extent that any failure to so file or any failure to be
correct and complete, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company; (ii) all Taxes (as
hereinafter defined) shown to be due on such Tax Returns have been timely paid
or reserved against or extensions for payment have been properly obtained, or
such Taxes are being timely and properly contested, (iii) the Company and each
of its Subsidiaries have complied in all material respects with all rules and
regulations relating to the withholding of Taxes except to the extent that any
failure to comply with such rules and regulations, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company; (iv) neither the Company nor any of its Subsidiaries has waived any
statute of limitations in respect of its Taxes; (v) any Tax Returns referred to
in clause (i) relating to federal and state income Taxes for any period
commencing after December 31, 1992, have been examined by the Internal Revenue
Service (the "IRS") or the appropriate state taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired; (vi) except for matters which have been fully reserved
against, no issues that have been raised in writing by the relevant taxing
authority in connection with the examination of the Tax Returns referred to in
clause (i) are currently pending; and (vii) all deficiencies asserted or
assessments made as a result of any examination of such Tax Returns by any
taxing authority have been paid in full or are being timely and properly
contested or have been fully accrued or reserved for on the Company's December
31, 1998 consolidated balance sheet included in the Company SEC Documents. To
the Knowledge of the Company, the representations set forth in the Company Tax
Certificate attached to the Company Letter, if made on the date hereof (assuming
the Merger were consummated on the date hereof), would be true and correct. For
purposes of this Agreement: (i) "Taxes" means any federal, state, local, foreign
or provincial income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or added minimum, ad
valorem, value-added, transfer or excise tax, or other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Entity, and
(ii) "Tax Return" means any return, report or similar statement (including the
attached schedules) required to be filed with respect to any Tax, including any
information return, claim for refund, amended return or declaration of estimated
Tax.
Section 3.10 ACTIONS AND PROCEEDINGS. Except as set forth in the Company
SEC Documents filed prior to the date of this Agreement, there are no
outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving the Company or any of its Subsidiaries,
or the Company Venture, or against or involving any of the directors, officers
or employees of the Company or any of its Subsidiaries, or the Company Venture,
as such, any of its or their properties, assets or business or any Company Plan
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company. Except as set forth in Section 3.10 of
the Company Letter, as of the date of this Agreement, there are no actions,
suits or claims or legal, administrative or arbitrative proceedings or
investigations pending or, to the Knowledge of the Company, threatened against
or involving the Company or any of its Subsidiaries, or the Company Venture, or
any of its or
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their directors, officers or employees as such, or any of its or their
properties, assets or business or any Company Plan that, individually or in the
aggregate, if determined or resolved adversely to the Company or any Subsidiary
of the Company, or the Company Venture, in accordance with the claimant's or
plaintiff's demands, would reasonably be expected to have a Material Adverse
Effect on the Company. There are no actions, suits, labor disputes or other
litigation, legal or administrative proceedings or governmental investigations
relating to the transactions contemplated by this Agreement that are pending or,
to the Knowledge of the Company, threatened against or affecting the Company or
any of its Subsidiaries, or the Company Venture, or any of its or their
officers, directors or employees, as such, or any of its or their properties,
assets or business.
Section 3.11 CERTAIN AGREEMENTS. Except as set forth in Section 3.11 of
the Company Letter, neither the Company nor any of its Subsidiaries, nor the
Company Venture, is a party to any oral or written agreement or plan, including
any employment agreement, severance agreement, stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. Except as described in the Company Stock Plans, no holder of any
option to purchase shares of Company Common Stock, or shares of Company Common
Stock granted in connection with the performance of services for the Company or
its Subsidiaries, or the Company Venture, is or will be entitled to receive cash
from the Company or any Subsidiary, or the Company Venture, in lieu of or in
exchange for such option or shares as a result of the transactions contemplated
by this Agreement.
Section 3.12 ERISA. (a) Section 3.12 (a) of the Company Letter contains a
list of each Company Plan. With respect to each Company Plan, the Company has
made, or will as soon as practicable after the date hereof make, available to
Parent a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS, (ii) such Company Plan and all amendments thereto, (iii)
each trust agreement, insurance contract or administration agreement relating to
such Company Plan, (iv) the most recent summary plan description for each
Company Plan for which a summary plan description is required, (v) the most
recent determination letter, if any, issued by the IRS with respect to any
Company Plan intended to be qualified under section 401(a) of the Code, (vi) any
request for a determination currently pending before the IRS and (vii) all
material correspondence with the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation relating to any outstanding controversy. Except for
any failure to comply as would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company, each Company Plan
complies with ERISA (as hereinafter defined), the Code and all other applicable
statutes and governmental rules and regulations. None of the Company Plans is
subject to Title IV of the Employee Retirement Income Security Act of 1974 and
the regulations promulgated thereunder ("ERISA").
(b) There has been no failure by the Company to make any required
contribution or pay any amount due to any Company Plan as required by Section
412 of the Code, Section 302 of ERISA, or the terms of any such Plan.
(c) With respect to the Company Plans, no event has occurred and, to the
Knowledge of the Company, there exists no condition or set of circumstances in
connection with which the Company or any ERISA Affiliate would be subject to any
liability (other than a liability to pay benefits thereunder) under the terms of
such Company Plans, ERISA, the Code or any other applicable law which has had,
or would reasonably be expected to have, a Material Adverse Effect on the
Company.
(d) Except as listed on Section 3.12(d) of the Company Letter, all Company
Plans that are intended to be qualified under Section 401(a) of the Code have
been determined by the IRS to be so qualified, or a timely application for such
determination is now pending or will be filed on a timely basis and, except as
listed on Section 3.12(d) of the Company Letter, to the Knowledge of the Company
there is no reason why any Company Plan is not so qualified in operation.
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(e) Except as set forth in Section 3.12(e) of the Company Letter, neither
the Company nor any of its ERISA Affiliates has any liability or obligation
under any welfare plan to provide life insurance or medical benefits after
termination of employment to any employee or dependent other than as required by
(i) Section 4980B of the Code or Part 6 of Title 1 of ERISA or as disclosed in
Section 3.12(e) of the Company Letter or (ii) the laws of a jurisdiction outside
the United States.
(f) As used herein, (i) "Company Plan" means a "pension plan" (as defined in
Section 3(2) of ERISA (other than a Company Multiemployer Plan)), a "welfare
plan" (as defined in Section 3(1) of ERISA), or any material bonus, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, vacation, severance, death benefit,
insurance or other plan, arrangement or understanding, in each case established
or maintained or contributed to by the Company or any of its ERISA Affiliates or
as to which the Company or any of its ERISA Affiliates may have any liability,
(ii) "Company Multiemployer Plan" means a "Multiemployer Plan" (as defined in
Section 4001(a)(3) of ERISA) to which the Company or any of its ERISA Affiliates
is or has been obligated to contribute, and (iii) with respect to any person,
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which is under common control or would be considered a single employer with such
person pursuant to Section 414(b), (c), (m) or (o) of the Code and the
regulations promulgated under those sections or pursuant to Section 4001(b) of
ERISA and the regulations promulgated thereunder.
(g) The Company does not maintain any arrangement (other than a Company
Plan) providing retirement pension benefits that is established or maintained by
the Company or any Subsidiary, or the Company Venture, for the benefit of
employees who are or were employed outside the United States.
(h) Section 3.12(h) of the Company Letter contains a list, as of the date of
this Agreement, of all (i) severance and employment agreements with officers of
the Company and each ERISA Affiliate, (ii) severance programs and policies of
the Company with or relating to its employees and (iii) plans, programs,
agreements and other arrangements of the Company with or relating to its
employees which contain change of control or similar provisions, and in the case
of each of (i), (ii) and (iii) above, such list shall be limited only to such
agreements, programs, policies, plans and other arrangements that involve a
severance or employment agreement or arrangement with an individual officer or
employee, and which provide for minimum annual payments (not including
commissions or any similar contingent incentive payments) in excess of $100,000.
The Company has provided to Parent a true and complete copy of each of the
foregoing or, with respect to agreements with officers of ERISA Affiliates, will
provide such a copy as soon as practical after the date hereof.
Section 3.13 LIABILITIES. Except as set forth in Section 3.13 of the
Company Letter or in the Company SEC Documents filed prior to the date hereof
and except for such indebtedness as may be permitted under the provisions of
Section 4.1, the Company and its Subsidiaries, and the Company Venture, have no
liabilities, absolute or contingent, other than liabilities that, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 3.14 INTELLECTUAL PROPERTY. The Company and its Subsidiaries, and
the Company Venture, have, or have licenses to use, all patents, patent rights,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary intellectual property rights (collectively, "Intellectual Property
Rights") as are necessary in connection with the business, as currently
conducted, of the Company and its Subsidiaries, and the Company Venture, taken
as a whole, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company. Except as disclosed in Section 3.14 of
the Company Letter, neither the Company nor any of its Subsidiaries, or the
Company Venture, has infringed any Intellectual Property Rights of any third
party other than any infringements that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company.
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Section 3.15 PROPERTIES, TITLE AND RELATED MATTERS. (a) Except as
disclosed in the Company SEC Documents: (i) the description of the Company's
resorts included in the Company's Form 10-K Report for the year ended December
31, 1998 was true and correct in all material respects as of such date; (ii)
except for periodic maintenance, repairs and replacements in the ordinary course
of business consistent with past practice, the dwelling units, sales centers,
recreation facilities and other amenities for which certificates of occupancy
have been issued at the Company's resorts are furnished and in good condition
and repair, ordinary wear and tear excepted; (iii) with respect to each resort
for which the Company or a Subsidiary of the Company, or the Company Venture,
provides VOI owners association management services, the applicable VOI owners
association has been duly formed, is validly existing and has a board of
directors duly appointed by the Company or a Subsidiary of the Company, or the
Company Venture, or duly elected by the VOI owners, in either case in accordance
with the by-laws of such association; (iv) the Company's financial obligations
to each such association are current in all material respects; and (v) to the
Knowledge of the Company, the 1999 budgets established by each such association
are adequate to fund the projected 1999 operating expenditures of such
association in all material respects, subject to payment by all VOI owners,
including the Company and its Subsidiaries, and the Company Venture, of the dues
and assessments levied by the respective association and the reserves for
capital replacements maintained by each such association, when supplemented by
additional reserve contributions in future years as set forth in the reserve
analysis delivered to Parent by the Company prior to the date hereof, will be
adequate to fund in all material respects the replacement of capital items owned
by the association over their anticipated useful lives.
(b) Except as disclosed or reserved against in the most recent financial
statements contained in the Company SEC Documents or as set forth in Section
3.15 of the Company Letter, the Company and each of its Subsidiaries, and the
Company Venture, have good and valid title to all of the material properties and
assets, tangible or intangible, reflected in such financial statements as being
owned by the Company and each of its Subsidiaries, and the Company Venture, as
of the dates thereof, free and clear of all Liens, except such imperfections or
irregularities of title, liens, encumbrances, charges or defaults that do not
adversely affect the properties with respect to their intended use in any
material respect and statutory liens securing payments not yet due ("Permitted
Liens"). There are no hidden or latent defects at or in any properties, assets,
improvements, fixtures or equipment of the Company or any of its Subsidiaries,
or the Company Venture, except for defects that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company, and the properties, assets, improvements, fixtures and equipment of
the Company and its Subsidiaries, and the Company Venture, do not violate any
applicable judgment, order, decree, statute, law, ordinance, rule or regulation,
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company. All leased buildings and all leased
fixtures, equipment and other property and assets that are material to the
Company's business on a consolidated basis are held under leases or subleases
that are valid and binding instruments enforceable in accordance with their
respective terms, and there is not under any of such leases, any existing
material default or event of default (or event which with notice or lapse of
time, or both, would constitute a material default), except where the lack of
such validity and binding nature or the existence of such default or event of
default does not have and would not reasonably be expected (so far as can be
foreseen at the time) to have a Material Adverse Effect on the Company.
Section 3.16 CUSTOMER WARRANTIES. There are not pending nor are there, to
the Knowledge of the Company, threatened, any claims under or pursuant to any
warranty, whether expressed or implied, on products or services sold prior to
the date of this Agreement by the Company or any of its Subsidiaries, or the
Company Venture, that are not disclosed or referred to in the financial
statements contained in the Company SEC Documents and that are not fully
reserved against, except for such claims that if determined or resolved
adversely to the Company or any Subsidiary of the Company in accordance with the
claimant's or plaintiff's demands, would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
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Section 3.17 ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.17 of
the Company Letter or the Company SEC Documents, (i) neither the businesses of
the Company and its Subsidiaries, nor the operation thereof, nor any condition
or circumstance at any property, asset, improvement, fixture or equipment
violates in any material respect any applicable federal, state, local, regional
and foreign laws, rules and regulations, orders, decrees, common law, judgments,
permits and licenses relating to public or worker health and safety, the
protection, management, regulation or clean-up of the indoor or outdoor
environment and activities or conditions related thereto, including, without
limitation, those relating to the generation, handling, disposal, transportation
or release of hazardous or toxic materials, substances, wastes, pollutants and
contaminants including, without limitation, asbestos, petroleum (whether crude
oil or any refined or altered product), radon, urea formaldehyde, lead-based
paint, and polychlorinated biphenyls (collectively, "Environmental Laws"),
except for non-compliance that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company; (ii)
no condition, circumstance or event exists or has occurred which, with notice or
the passage of time or both, would constitute such a violation of any
Environmental Law or which could reasonably be expected to result in a Material
Adverse Effect; (iii) the Company and each of its Subsidiaries is in possession
of all Permits required under any applicable Environmental Law ("Environmental
Permits") for its operations and the Company and each of its Subsidiaries has
been and is in compliance in all material respects with all the requirements and
limitations included in such Environmental Permits except where the failure to
have or comply would not reasonably be expected to have a Material Adverse
Effect on the Company; (iv) none of the Company or any of its Subsidiaries has
handled, disposed of, released, transported, stored or used any materials,
products, pollutants, contaminants, hazardous or toxic wastes, substances or
other materials regulated by or subject to any Environmental Law (collectively,
the "Hazardous Substances") on or at any of its property in a manner that would
be expected to have a Material Adverse Effect on the Company; (v) to the
Knowledge of the Company, no person (other than the Company or any of its
Subsidiaries) is violating, or has violated, any Environmental Law applicable to
the business of the Company or any of its Subsidiaries, or to any property,
asset, improvement, fixture or equipment owned, leased or operated by the
Company or any of its Subsidiaries, except for any violations that, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company, nor has any such other person failed to obtain any
Environmental Permits respecting any property, asset, improvement, fixture or
equipment necessary or useful to the Company or any of its Subsidiaries in the
conduct of their respective operations, other than the failure to obtain any
Environmental Permits that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company; (vi)
none of the Company or any of its Subsidiaries has received any notice, suit or
claim from any authority or any private person or entity alleging that the
Company and its Subsidiaries or the operation of any of their respective
properties is in violation of any Environmental Law or any Environmental Permit
or that it is responsible (or potentially responsible) for the cleanup of any
Hazardous Substances at, on or beneath any of the properties (including ground
water) of the Company and each of its Subsidiaries, or at, on or beneath any
land adjacent thereto (including ground water) or in connection with any other
site which would reasonably be expected to have a Material Adverse Effect on the
Company; and (vii) none of the Company or any of its Subsidiaries has buried,
dumped, disposed, spilled or actively or passively released any material
quantity or amount of Hazardous Substances on, beneath or adjacent to any of its
property or any other property (including ground water); (viii) each of the
Company and its Subsidiaries has timely filed all material reports required to
be filed with respect to all of its property, assets, improvements, fixtures or
equipment and has generated and maintained all material required data,
documentation and records required under all applicable Environmental Laws; (ix)
to the Knowledge of the Company, there are no underground storage tanks,
including any piping, at, on or beneath any property used by the Company or any
Subsidiary for any purpose; and (x) to the Knowledge of the Company, there are
no conditions, circumstances or events respecting any property, asset,
improvement, fixture or equipment owned or operated by any person other than the
Company or any Subsidiary that could reasonably be expected
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to give rise to a Material Adverse Effect on the Company under any Environmental
Law. All of the foregoing representations and warranties contained in clauses
(i) through (x) concerning properties, assets, improvements, fixtures and
equipment of the Company or any of its Subsidiaries shall be deemed to include
all current and former properties, assets, improvements, fixtures and equipment
of the Company or any of its Subsidiaries; provided, however, that any
representations and warranties respecting former properties, assets,
improvements, fixtures and equipment of the Company or any of its Subsidiaries
shall be limited to the current Knowledge of the Company.
Section 3.18 INSURANCE. Each of the Company and its Subsidiaries has
insurance contracts or policies (the "Company Policies") in full force and
effect which provide for coverages that are usual and customary as to amount and
scope in its businesses. Section 3.18 of the Company Letter sets forth
descriptions of all insurance contracts or policies that relate to liability or
excess liability insurance (collectively, the "Company Liability Policies"),
including the name of the insurer, the types, dates and amounts of coverages,
and any material coverage exclusions. None of the Company or any of its
Subsidiaries has breached or otherwise failed to perform in any material
respects its obligations under any of the Company Policies or the Company
Liability Policies nor has the Company or any of its Subsidiaries received any
adverse notice or communication from any of the insurers party to the Company
Policies or the Company Liability Policies with respect to any such alleged
breach or failure in connection with any of the Company Policies or the Company
Liability Policies, except to the extent that any such breach or failure to so
perform, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the Company. Except as disclosed in Section
3.18 of the Company Letter, all Company Policies are sufficient for compliance
with all Governmental Entity laws and regulations and all agreements to which
the Company and its Subsidiaries are subject; are valid, outstanding,
collectible and enforceable policies; and will not in any way be affected by, or
terminate or lapse by reason of the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except to the extent
that any such termination or lapse, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company.
Section 3.19 MORTGAGES RECEIVABLE. The "mortgages receivable" of the
Company and its Subsidiaries, and the Company Venture, reflected in the
financial statements contained in the Company SEC Documents and such additional
accounts receivable as are reflected on the books of the Company and its
Subsidiaries, and the Company Venture, are, to the Knowledge of the Company,
good and collectible except to the extent reserved against thereon (which
reserves have been determined in accordance with generally accepted accounting
principles consistently applied). Except as set forth in Section 3.19 of the
Company Letter, all "mortgage receivables" of the Company and its Subsidiaries,
and the Company Venture, are owned free and clear of all Liens and such
"mortgage receivables" are otherwise valid, genuine and existing. During the
twelve month period ended March 31, 1999, the default rate of interest on any
"mortgage receivables" owned by the Company or any of its Subsidiaries did not
exceed the maximum rate allowable under Federal and State law for such "mortgage
receivables." All such accounts receivable (except to the extent so reserved
against) are valid, genuine and subsisting, arise out of bona fide sales and
deliveries of goods, performance of services or other business transactions and
are not subject to defenses, setoffs or counterclaims.
Section 3.20 PARACHUTE PAYMENTS TO DISQUALIFIED INDIVIDUALS. Except as set
forth in Section 3.20 of the Company Letter, no payment or other benefit, and no
acceleration of the vesting of any options, payments or other benefits, will, as
a direct or indirect result of the transactions contemplated by this Agreement,
be (or under Section 280G of the Code and the Treasury Regulations thereunder be
presumed to be) a "parachute payment" to a "disqualified individual" (as those
terms are defined in Section 280G of the Code and the Treasury Regulations
thereunder) with respect to the Company or any of its Subsidiaries, or the
Company Venture, without regard to whether such payment or acceleration is
reasonable compensation for personal services performed or to be performed in
the
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future. The approximate aggregate amount of "parachute payments" related to the
matters set forth in such Section 3.20 of the Company Letter, assuming the
Closing occurs on the date specified therein and termination of all listed
individuals without cause on such date is set forth in such Section 3.20 of the
Company Letter.
Section 3.21 OPINION OF FINANCIAL ADVISOR. The Special Committee and the
Board of Directors of the Company have received the opinion of Salomon Smith
Barney Inc, dated the date of this Agreement, to the effect that, as of such
date, the consideration to be received by holders of Company Common Stock (other
than the Principal Shareholders) in the Merger is fair to such holders from a
financial point of view, a copy of the written opinion of which will be
delivered to Parent after receipt thereof by the Company.
Section 3.22 STATE TAKEOVER STATUTES. The Board of Directors of the
Company has, to the extent such statutes are applicable, taken all action
necessary to exempt the Merger, this Agreement, the Shareholder Agreements and
the transactions contemplated hereby from the requirements of Sections 607.0901
through 607.0903 of the FBCA or to satisfy the requirements thereof. Each member
of the Board of Directors of the Company is "disinterested," as such term is
used in Section 607.0901 of the FBCA, with regard to the transactions
contemplated by this Agreement and the Shareholder Agreements. To the Knowledge
of the Company, no other state takeover statutes are applicable to the Merger,
this Agreement or the transactions contemplated hereby.
Section 3.23 REORGANIZATION. To the Knowledge of the Company, neither it
nor any of its Subsidiaries, nor the Company Venture, has taken any action or
failed to take any action which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
Section 3.24 BROKERS. No broker, investment banker or other person, other
than Bear Stearns & Co., Inc., and Salomon Smith Barney Inc, the fees and
expenses of each of which will be paid by the Company (as reflected in an
agreement between Bear Stearns & Co., Inc. and the Company and an agreement
between Salomon Smith Barney Inc and the Company, a copy of each of which has
been furnished to Parent), is entitled to any broker's, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. During
the period from the date of this Agreement through the Effective Time, the
Company shall, and shall cause each of its Subsidiaries, and the Company
Venture, to, carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use all reasonable efforts to keep available the services
of its current officers and employees and, except as otherwise agreed upon by
Parent, preserve its relationships with customers, suppliers, licensors,
lessors, creditors and others having business dealings with it. Without limiting
the generality of the foregoing, and except as otherwise expressly required by
this Agreement, the Company shall not, and shall not permit any of its
Subsidiaries, or the Company Venture, to, without the prior written consent of
Parent which consent shall be granted or denied no later than 10 business days
after Parent has received a written request for consent from the Company
accompanied by reasonably adequate information to grant or deny such consent:
(a)(i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders in their
capacity as such (other than dividends and other distributions by wholly-
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owned Subsidiaries to the Company or its wholly-owned Subsidiaries or by
non-wholly-owned Subsidiaries or the Company Venture to the extent required
by the terms of their respective organizational documents as of the date
hereof), (ii) other than in the case of any wholly-owned Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) except as set forth in
Section 4.1(a)(iii) of the Company Letter, purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its non
wholly-owned Subsidiaries, or the Company Venture, or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(b) except for shares of Company Common Stock issued pursuant to the
Points and Success Earnout as in effect on January 1, 1999, and except as
set forth in Section 4.1(b) of the Company Letter, issue, deliver, sell,
pledge, dispose of or otherwise encumber any shares of its capital stock,
any other voting securities or equity equivalent or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities, equity equivalent or convertible securities,
other than the issuance of shares of Company Common Stock upon the exercise
of employee stock options pursuant to the Company Stock Plans outstanding on
the date of this Agreement in accordance with their terms as of the date
hereof;
(c) amend its articles or certificate of incorporation or by-laws or
other comparable organizational documents;
(d)(A) acquire or agree to acquire (i) except as set forth in Section
4.1(d)(i) of the Company Letter, by merging or consolidating with, or by
purchasing a substantial portion of the assets or properties of or equity in
(except as contemplated by clause (ii) below), or by any other manner, any
business or any corporation, partnership, limited liability company,
association or other business organization or division thereof or (ii)
except for the land acquisition, construction and development projects
described in Section 4.1(d)(ii) of the Company Letter (collectively, the
"Development Projects"), any assets or properties that are, individually or
in the aggregate material to the Company and its Subsidiaries taken as a
whole, other than purchases of inventory that are in the ordinary course of
business consistent with past practice or (B) make any capital contributions
to, or other investments in, any other person;
(e) except for the pending approximately $86 million securitization of
customer mortgages receivable with Dresdner Kleinwort Benson as placement
agent (the "Pending Securitization"), except as described in Section 4.1(e)
of the Company Letter and except in connection with the sale and financing
of customer contracts and mortgages receivable in the ordinary course of
business consistent with past practice, and the incurrence of indebtedness
permitted by Section 4.1(f), sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of, or agree to sell,
lease, license, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of, any of its assets, other than transactions (including
the sale of inventory) that are in the ordinary course of business
consistent with past practice;
(f) incur any indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities or warrants or other rights
to acquire any debt securities, guarantee any debt securities or make any
loans or advances to any other person, or enter into any arrangement having
the economic effect of any of the foregoing, other than (i) indebtedness
incurred in the financing of customer contracts and mortgages receivable in
the ordinary course of business consistent with past practice; PROVIDED,
HOWEVER, that the Company will not complete any securitization other than
the Pending Securitization without first consulting with Parent; PROVIDED,
FURTHER, that in the event Parent provides warehouse financing to the
Company at interest rates and terms comparable to the Company's primary
warehouse receivables line and in an amount sufficient to permit the Company
to finance its ongoing generation of customer contracts and
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mortgages receivable in the ordinary course of business consistent with past
practice through the anticipated closing date of the transactions
contemplated by this Agreement without completing a securitization, the
Company will not complete any securitization other than the Pending
Securitization; PROVIDED, FURTHER, that if Parent has provided any financing
to the Company pursuant to the foregoing proviso and this Agreement is
terminated pursuant to a valid termination under Section 7.1, then Parent
shall continue any existing financing for the Company for a 90-day period
after such termination; (ii) indebtedness and guarantees incurred in
connection with financing the acquisition, construction, development and
operations of the Development Projects in accordance with the budgets set
forth in Section 4.1(f)(ii) of the Company Letter; (iii) indebtedness,
loans, advances, guarantees, capital contributions and investments between
the Company and any of its wholly-owned Subsidiaries, between any of such
wholly-owned Subsidiaries or, to the extent set forth in Section 4.1(f)(iii)
of the Company Letter, between (x) the Company or any of its Subsidiaries
and (y) any of the Company's non-wholly-owned Subsidiaries, the VOI owners
associations or the Company Venture; (iv) other indebtedness in a maximum
aggregate principal amount not exceeding $10 million; PROVIDED, HOWEVER,
that the Company will consult with Parent before incurring any such other
indebtedness of $500,000 or more if the maximum aggregate principal amount
of all indebtedness incurred pursuant to this clause (iv) is greater than $5
million but less than $10 million; (v) indebtedness incurred in connection
with the issuance of (A) construction completion bonds incurred in
connection with the budgets set forth in Section 4.1(f)(ii) of the Company
Letter, utility bonds to secure the payment of future utility obligations of
the Company or its Subsidiaries, submission bid bonds, advertising bonds,
registration bonds or similar bonds in the ordinary course of business or
(B) bonds used to provide alternative assurance, in lieu of escrow, for
customer deposits, down payments and mortgage payments on VOI sales; and
(vi) the borrowing of up to $20 million in working capital under the Line of
Credit Agreement dated as of November 1, 1997 among the Company, Vistana
Development, Ltd., and Dresdner Bank AG New York and Grand Cayman Branches;
(g) alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of the Company or
any non wholly-owned Subsidiary, or the Company Venture;
(h) except as required under Section 5.8 or as described in Section
4.1(h) of the Company Letter, enter into or adopt any, or amend any
existing, severance plan, agreement or arrangement or enter into or amend
any Company Plan or employment or consulting agreement, other than as
required by law or by an existing contractual obligation of the Company
disclosed in Section 4.1(h) of the Company Letter (in which case, any action
taken in accordance therewith is expressly permitted), except that the
Company or its Subsidiaries, or the Company Venture, may enter into (a)
employment agreements if such agreements (i) are no longer than two years in
duration and (ii) provide for an annual base salary of less than $125,000,
and (b) consulting agreements in the ordinary course of business consistent
with past practice that are terminable on no more than 90 days' notice
without penalty;
(i) except (1) as permitted under Section 4.1(h), or (2) to the extent
required by written employment agreements existing on the date of this
Agreement, increase the compensation payable or to become payable to its
officers or such other employees, except for increases in the ordinary
course of business consistent with past practice in salaries or wages of
such officers or other employees of the Company or any of its Subsidiaries,
or the Company Venture;
(j) grant or award any stock options, restricted stock, performance
shares, stock appreciation rights or other equity-based incentive awards,
except as set forth in Section 4.1(j) of the Company Letter;
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(k) take any action, other than reasonable actions in the ordinary
course of business consistent with past practice, with respect to accounting
policies (other than actions required to be taken by changes in generally
accepted accounting principles);
(l) make or agree to make any capital expenditure in excess of
$1,000,000 individually or $8,000,000 in the aggregate, other than (i)
capital expenditures committed prior to the date of this Agreement, (ii)
capital expenditures included in the budgets for the Development Projects
set forth in Section 4.1(f)(ii) of the Company Letter, (iii) capital
expenditures included in the capital expenditure budget of the Company and
its Subsidiaries for 1999 previously disclosed to Parent, (iv) legal,
financing, registration, collection and repossession fees and expenses and
prepaid costs (including prepaid direct marketing costs) incurred in the
ordinary course of business and capitalized to the balance sheet in
accordance with GAAP, applied on a basis consistent with past practice, (v)
purchases of VOI inventory and liens on VOI units in the ordinary course of
business consistent with past practice, and (vi) capital expenditures made
on behalf of VOI owner associations which will be paid or reimbursed by the
VOI owner associations;
(m) except as otherwise disclosed in Section 4.1(m) of the Company
Letter, pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the
Company included in the Company SEC Documents or incurred in the ordinary
course of business consistent with past practice;
(n) settle or compromise any material liability under any federal,
state, local or foreign tax law or under any Environmental Law;
(o) except for contracts, arrangements or understandings relating to the
lease or purchase of equipment, materials, supplies or services, (i)
included in the budgets for the Development Projects set forth in Section
4.1(f)(ii) of the Company Letter, (ii) set forth in the capital expenditure
budget of the Company and its Subsidiaries for 1999 previously disclosed to
Parent, or (iii) which will be paid or reimbursed by the VOI owner
associations, enter into any contract, arrangement or understanding
requiring the lease or purchase of equipment, materials, supplies or
services in excess of $100,000 individually or $1,000,000 in the aggregate,
over a period greater than 12 months, which is not cancellable without
penalty on 90 or fewer days' notice; or
(p) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.2 NO SOLICITATION. (a) From the date hereof until the
termination of this Agreement in accordance with its terms, the Company shall
not, nor shall it authorize or permit any of its Subsidiaries to, nor shall it
authorize or permit any officer, director or employee of or any financial
advisor, attorney or other advisor, representative or agent of, the Company or
any of its Subsidiaries to, (i) solicit, initiate or encourage the submission
of, any Takeover Proposal (as hereinafter defined), (ii) enter into any
agreement with respect to or approve or recommend any Takeover Proposal or (iii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director or officer of the Company or any of its
Subsidiaries or any financial advisor, attorney or other advisor, representative
or agent of the Company or any of its Subsidiaries, whether or not such person
is purporting to act on behalf of the Company or any of its Subsidiaries or
otherwise, shall be deemed to be a breach of this Section 4.2(a) by the Company.
For purposes of this Agreement, "Takeover Proposal" means any proposal for a
merger, sale of all or substantially all the assets of or
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other business combination or recapitalization or similar transaction involving
the Company or any of its Subsidiaries or any proposal or offer to acquire in
any manner, directly or indirectly, an equity interest in excess of 15% of the
voting securities of, or a substantial portion of the assets of, the Company or
any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
(b) The Company promptly (but in no event later than 24 hours) shall advise
Parent orally and in writing of (i) any Takeover Proposal or any inquiry or any
communication with respect to or which could reasonably be expected to lead to
any Takeover Proposal, (ii) the material terms of such Takeover Proposal
(including a copy of any written proposal) and (iii) the identity of the person
or persons making any such Takeover Proposal, inquiry or communication. The
Company will keep Parent promptly and fully informed of the status, changes in
and details of any such Takeover Proposal, inquiry or communication.
Section 4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality,
standstill or similar agreement to which the Company or any of its Subsidiaries
is a party (other than any to which Parent or any of its Subsidiaries is a
party). During such period, the Company agrees to enforce, to the fullest extent
permitted under applicable law, the provisions of any such agreements, including
using its best efforts to obtain injunctions to prevent any threatened or actual
breach of such agreements and to enforce specifically the terms and any
provision thereof in any court of the United States or any state thereof having
jurisdiction.
Section 4.4 REORGANIZATION. During the period from the date of this
Agreement through the Effective Time, unless the other party shall otherwise
agree in writing, none of Parent, the Company or any of their respective
Subsidiaries shall knowingly take or fail to take any action which action or
failure would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code or would cause any of the
representations and warranties set forth in the Company Tax Certificate attached
to the Company Letter or the Parent Tax Certificate attached to the Parent
Letter to be untrue or incorrect in any material respect.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 NOTICE TO SHAREHOLDERS. The Company shall, as promptly as
practicable but in any event within ten days after the date of this Agreement,
prepare and mail to its shareholders pursuant to Section 607.0704 of the FBCA
and the Amended and Restated By-laws of the Company the notice of action
authorized by the Shareholders' Consent (the "Florida Notice"). Parent shall
have the right and opportunity to review and make reasonable comments on the
Florida Notice prior to its mailing and the Company shall not unreasonably
refuse to include such comments of Parent.
Section 5.2 FILINGS; OTHER ACTIONS. (a) The Company shall as soon as
practicable after the date hereof prepare and file with the SEC the Information
Statement and the Parent Companies shall prepare and file with the SEC the
Registration Statement, in which the Information Statement will be included as a
prospectus. Each of Parent and the Company shall use all reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, the Company shall mail the
Information Statement to its shareholders (the date of such mailing to any of
such shareholders being hereinafter called the "Mailing Date"). Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is currently not so qualified) required to be taken under any
applicable state securities laws in connection with the issuance of Units in the
Merger and upon the exercise of the Substitute Options (as hereinafter defined),
and the Company shall furnish all information concerning the Company and the
holders of Company Common Stock as may
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reasonably be requested in connection with any such action, including
information relating to the number of Units required to be registered.
(b) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its subsidiaries,
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date hereof), from, or delivered by any of the
foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
(c) Each of the Company and Parent will promptly, and in any event within
twenty business days after execution and delivery of this Agreement, make all
filings or submissions as are required under the HSR Act. Each of the Company
and Parent will promptly furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submissions necessary under the HSR Act. Without
limiting the generality of the foregoing, each of the Company and Parent will
promptly notify the other of the receipt and content of any inquiries or
requests for additional information made by any Governmental Entity in
connection therewith and will promptly (i) comply with any such inquiry or
request and (ii) provide the other with a description of the information
provided to any Governmental Entity with respect to any such inquiry or request.
In addition, each of the Company and Parent will keep the other apprised of the
status of any such inquiry or request. The foregoing shall not require Parent or
the Company to make any divestiture or consent to any divestiture in order to
fulfill any condition or obtain any consent to any divestiture in order to
fulfill any condition or obtain any consent, authorization or approval or to
appeal an injunction or order, or to post a bond in respect of such appeal.
Section 5.3 COMFORT LETTERS. (a) The Company shall use all reasonable
efforts to cause to be delivered to Parent "comfort" letters of KPMG Peat
Marwick LLP, the Company's independent public accountants, dated the date on
which the Registration Statement shall become effective and as of the Effective
Time, and addressed to Parent, Trust and the Company, in form and substance
reasonably satisfactory to Parent and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(b) Parent shall use all reasonable efforts to cause to be delivered to the
Company "comfort" letters of Arthur Andersen LLP, Parent's independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to the Company, Parent and
Trust, in form and substance reasonably satisfactory to the Company and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
Section 5.4 ACCESS TO INFORMATION. (a) The Company shall, and shall cause
each of its Subsidiaries, and the Company Venture, to, afford to the
accountants, counsel, financial advisors and other representatives of Parent
reasonable access to, and permit them to make such inspections as they may
reasonably require of, during normal business hours during the period from the
date of this Agreement through the Effective Time, all their respective
properties, books, Tax Returns, contracts, commitments and records (including
the work papers of independent accountants, if available and subject to the
consent of such independent accountants) and, during such period, the Company
shall, and shall cause each of its Subsidiaries, and the Company Venture, to,
furnish promptly to Parent (i) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities laws (other than in connection with
obtaining the Regulatory Approvals or in connection with making time share
regulatory filings in the ordinary course of business) and (ii) all other
information concerning its business, properties and personnel as Parent may
reasonably request. The Company shall, and shall cause each of its Subsidiaries,
and the
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Company Venture, to, furnish promptly upon the request of Parent a copy of each
report, schedule, registration, application or other document filed by the
Company with any Governmental Entity in connection with obtaining the Regulatory
Approvals. No investigation pursuant to this Section 5.4(a) shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto. All information obtained by
Parent pursuant to this Section 5.4(a) shall be kept confidential in accordance
with the letter agreement dated September 14, 1998 (the "Confidentiality
Agreement") between Parent and the Company.
(b) Parent shall afford to the accountants, counsel, financial advisors and
other representatives of the Company reasonable access to, and permit them to
make such inspections as they may reasonably require of, during normal business
hours during the period from the date of this Agreement through the Effective
Time, its properties, books, contracts and records. No investigation pursuant to
this Section 5.4(b) shall affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the parties
hereto. All information obtained by the Company pursuant to this Section 5.4(b)
shall be kept confidential in accordance with the Confidentiality Agreement.
Section 5.5 COMPLIANCE WITH THE SECURITIES ACT. Within 30 days following
the date of this Agreement, the Company shall cause to be prepared and delivered
to Parent a list (reasonably satisfactory to counsel for Parent) identifying all
persons who, at the time of the Company Shareholders Meeting, in the Company's
reasonable judgment may be deemed to be "affiliates" of the Company as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). The Company shall use its best efforts to cause each
person who is identified as a Rule 145 Affiliate in such list to deliver to
Parent on or prior to the Effective Time a written agreement in substantially
the form of Exhibit 5.5 hereto, executed by such person.
Section 5.6 STOCK EXCHANGE LISTINGS. Parent shall use all reasonable
efforts to list on the NYSE, upon official notice of issuance, the Units to be
issued in connection with the Merger and upon exercise of the Substitute
Options.
Section 5.7 FEES AND EXPENSES. Except as otherwise provided in Section
5.11, whether or not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby,
including the fees and disbursements of counsel, financial advisors and
accountants, shall be paid by the party incurring such costs and expenses,
provided that all printing expenses shall be divided equally between Parent and
the Company.
Section 5.8 COMPANY STOCK OPTIONS. (a) Not later than the Effective Time,
each Company Stock Option that is outstanding immediately prior to the Effective
Time pursuant to the Company's stock option plans (other than any "stock
purchase plan" within the meaning of Section 423 of the Code) in effect on the
date hereof (the "Stock Plans") shall be assumed by Parent and become and
represent an option to purchase the number of Units (a "Substitute Option")
(rounded to the nearest full share, or if there shall not be a nearest share,
the next greater full share) determined by multiplying (i) the number of shares
of Company Common Stock (the "Underlying Shares") subject to such Company Stock
Option immediately prior to the Effective Time by (ii) the Exchange Ratio, at an
exercise price per Unit (rounded up to the nearest tenth of a cent) equal to the
difference (the "Difference") between (A) the exercise price per share of
Company Common Stock immediately prior to the Effective Time divided by the
Exchange Ratio and (B) the cash amount of the per share merger consideration
payable pursuant to Section 1.5(c) divided by the Exchange Ratio. Each
Substitute Option shall be vested only to the extent that the predecessor
Company Stock Option was, pursuant to its terms, vested at the Effective Time.
To the extent the Difference would be a negative number, the Difference shall be
deemed to be zero and Parent shall promptly after the Effective Time pay to the
holder of each such vested Company Stock Option an amount of cash equal to the
absolute value of the Difference times the number of Underlying Shares subject
to such option. Parent shall pay cash to holders of Company Stock Options in
lieu of issuing fractional Units upon the exercise of Substitute
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Options. After the Effective Time, each Substitute Option shall be exercisable
in full until the earlier of the expiration date of the related Company Stock
Option or the date such related Company Stock Option would have become
unexercisable due to the optionee's termination of employment and, except as
otherwise provided in this Section 5.8, shall be subject to the same terms and
conditions as were applicable under the related Company Stock Option immediately
prior to the Effective Time. The Company agrees to use its best efforts to
obtain any necessary consents of holders of Company Stock Options and take such
other actions as may be necessary to effect this Section 5.8.
(b) In respect of the Units underlying each Substitute Option pursuant to
Section 5.8(a), Parent shall file and keep current a registration statement on
Form S-8 (or a post-effective amendment to a Registration Statement on Form S-8)
or other appropriate form for as long as such options remain outstanding.
Section 5.9 REASONABLE EFFORTS. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including: (i) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from all Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity (including those in connection with the
HSR Act and state takeover statutes), (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity with respect to the Merger or
this Agreement vacated or reversed, and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by
this Agreement; PROVIDED, HOWEVER, that the foregoing shall not require Parent
or the Company to make any divestiture or consent to any divestiture in order to
fulfill any condition or obtain any consent to any divestiture in order to
fulfill any condition or obtain any consent, authorization or approval or to
appeal an injunction or order, or to post a bond in respect of such appeal.
(b) Neither Parent nor the Company shall take any action or fail to take any
action that, in any such case, might reasonably be expected to (i) cause any of
its representations or warranties contained in this Agreement that is qualified
as to materiality to be untrue, (ii) cause any of its representations or
warranties contained in this Agreement that is not so qualified to be untrue in
any material respect or (iii) result in a breach of any covenant made by it in
this Agreement, (iv) result directly or indirectly in any of the conditions to
the Merger set forth in Article VI not being satisfied or (v) impair the ability
of the parties to consummate the Merger at the earliest possible time
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder).
Section 5.10 PUBLIC ANNOUNCEMENTS. Neither Parent nor the Company will
issue any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions without prior consultation with the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange.
Section 5.11 REAL ESTATE TRANSFER AND GAINS TAX. Parent and the Company
agree that either the Company or the Surviving Corporation will pay any state or
local tax which is attributable to the transfer of the beneficial ownership of
the Company's or its Subsidiaries' real property, if any (collectively, the
"Gains Taxes"), and any penalties or interest with respect to the Gains Taxes,
payable
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in connection with the consummation of the Merger. The Company and Parent agree
to cooperate with the other in the filing of any returns with respect to the
Gains Taxes, including supplying in a timely manner a complete list of all real
property interests held by the Company and its Subsidiaries and any information
with respect to such property that is reasonably necessary to complete such
returns. The portion of the consideration allocable to the real property of the
Company and its Subsidiaries shall be agreed to between Parent and the Company.
The shareholders of the Company shall be deemed to have agreed to be bound by
the allocation established pursuant to this Section 5.11 in the preparation of
any return with respect to the Gains Taxes.
Section 5.12 STATE TAKEOVER LAWS. If any "fair price", "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use all
reasonable efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and shall otherwise act
to minimize the effects of any such statute or regulation on the transactions
contemplated hereby.
Section 5.13 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. For six
years from and after the Effective Time, Parent shall, and agrees to cause the
Surviving Corporation to, indemnify, defend and hold harmless all past and
present officers and directors of the Company and of its Subsidiaries (the
"Indemnified Parties") to the same extent such persons are indemnified as of the
date of this Agreement by the Company pursuant to the Company's Articles of
Incorporation, the Company's Amended and Restated By-laws and any indemnity
agreements to which the Company is a party as of the date hereof, for acts or
omissions occurring at or prior to the Effective Time; PROVIDED, THAT, in the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until final disposition of such claim or claims. For six years from and after
the Effective Time, Parent shall indemnify, defend and hold harmless the
Indemnified Parties, to the same extent such persons are indemnified as of the
date of this Agreement by the Company pursuant to the Company's Articles of
Incorporation, the Company's Amended and Restated By-laws and any indemnity
agreements to which the Company is a party as of the date hereof, for acts and
omissions in furtherance of the execution and delivery of the Merger Agreement,
the Merger the Shareholder Agreements and all agreements and actions as
contemplated therein. For a period of six (6) years after the Effective Time,
Parent shall cause the Surviving Corporation to maintain in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties) with respect to
matters arising before the Effective Time. The provisions of this Section 5.13
are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and his or her personal representatives and
shall be binding on all successors and assigns of Parent, Sub, the Company and
the Surviving Corporation.
Section 5.14 NOTIFICATION OF CERTAIN MATTERS. Parent shall use all
reasonable efforts to give prompt notice to the Company, and the Company shall
use all reasonable efforts to give prompt notice to Parent, of: (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which it is aware and which would reasonably be likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all material
respects, (ii) any failure of Parent or the Company, as the case may be, to
comply in a timely manner with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder or (iii) any event, change or
development that, individually or in the aggregate, has had, or would reasonably
be expected to have, a Material Adverse Effect on Parent or the Company, as the
case may
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be; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section
5.14 shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
Section 5.15 EMPLOYEE BENEFIT PLANS. (a) For the period ending on the
first anniversary of the Effective Time, Parent shall cause the Surviving
Corporation (i) to maintain the Company Plans in effect on the date of this
Agreement or (ii) to provide benefits to employees of the Company and its
Subsidiaries that are, in the aggregate, not materially less favorable than
those provided pursuant to such Company Plans as in effect immediately prior to
the Effective Time. Parent agrees to provide severance pay and other benefit
entitlements which may be owing to any employee of the Company whose employment
is terminated by Parent on or after the Effective Date or by reason of the
transactions contemplated hereby. If such severance occurs on or within one year
after the Effective Date by reason of the transactions contemplated hereby, such
severance pay and benefit entitlements shall be determined (on an employee by
employee basis) in accordance with the severance policy of the Company and its
affiliates applicable to such employee immediately prior to the Effective Date,
if more favorable than the severance policy of Parent in effect after the
Effective Date.
(b) The foregoing notwithstanding, Parent agrees to honor in accordance with
their terms all benefits vested as of the date hereof under the Company Plans or
under other contracts, arrangements, commitments, or understandings identified
in Section 5.15 of the Company Letter. Nothing in this Agreement shall be
interpreted as limiting the power of the Surviving Corporation to amend or
terminate any Company Plan or any other employee benefit plan, program,
agreement or policy or as requiring the Surviving Corporation or Parent to offer
to continue (other than as required by its terms) any written employment
contract or any employee of the Company or of any of its Subsidiaries. Company
employees' service prior to the Effective Time shall be considered service with
the Surviving Corporation for purposes of eligibility, vesting and level of
benefits under any plan, program or arrangement maintained or contributed to the
Surviving Corporation.
Section 5.16 SHAREHOLDER LITIGATION. The Company shall give Parent the
opportunity to participate in, but not control, the defense or settlement of any
shareholder litigation against the Company and its directors relating to the
transaction contemplated by this Agreement; PROVIDED, HOWEVER, that no such
settlement shall be agreed to without Parent's consent unless (i) neither the
Company nor Parent is or may become directly or indirectly liable to pay any
amount in connection therewith pursuant to Section 5.13 or otherwise and (ii)
such settlement does not impose any restriction on the business or activities of
the Company or Parent or their respective Subsidiaries.
Section 5.17. ADDITIONAL MATTERS. (a) Prior to the Effective Date, the
Company shall cause Sub to be named as an insured under the Company's Commercial
Lines Policy issued by the Fire & Casualty Insurance Company of Connecticut as
Policy #NAP-001000 and the General Liability Policy issued by American and
Foreign Insurance Company as Policy #A TS-459190 0000.
(b) Within 15 business days from the date hereof, the Company shall deliver
to Parent a certificate from the Company's General Counsel listing all
Regulatory Approvals the Company must obtain and setting forth the actions and
procedures which must be taken or followed to obtain the Regulatory Approvals.
Within 60 business days from the date hereof, the Company shall take all actions
and follow all procedures set forth on such certificate with respect to any
action that must be taken or any procedure that must be followed prior to the
Effective Time. The Company shall at all times keep Parent informed of the
progress in obtaining the Regulatory Approvals. Parent shall cooperate with and
assist the Company in obtaining the Regulatory Approvals, and shall provide such
information as the Company shall reasonably request in order to obtain the
Regulatory Approvals.
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(c) At Parent's request, prior to the Effective Time, the Company shall use
reasonable efforts as soon as reasonably practicable to establish a commercial
paper conduit facility; PROVIDED, HOWEVER, that if this Agreement is validly
terminated pursuant to Section 7.1, and the Company does not use such commercial
paper conduit facility during the six-month period commencing on the date of
such termination, then Parent will reimburse the Company for its actual,
reasonable out-of-pocket expenses incurred in connection with the establishment
of such facility. The Company further agrees to consult and cooperate with
Parent regarding the terms of any commercial paper conduit facility it may
establish.
(d) Before the Company or any of its Subsidiaries hires any person as a
director of internal audit, assistant controller, real estate attorney or
corporate attorney, it will consult with Parent regarding the employment of such
person.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment (or waiver by such party) at or prior to the
Effective Time of the following conditions:
(a) STOCK EXCHANGE LISTINGS. The Units issuable in the Merger shall have
been authorized for listing on the NYSE, subject to official notice of issuance.
(b) HSR AND OTHER APPROVALS. (i) The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated.
(ii) All authorizations, consents, orders, declarations or approvals of, or
registrations, declarations or filings with, or terminations or expirations of
waiting periods imposed by, any Governmental Entity (including any state gaming
authority), where the failure to obtain, make or occur would have the effect of
making the Merger or any of the transactions contemplated hereby illegal or
would have, individually or in the aggregate, a Material Adverse Effect on the
Company (assuming the Merger had taken place), shall have been obtained, shall
have been made or shall have occurred, and shall be in full force and effect.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or, to the Knowledge of Parent or the Company, threatened by the SEC. All
necessary state securities or blue sky authorizations (including State Takeover
Approvals) shall have been received.
(d) NO ORDER. No court or other Governmental Entity having jurisdiction
over the Company or Parent, or any of their respective Subsidiaries, shall
(after the date of this Agreement) have enacted, issued, promulgated, enforced
or entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the Merger or any of the transactions
contemplated hereby illegal.
(e) INFORMATION STATEMENT. At least twenty calendar days shall have
elapsed from the mailing of the Information Statement to the shareholders of the
Company.
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Section 6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment (or waiver by the Company) at or prior to the Effective Time of
the following additional conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed at or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified as to materiality shall be true
and correct at and as of the Effective Time as if made at and as of such time
(other than representations and warranties which address matters only as of a
certain date, which shall be true and correct as of such certain date), each of
the representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct in all
material respects as of such certain date), and the representation as to the
accuracy of the Parent Tax Certificate described in Section 2.10(b) shall be
true and correct at and as of the Effective Time as if made at and as of such
time, in each case except as otherwise contemplated or permitted by this
Agreement, and the Company shall have received certificates signed on behalf of
each of Parent and Sub by Parent's Chief Financial Officer and any other
Executive or Senior Vice President of Parent to such effect.
(b) TAX OPINION. The Company shall have received an opinion of Battle
Fowler LLP, in form and substance reasonably satisfactory to the Company, dated
the Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion that are consistent
with the state of facts existing as of the Effective Time, for federal income
tax purposes the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Company, Sub and Parent will each be a party
to that reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Battle Fowler LLP may rely as to matters of fact upon
the representations contained herein and may receive and rely upon
representations from Parent, the Company, and others, including representations
from Parent substantially similar to the representations in the Parent Tax
Certificate attached to the Parent Letter and representations from the Company
substantially similar to the representations in the Company Tax Certificate
attached to the Company Letter.
(c) COMFORT LETTERS. The Company shall have received the "comfort letters"
described in Section 5.3(b), in form and substance reasonably satisfactory to
the Company.
(d) EMPLOYMENT AGREEMENTS. The employment agreements set forth in Section
6.3(g) of the Parent Letter shall have been executed by Parent or Sub and shall
be in full force and effect (assuming the valid authorization, execution and
delivery of such employment agreements by the parties thereto other than Parent
or Sub and the validity and binding effect of such employment agreements on such
other parties).
Section 6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment (or waiver by Parent) at or prior to the Effective Time of
the following additional conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. The
Company shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed at or prior to the
Effective Time, each of the representations and warranties of the Company
contained in this Agreement that is qualified as to materiality shall be true
and correct at and as of the Effective Time as if made at and as of such time
(other than representations and warranties which address matters only as of a
certain date, which shall be true and correct as of such certain date), except
for actions taken, obligations incurred or agreements entered into as permitted
by Section 4.1 or resulting from any transaction consented to in writing by
Parent, and each of the
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representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct in all
material respects as of such certain date), except for actions taken,
obligations incurred or agreements entered into as permitted by Section 4.1 or
resulting from any transaction consented to in writing by Parent, and the
representation as to the accuracy of the Company Tax Certificate described in
Section 3.9 shall be true and correct at and as of the Effective Time as if made
at and as of such time, and Parent shall have received a certificate signed on
behalf of the Company by its Chief Executive Officer and its Chief Financial
Officer to such effect.
(b) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the consent
or approval of each person that is not a Governmental Entity whose consent or
approval (i) is set forth in Section 2.4 of the Parent Letter and Section
3.4(a)(iii) of the Company Letter or (ii) shall be required in connection with
the transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, hotel management agreement or other agreement or
instrument, except as to which the failure to obtain such consents and
approvals, individually or in the aggregate, would not be expected, in the
reasonable opinion of Parent, to have a Material Adverse Effect on the Company
or upon the consummation of the transactions contemplated in this Agreement.
(c) NO LITIGATION. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or before
any court or governmental authority, agency or tribunal, domestic or foreign, in
each case that has a significant likelihood of success (i) challenging the
acquisition by Parent or Sub of any shares of Company Common Stock, seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from the
Company, Parent or Sub any damages that are material in relation to the Company
and its Subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
ownership or operation by the Company, Parent or any of their respective
Subsidiaries, or the Company Venture, of any material portion of the business or
assets of the Company, Parent, Trust or any of their respective Subsidiaries, or
the Company Venture, or to compel the Company, Parent or any of their respective
Subsidiaries, or the Company Venture, to dispose of or hold separate any
material portion of the business or assets of the Company, Parent or any of
their respective Subsidiaries, or the Company Venture, as a result of the Merger
or any of the other transactions contemplated by this Agreement, (iii) seeking
to impose limitations on the ability of Parent or Sub to acquire or hold, or
exercise full rights of ownership of, any shares of Company Common Stock,
including, without limitation, the right to vote any Company Common Stock
purchased by it on all matters properly presented to the shareholders of the
Company, (iv) seeking to prohibit Parent or any of its respective Subsidiaries,
or the Company Venture, from effectively controlling in any material respect the
business or operations of the Company or its Subsidiaries, or the Company
Venture, or (v) which otherwise would reasonably be expected to have a Material
Adverse Effect on the Company.
(d) COMFORT LETTERS. Parent shall have received the "comfort letters"
described in Section 5.3(a), in form and substance reasonably satisfactory to
Parent.
(e) TAX OPINION. Parent shall have received an opinion of Sidley & Austin,
in form and substance reasonably satisfactory to Parent, dated the Effective
Time, substantially to the effect that on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the state of
facts existing as of the Effective Time, for federal income tax purposes the
Merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Code, and the Company, Sub and Parent will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, Sidley & Austin may rely as to matters of fact upon
representations contained herein and may receive and rely upon representations
from Parent, the Company, and others, including representations from Parent
substantially similar to the representations in the Parent
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Tax Certificate attached to the Parent Letter and representations from the
Company substantially similar to the representations in the Company Tax
Certificate attached to the Company Letter.
(f) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there shall
have been no Material Adverse Effect with respect to the Company. Parent shall
have received a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect. For purposes of this Section
6.3(f), a Material Adverse Effect shall not be deemed to include (i) delays
incurred following the date of this Agreement in constructing or opening the
Company's proposed vacation resorts at PGA Village in St. Lucie, Florida,
Harborside at Atlantis in Paradise Island, The Bahamas, or Vistana II in
Orlando, Florida, provided that the Company pursues the construction and opening
of the respective resort with reasonable diligence following the date of this
Agreement and any such delays are primarily attributable to causes beyond the
reasonable control of the Company; (ii) any termination by Promus Hotels, Inc.
without cause or pursuant to Section 15(c) of the amended joint venture
agreement with Promus Hotels, Inc. or expiration of the Company's joint venture
agreement with Promus Hotels, Inc.; (iii) any negotiated agreement to terminate
the use of the "Hampton Inn" name by the Company's Oak Plantation Joint Venture;
or (iv) any termination of the proposed time share joint venture relating to
Harborside at Atlantis in Paradise Island, The Bahamas for any reason other than
due to a material breach by the Company or, or a material failure to perform,
any representation, warranty, agreement or covenant of the Company.
(g) EMPLOYMENT AGREEMENTS. The employment agreements set forth in Section
6.3(g) of the Parent Letter shall have been executed by the parties thereto
other than Parent or Sub and shall be in full force and effect (assuming the
valid authorization, execution and delivery of such employment agreements by
Parent and Sub and the validity and binding effect of such employment agreements
on Parent and Sub).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval of the matters
presented at the Company Shareholders Meeting in connection with the Merger:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the other of them shall have
failed to comply in any material respect with any of its covenants or
agreements contained in this Agreement required to be complied with prior to
the date of such termination, which failure to comply has not been cured
within ten business days following receipt by such other of them of written
notice of such failure to comply;
(c) by either Parent or the Company if there has been a breach (which
breach has not been cured within ten business days following receipt by the
breaching party of written notice of the breach) by the other of them (in
the case of Parent, including any material breach by Sub) of any
representation or warranty that: (i) is not qualified as to materiality,
which breach has the effect of making such representation or warranty not
true and correct in all material respects or (ii) is qualified as to
materiality;
(d) by either Parent or the Company if: (i) the Merger has not been
effected on or prior to the close of business on January 31, 2000 (as such
date may be extended by mutual agreement); PROVIDED, HOWEVER, that the right
to terminate this Agreement pursuant to this Section 7.1(d)(i) shall not be
available to any party whose failure to fulfill any of its obligations
contained in this Agreement has been the proximate cause of the failure of
the Merger to have occurred on or prior to the aforesaid date; or (ii) any
court or other Governmental Entity having
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jurisdiction over a party hereto shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree or ruling or other action shall have become final and
non-appealable;
(e) by either Parent or the Company if the closing price of the Units on
the NYSE on the trading day immediately preceding the Closing Date is less
than $23; PROVIDED, HOWEVER, that neither Parent nor the Company may
terminate this Agreement pursuant to this Section 7.1(e) unless (i) either
party has delivered a written notice on the day immediately preceding the
Closing Date to the other party of its election to terminate this Agreement
pursuant to this Section 7.1(e), and (ii) during each of the ten trading
days following delivery of such notice the closing price of the Units on the
NYSE is less than $23; PROVIDED, FURTHER, that if the closing price of the
Units is greater than or equal to $23 on any of such ten trading days, then
the Closing shall occur on the first business day after such date on which
the closing price of the Units is greater than or equal to $23, with such
day being deemed to be the Closing Date for all purposes of this Agreement;
or
(f) by either Parent or the Company if the Market Price of the Units is
less than $23 on the trading day immediately preceding the day that, but for
the termination of this Agreement pursuant to this Section 7.1(f), would
have been the Closing Date.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
Section 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers or
directors (except for the last sentence of Section 5.4 and the entirety of
Sections 2.12, 3.24 and 5.7, this Section 7.2 and Article VIII, which shall
survive the termination); PROVIDED, HOWEVER, that nothing contained in this
Agreement shall relieve any party hereto from any liability for any willful
breach of a representation or warranty contained in this Agreement or the breach
of any covenant contained in this Agreement.
Section 7.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of the Company, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing duly executed by each of the parties hereto.
Section 7.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing duly executed by such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except for
purposes of the Shareholder Agreements, and except for any claim arising as a
result of any breach of a representation or warranty prior to the termination of
this Agreement as provided in Section 7.2, the representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
terminate at the earlier of (i) the Effective Time or (ii) the termination of
this Agreement.
Section 8.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to a nationally recognized overnight courier or when telecopied
(with a confirmatory copy sent by such overnight courier) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to
Starwood Hotels & Resorts
Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Attention: Thomas C. Janson, Jr.
Facsimile No: (914)640-8250
with copies to:
Scott M. Freeman
Sidley & Austin
875 Third Avenue
New York, New York 10022
Facsimile No.: (212) 906-2021
(b) if to the Company, to
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attention: Charles E. Harris
Facsimile No.: (407)239-3222
with a copy to:
Martin L. Edelman
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Facsimile No.: (212) 856-7808
Section 8.3 INTERPRETATION. When a reference is made in this Agreement to
a Section or Article, such reference shall be to a Section or Article of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include,"
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"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
Section 8.4 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
together with all other agreements executed by the parties hereto on the date
hereof, except as provided in the last sentences of Section 5.4(a) and (b),
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement, except for the provisions of Section 5.8
and Section 5.13, is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.6 GOVERNING LAW. Except to the extent that the laws of the State
of Florida are mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, regardless of the laws that might otherwise govern under the applicable
principles of conflicts of laws thereof.
Section 8.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent, Trust or to any wholly-owned Subsidiary of Parent or Trust,
but no such assignment shall relieve Sub of any of its obligations under this
Agreement. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
Section 8.8 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
Section 8.9 ENFORCEMENT OF THIS AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
<TABLE>
<S> <C> <C>
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ RUSSELL STERNLICHT
-----------------------------------------
Name: Russell Sternlicht
Title: Senior Vice President
FIRE ACQUISITION CORP.
By: /s/ RUSSELL STERNLICHT
-----------------------------------------
Name: Russell Sternlicht
Title: Vice President
VISTANA, INC.
By: /s/ RAYMOND L. GELLEIN, JR.
-----------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Co-Chief Executive Officer
</TABLE>
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APPENDIX B
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT (this "AGREEMENT"), dated as of July 18, 1999, among
Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation ("PARENT"),
Fire Acquisition Corp., a Florida corporation and a wholly-owned subsidiary of
Parent ("SUB"), Raymond L. Gellein, Jr. ("GELLEIN"), NevEast Limited
Partnership, a Delaware limited partnership ("NEVEAST"), NevWest Limited
Partnership, a Delaware limited partnership ("NEVWEST"), the Raymond L. Gellein,
Jr. Grantor Retained Annuity Trust ("RLG ANNUITY TRUST"), the Matthew James
Gellein Irrevocable Trust ("MJG TRUST"), the Brett Tyler Gellein Irrevocable
Trust ("BTG TRUST"), the Janice G. Gellein Grantor Annuity Trust ("JGG ANNUITY
TRUST"), the Catherine Male Gift Trust ("MALE TRUST"), the Cherie Doherty Gift
Trust ("DOHERTY TRUST") and the Susan Faetz Gift Trust ("FAETZ TRUST" and,
together with RLG Annuity Trust, MJG Trust, BTG Trust, JGG Annuity Trust, Male
Trust and Doherty Trust, the "TRUSTS") (Gellein, NevEast, NevWest and the Trusts
are collectively referred to herein as the "SHAREHOLDERS" and individually
referred to herein as a "SHAREHOLDER"); PROVIDED, HOWEVER, that the obligations
of the Trusts shall be limited to those set forth in Sections 1, 3, 4, 5, 7 and
8 of this Agreement.
WHEREAS Parent, Sub and Vistana, Inc., a Florida corporation (the
"COMPANY"), propose to enter into an Agreement and Plan of Merger dated as of
even date herewith (as the same may be amended or supplemented, the "MERGER
AGREEMENT") providing for the merger of the Company into Sub pursuant to which
each issued and outstanding share of common stock, par value $.01 per share, of
the Company (the "COMPANY COMMON STOCK"), not owned by Parent, the Company or
their respective wholly-owned subsidiaries will be converted into (i) the
Exchange Ratio (as defined in the Merger Agreement) of Units (as defined in the
Merger Agreement) plus (ii) $5.00 in cash;
WHEREAS the Shareholders own in the aggregate 6,207,250 shares of Company
Common Stock (the "OWNED SHARES");
WHEREAS the Shareholders have each executed a written consent to the Merger
and the Merger Agreement pursuant to Section 607.0704 of the Florida Business
Corporation Act;
WHEREAS certain of the Shareholders have granted to certain employees and
former employees of the Company or its affiliates options to acquire an
aggregate of 915,000 (the "OPTION SHARES") of the Owned Shares pursuant to those
certain Shareholder Option Agreements described on Annex A hereto (the "OPTION
AGREEMENTS"); and
WHEREAS as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Shareholders enter into this
Agreement.
NOW, THEREFORE, to induce Parent and Sub to enter into, and in consideration
of their entering into, the Merger Agreement, and in consideration of the
premises and the representations, warranties and agreements contained herein,
the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
hereby jointly and severally represent and warrant to Parent and Sub as follows:
(a) AUTHORITY. Each Shareholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each Shareholder,
and the consummation of the transactions contemplated hereby, has been duly
authorized by all necessary action on the part of each Shareholder. This
Agreement has been duly executed and delivered by each Shareholder and,
assuming the due authorization, execution and delivery by each of Parent and
Sub, constitutes a valid and binding obligation of each Shareholder
enforceable in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by general principles
governing the availability of equitable remedies. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of or default (with or without notice or
lapse of time or both) under any provision of any
<PAGE>
trust agreement, partnership agreement, loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, notice, decree, statute,
law, ordinance, rule or regulation applicable to any of the Shareholders or
to any of the property or assets of any of the Shareholders. Except for
consents, approvals, authorizations and filings as may be required under (A)
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the
Securities Exchange Act of 1934, as amended, the Securities Act of 1933, as
amended, or (B) federal and state land development, mortgage servicing and
telemarketing laws, state time share laws, state securities laws applicable
to the sale or offer of VOIs (as defined in the Merger Agreement), and
seller of travel or travel agency laws, no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic, foreign or supranational, is required by or with
respect to any Shareholder in connection with the execution and delivery of
this Agreement or the consummation by any Shareholder of the transactions
contemplated hereby.
(b) THE OWNED SHARES. The Shareholders have good and valid title to
the Owned Shares, free and clear of any claims, liens, encumbrances, pledges
and security interests whatsoever, except for the certain obligations to
transfer the Option Shares pursuant to the Option Agreements and certain
obligations pursuant to a certain Shareholders' Agreement dated as of
February 10, 1997 (the "SHAREHOLDERS' AGREEMENT"). The Shareholders own no
shares of Company Common Stock or other shares of capital stock of the
Company, other than the Owned Shares. Except for this Agreement, no proxies
or powers of attorney have been granted with respect to the Owned Shares
that will remain in effect after the execution of this Agreement. Except for
this Agreement and the Shareholders' Agreement, which the parties hereto
have agreed pursuant to a separate letter agreement, dated the date hereof,
shall be superseded by this Agreement (to the extent the terms thereof
conflict with the terms hereof) until, and terminate at, the Effective Time,
no voting arrangement (including voting agreement or voting trust) affecting
the Owned Shares shall remain in effect after the execution of this
Agreement.
(c) THE COMPANY. To the knowledge of the Shareholders, the
representations and warranties of the Company (i) set forth in Sections 3.8,
3.10, 3.11 and 3.16 of the Merger Agreement are true and correct and (ii)
set forth in Sections 3.5, 3.7 and 3.13 of the Merger Agreement are true and
correct.
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub hereby
represent and warrant to the Shareholders as follows:
(a) AUTHORITY. Each of Parent and Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Parent and Sub, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of Parent and Sub. This Agreement has been duly executed
and delivered by Parent and Sub and, assuming the due authorization,
execution and delivery by each of the Shareholders, constitutes a valid and
binding obligation of Parent and Sub enforceable in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by general principles governing the availability of equitable
remedies. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time or both) under any
provision of any charter, by-law, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, notice, decree, statute,
law, ordinance, rule or regulation applicable to any of Parent or Sub or to
any of the property or assets of any of Parent or Sub. Except for consents,
approvals,
2
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authorizations and filings as may be required under (A) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the
Securities Exchange Act of 1934, as amended, the Securities Act of 1933, as
amended, or (B) federal and state land development, mortgage servicing and
telemarketing laws, state time share laws, state securities laws applicable
to the sale or offer of VOIs, and seller of travel or travel agency laws, no
consent, approval, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic, foreign or
supranational, is required by or with respect to any Shareholder in
connection with the execution and delivery of this Agreement or the
consummation by either Parent or Sub of the transactions contemplated
hereby.
3. COVENANTS OF THE SHAREHOLDERS; IRREVOCABLE PROXY. Until the earlier of
(i) the Effective Time (as defined in the Merger Agreement) or (ii) the valid
termination of this Agreement pursuant to Section 7, the Shareholders agree as
follows:
(a) At any meeting of shareholders of the Company called to vote upon
the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with
respect to the Merger and the Merger Agreement is sought, the Shareholders
shall vote (or cause to be voted) all shares of Company Common Stock they
own or have voting control over in favor of the Merger, the approval of the
Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement.
(b) At any meeting of shareholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Shareholders' vote,
consent or other approval is sought, the Shareholders shall vote (or cause
to be voted) all shares of Company Common Stock owned by them against (i)
any merger agreement or merger (other than the Merger Agreement and the
Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of
or by the Company or any other Takeover Proposal (as defined in the Merger
Agreement), (ii) any amendment of the Company's Articles of Incorporation or
Amended and Restated By-Laws or other proposal or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify the
Merger, the Merger Agreement or any of the other transactions contemplated
by the Merger Agreement, or (iii) any action or agreement which would result
in a breach of any representation, warranty or covenant of the Company set
forth in the Merger Agreement.
(c) The Shareholders agree not to (i) Transfer or Otherwise Dispose (as
hereinafter defined) of, or enter into any Arrangement with respect thereto,
the Owned Shares to any person other than Sub or Sub's designee (except for
the transfer of any of the Option Shares pursuant to the Option Agreements),
or (ii) except for this Agreement, enter into any voting arrangement,
whether by proxy, voting agreement, voting trust or otherwise.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
deemed to restrict or prohibit the ability of each Shareholder to transfer
his shares to members of his immediate family or trusts or other entities in
connection with estate planning objectives, provided that such transferee
agrees in writing to be bound by the terms of this Agreement as though such
transferee were a Shareholder, and that notice and a copy of such agreement
are provided to Parent prior to such transfer. For purposes of this
Agreement, "TRANSFER OR OTHERWISE DISPOSE" means any sale, exchange,
redemption, assignment, gift, grant of a security interest, pledge or other
encumbrance, or the establishment of any voting trust or other agreement or
arrangement with respect to the transfer of voting rights or any other
beneficial interests in the Company Common Stock, the creation of any other
claim thereto or any other transfer or disposition whatsoever (including
involuntary sales, exchanges, transfers or other dispositions as a result of
a Takeover Proposal or otherwise, and whether or not for cash or other
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consideration) affecting the right, title, interest or possession in, to or
of the Company Common Stock.
(d) The Shareholders shall not, nor shall they authorize or permit any
financial advisor, attorney or other adviser, representative or agent of any
Shareholder to, (i) solicit, initiate or encourage the submission of, any
Takeover Proposal, (ii) enter into any agreement with respect to or approve
or recommend any Takeover Proposal or (iii) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal.
(e) Each Shareholder promptly (but in no event later than 24 hours)
shall advise Parent orally and in writing of (i) any Takeover Proposal or
any inquiry or any communication with respect to or which could lead to any
Takeover Proposal which such Shareholder shall have been approached or
solicited by any person with respect to, (ii) the material terms of such
Takeover Proposal (including a copy of any written proposal) and (iii) the
identity of the person or persons making any such Takeover Proposal, inquiry
or communication.
(f) The Shareholders hereby irrevocably appoint Parent as the attorney
and proxy of the Shareholders, with full power of substitution, to vote all
Owned Shares (other than Option Shares transferred pursuant to the terms of
the Option Agreements) that the Shareholders are entitled to vote at any
meeting of shareholders of the Company (whether annual or special and
whether or not an adjourned or postponed meeting) as set forth in Section
3(a); PROVIDED that in any such vote pursuant to such proxy, Parent shall
not have the right (and such proxy shall not confer the right) to vote to
modify or amend the Merger Agreement to reduce the rights or benefits of the
Company or any shareholders of the Company under the Merger Agreement or to
reduce the obligations of Parent thereunder. THIS PROXY AND POWER OF
ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Each Shareholder
hereby revokes, effective upon the execution and delivery of this Agreement,
all other proxies and powers of attorney with respect to Owned Shares that
such Shareholder may have heretofore appointed or granted, and no subsequent
proxy or power of attorney (except in furtherance of the Shareholders'
obligations under Section 3(a)) shall be given or written consent executed
(and if given or executed, shall not be effective) by any Shareholder with
respect thereto so long as this Agreement remains in effect. Each
Shareholder shall forward to the Parent and Sub any proxy cards that such
Shareholder receives with respect to the Merger.
(g) Subject to the terms of the letter agreement referenced in Section
1(b), the Shareholders agree to take all action necessary to suspend or
terminate all covenants, agreements and arrangements of the Shareholders
contained in the Shareholders' Agreement.
4. FURTHER ASSURANCES. Each Shareholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as Parent
or Sub may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly-owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns and, in the case of any Shareholder that is an individual, the heirs,
executors and administrators of such Shareholder.
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6. INDEMNIFICATION.
(a) SHAREHOLDERS' INDEMNIFICATION OF PARENT AND SUB. Subject to
Section 6(f) below, the Gellein Group (as defined below) shall defend,
indemnify and hold harmless Parent and Sub and their respective successors
and assigns, against and in respect of any and all assessments, claims,
demands, losses, damages, expenses (including without limitation, the
reasonable fees and disbursements of legal counsel), liabilities and
judgments (collectively, "Losses and Expenses") resulting from any
inaccuracy in or breach of any warranty or representation, or any
nonfulfillment of any agreement on the part of any Shareholder under this
Agreement; PROVIDED, HOWEVER, that (i) the Gellein Group's aggregate
liability for any inaccuracy in or breach of any representation or warranty
contained in Section 1(a), (b) or (c)(i) shall be limited to $20,000,000,
and (ii) the Gellein Group's aggregate liability for any inaccuracy in or
breach of any representation or warranty contained in Section 1(c)(ii) shall
be limited to $30,000,000; PROVIDED, that in no event shall the Gellein
Group's aggregate liability for any inaccuracy in or breach of any
representation or warranty in Sections 1(a), (b) or (c) exceed $30,000,000;
PROVIDED, FURTHER, that the Gellein Group shall only be liable under the
foregoing clauses (i) and (ii) if the aggregate Losses and Expenses incurred
by Parent and Sub and their respective successors and assigns exceed
$2,500,000 in the aggregate, and only for the amount of such Losses and
Expenses that exceeds $2,500,000; PROVIDED, FURTHER, that the Gellein Group
shall not be liable for any inaccuracies in or breaches of any
representations or warranties contained in Section 1(c) unless the Effective
Time has occurred.
(b) PARENT'S INDEMNIFICATION OF THE SHAREHOLDERS. Parent shall defend,
indemnify and hold harmless the Shareholders against and in respect of any
and all assessments, claims, demands, losses, damages, expenses (including
without limitation, the reasonable fees and disbursements of legal counsel),
liabilities and judgments resulting from any misrepresentation, any
inaccuracy in or breach of any warranty or representation, or any
nonfulfillment of any agreement on the part of Parent or Sub under this
Agreement.
(c) NOTICE OF CLAIMS. If any Claim (as hereinafter defined) is
instituted or asserted by any person in respect to which any party to this
Agreement is entitled to indemnification pursuant to this Agreement, the
indemnified party, after receipt by it of written notice of the commencement
or assertion of such Claim, shall promptly cause a written notice of such
Claim to be made to the party required to furnish such indemnity; PROVIDED
that failure to give such notice shall not (a) relieve the indemnifying
party of its indemnification obligations hereunder, unless such failure to
provide notice shall have prejudiced the rights of the indemnifying party,
or (b) result in any liability of the indemnified party to the indemnifying
party, except, in the case of clause (b), to the extent of damages and costs
caused by such failure to so notify. For purposes of this Section 6,
"Claim(s)" shall mean any legal proceeding(s), claim(s), or demand(s)
instituted or asserted by any person in respect to which any party to this
Agreement is entitled to indemnification pursuant to this Agreement, and
"Defense" shall mean the investigation, defense, settlement, or other
disposition of any Claim.
(d) DEFENSE OF CLAIMS. Subject to the next sentence, the indemnifying
party shall have the right, at its option and expense, to assume any Defense
of any Claim, provided that within ten (10) days of receiving the notice
with respect to such Claim pursuant to the above notice provision (or within
such shorter period of time as an answer to or other responsive action may
be required), the indemnifying party, by notice delivered to the indemnified
party, elects to assume such Defense and each indemnifying party
acknowledges its obligation hereunder to indemnify the indemnified party
with respect to such Claim. Notwithstanding the foregoing, the indemnifying
party shall not have the right to assume the Defense of any Claim if (i)
representation of both the indemnified party and indemnifying party by the
same counsel might be prohibited by rules or regulations governing the
professional conduct of such counsel due to actual or potential differing
interests between them; (ii) the indemnified party determines in good faith
that there is a
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substantial likelihood that such Claim may materially and adversely affect
it or its affiliates other than as a result of monetary damages imposed
thereon; or (iii) the indemnified party determines in good faith that the
indemnifying party has insufficient financial resources to satisfy any
monetary damages reasonably likely to result from such Claim.
If the indemnifying party has assumed the Defense of a Claim in
accordance with the first paragraph of this Section 6(d), then the following
shall apply: (i) except as provided in clause (v) below the indemnified
party shall have the right to participate and assist in, but not control,
the Defense of such Claim and to employ its own counsel in connection
therewith; (ii) except as provided in clause (v) below the indemnifying
party shall not be liable to the indemnified party for the fees or expenses
of the indemnified party's counsel or other expenses incurred by the
indemnified party in connection with participating in the Defense of such
Claim, except that the indemnifying party shall be liable for any such fees
and expenses incurred prior to the time that the indemnifying party assumed
such Defense or except to the extent such participation was requested by the
indemnifying party; (iii) counsel used by the indemnifying party in
connection with the Defense of such Claim shall be reasonably satisfactory
to the indemnified party; (iv) except as provided in clause (v) below, the
indemnifying party shall have no liability with respect to any compromise or
settlement of such Claim effected without its consent, which consent shall
not be unreasonably withheld; (v) if the indemnifying party shall fail or
omit diligently to prosecute the Defense of such Claim, then (A) the
indemnified party shall have the right to control the Defense of such Claim,
(B) the indemnifying party shall be liable to the indemnified party for the
fees and expenses of the indemnified party's counsel and other expenses
incurred by the indemnified party in connection with the Defense of such
Claim and (C) the indemnifying party shall be liable for any settlement of
such Claim effected by the indemnified party; and (vi) the indemnifying
party shall not effect any compromise or settlement of such Claim without
the consent of the indemnified party, which consent shall not be
unreasonably withheld, unless such compromise or settlement includes a full
release of the indemnified party, neither the indemnified party's business
nor its name nor the business or name of any of its affiliates will be
damaged or adversely affected by such settlement, and such settlement is
limited strictly to monetary damages.
If the indemnifying party does not assume the Defense of a Claim
(whether because it elects not to or has no right to) the following shall
apply: (i) the indemnifying party shall have the right, at its sole cost and
expense, to participate in, but not control, the Defense of such Claim and
to employ its own counsel in connection therewith; and (ii) the indemnifying
party shall have no liability with respect to any compromise or settlement
of such Claims effected without its consent, which shall not be unreasonably
withheld.
(e) SATISFACTION OF INDEMNIFICATION OBLIGATION. The Gellein Group
shall satisfy any indemnification obligation to Parent and Sub through the
payment of cash or the surrender of Units to Parent. If any member of the
Gellein Group elects to satisfy any obligation by the surrender of Units,
such Units shall be valued at the Market Price (as hereinafter defined) of a
Unit on the date of surrender of such Units. For purposes of this Agreement,
the "Market Price" of a Unit on any date means the average of the Average
Prices (as hereinafter defined) for the 20 consecutive New York Stock
Exchange trading days immediately preceding such date. The "Average Price"
for any date means the average of the daily high and low prices per Unit as
reported on the New York Stock Exchange Composite Transactions reporting
system (as published in The Wall Street Journal or, if not published
therein, in another authoritative source mutually selected by the Company
and Parent).
(f) NOTIFICATION OF CERTAIN MATTERS. If, prior to the Effective Time,
one or more of the Shareholders provides written notice to Parent of any
fact or event which the notice states has caused or may cause any
representation or warranty contained in Section 1(c) to be untrue or
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inaccurate in any material respect (an "Update Notice") and Parent elects to
close the Merger notwithstanding such notice, then, notwithstanding anything
to the contrary herein, the Gellein Group shall not be liable pursuant to
this Section 6 or otherwise for any inaccuracies in or breaches of any
representations or warranties contained in Section 1(c) caused by the fact
or event so described in such Update Notice; PROVIDED, HOWEVER, that 50% of
the amount of any Losses and Expenses resulting from any such inaccuracies
or breaches shall be counted in determining whether the amount of aggregate
Losses and Expenses exceeds the $2,500,000 threshold as provided in the
third proviso to Section 6(a).
7. TERMINATION. This Agreement shall terminate only upon a valid
termination of the Merger Agreement pursuant to its terms.
8. GENERAL PROVISIONS.
(a) SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants and agreements made by the parties to this Agreement shall survive
the closing hereunder notwith-standing any investigation at any time made by
or on behalf of any party hereto; PROVIDED, HOWEVER, that (i) the
representations and warranties contained in Sections 1(a), (b), (c)(i) and
2(a) shall terminate 1 year from the date of the Effective Time and (ii) the
representations and warranties contained in Section 1(c)(ii) shall terminate
at the earlier of (x) March 31, 2001 and (y) the date of delivery by
Parent's independent accountants of an audit report on Parent's December 31,
2000 financial statements.
(b) SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
within the United States, this being in addition to any other remedy to
which they are entitled at law or in equity.
(c) EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(d) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(e) NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i)
when delivered personally, (ii) if transmitted by fax when confirmation of
transmission is received, or (iii) if sent by registered or certified mail,
return receipt requested, or by private courier when received; and shall be
addressed as follows:
(i) if to Parent or Sub, to:
Starwood Hotels & Resorts Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Attention: Thomas C. Janson, Jr.
Facsimile: (914) 640-8250
with a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
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Attention: Scott M. Freeman
Facsimile: (212) 906-2021
(ii) if to the Shareholders, to:
Raymond L. Gellein, Jr.
[address omitted]
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Martin L. Edelman
Facsimile: (212) 856-7808
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
(e) INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counter parties have been
signed by each of the parties and delivered to the other party, it being
understood that each party need not sign the same counterpart.
(g) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
together with all other agreements executed by the parties hereto on the
date hereof (including the documents and instruments referred to herein),
except the letter agreement referenced in Section 1(b) or as otherwise
provided in the Merger Agreement (i) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to any
applicable conflicts of law.
(i) WAIVERS. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently given for the purposes of this Agreement if, as to any party,
it is in writing signed by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the
right of any party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to constitute a waiver
of any other or subsequent breach.
9. GELLEIN'S CAPACITY. The parties hereto agree and acknowledge that
Gellein does not make any agreement or understanding in his capacity as a
director or officer of the Company. Gellein has entered into this Agreement
solely in his capacity as the record holder and beneficial owner of the
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Owned Shares and nothing herein shall expand, limit or affect any actions taken
by Gellein in his capacity as an officer or director of the Company.
10. LIMITATION ON TRANSFER OF UNITS.
(a) Gellein, NevEast and NevWest (the "Gellein Group") agree that they
will not sell, transfer, assign or otherwise dispose of, hypothecate
or otherwise encumber (voluntarily or involuntarily) (any such sale,
transfer, assignment, disposition, hypothecation or encumbrance
being referred to as a "transfer") any of the Units they receive in
the Merger, except that:
(i) the foregoing restrictions on transfer will lapse with respect to
twenty percent (20%) of the Units the Gellein Group receives in the
Merger six months after the Effective Time;
(ii) the foregoing restrictions on transfer will lapse with respect to
an additional twenty percent (20%) of the Units the Gellein Group
receives in the Merger twelve months after the Effective Time;
(iii) the foregoing restrictions on transfer will lapse with respect to
an additional thirty percent (30%) of the Units the Gellein Group
receives in the Merger eighteen months after the Effective Time;
and
(iv) the foregoing restrictions on transfer will lapse with respect to
the remaining balance of the Units the Gellein Group receives in
the Merger twenty-four months after the Effective Time.
The transfer restrictions contained in this clause (a) shall terminate
immediately upon the valid termination of Gellein's employment after the
Effective Time without Cause or for Good Reason (as such terms are defined in
the Employment Agreement, dated as of July 18, 1999 between Gellein and the
Company). Notwithstanding the transfer restrictions set forth in this clause
(a), nothing set forth herein shall prohibit any member of the Gellein Group
from transferring Units (including selling Units pursuant to the terms of such
Option Agreements and using the proceeds from such sale to satisfy any
obligation under such Option Agreements) in order to fulfill its obligations
under the Option Agreements.
(b) Each member of the Gellein Group agrees that each stock certificate
representing Units issued to any member of the Gellein Group shall bear, among
others, the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF A SHAREHOLDERS AGREEMENT DATED JULY 18, 1999
BETWEEN THE REGISTERED HOLDER HEREOF AND STARWOOD HOTELS & RESORTS WORLDWIDE,
INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF STARWOOD
HOTELS & RESORTS WORLDWIDE, INC."
11. FORFEITURE. If Gellein's employment with the Company is terminated for
any reason other than (i) by the Company without Cause, (ii) by Gellein for Good
Reason or (iii) as a result of Gellein's death or Permanent Disability, during
the period commencing on the Effective Date and ending on the day immediately
prior to the first anniversary of the Effective Date, then the Gellein Group
shall surrender and forfeit (and immediately deliver to the Company for
cancellation) a number of Units equal to the Forfeiture Number (as hereinafter
defined). If Gellein's employment with the Company is terminated for any reason
other than (i) without Cause, (ii) by Gellein for Good Reason or (iii) as a
result of Gellein's death or Permanent Disability, during the period commencing
on the first anniversary of the Effective Date and ending on the day immediately
prior to the second anniversary of the Effective Date, then the Gellein Group
shall surrender and forfeit (and immediately deliver to the Company for
cancellation) a number of Units equal to the product of (i) the Forfeiture
Number and
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(ii) one-half. For purposes of this Agreement, the "Forfeiture Number" shall
mean a number equal to (i) $10,000,000 divided by (ii) the Market Price of a
Unit on the Effective Date and the terms "Cause," "Good Reason" and "Permanent
Disability" shall have the meanings ascribed to them in the form of Employment
Agreement by and between Gellein and the Company attached to Section 6.3(g) of
the Parent Letter delivered in connection with the Merger Agreement.
12. CONFIDENTIAL INFORMATION AND OWNERSHIP OF PROPERTY.
(a) During the period commencing on the Effective Date and ending on the
sixth anniversary of the Effective Date (the "Restricted Term"), Gellein
agrees to use all Confidential Information (as defined in the Employment
Agreement) solely in connection with the performance of services for or on
behalf of the Company. Gellein shall not, during the Restricted Term, in any
manner, either directly or indirectly, (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless
of whether such Confidential Information is considered to be confidential by
third parties, or (ii) otherwise directly or indirectly misuse any
Confidential Information; PROVIDED, HOWEVER, that (y) none of the provisions
of this Section 12 shall apply to disclosures made for valid business
purposes of the Company and (z) Gellein shall not be obligated to treat as
confidential any Confidential Information that (I) was publicly known at the
time of disclosure to Gellein; (II) becomes publicly known or available
thereafter other than by means in violation of this Agreement or any other
duty owed to the Company, Parent or any Affiliate (as defined in the
Employment Agreement) of the Company or Parent by any person or entity.
Notwithstanding the foregoing, Gellein shall be permitted to disclose
Confidential Information to the extent required to enforce Gellein's rights
hereunder in any litigation arising under, or pertaining to, this Agreement
provided that Gellein shall give prior written notice to the Company of any
such disclosure so that the Company may have an opportunity to protect the
confidentiality of such Confidential Information in such litigation.
(b) Gellein agrees that all works of authorship developed, authored,
written, created or contributed to during the Restricted Term for the
benefit of the Company, whether solely or jointly with others, shall be
considered works-made-for-hire. Gellein agrees that such works shall be the
sole and exclusive property of the Company (or Parent or the appropriate
Affiliate of the Company or Parent) and that all right, title and interest
therein or thereto, including all intellectual property rights existing or
obtained in connection therewith, shall likewise be the sole and exclusive
property of the Company (or Parent or the appropriate Affiliate of the
Company or Parent). Gellein agrees further that, in the event that any work
is not considered to be work-made-for-hire by operation of law, Gellein will
immediately, and without further compensation, assign all of Gellein's
right, title and interest therein to the Company (or Parent or the
designated Affiliate), its successors and assigns. At the request and
expense of the Company, Gellein agrees to perform in a timely manner such
further acts as may be necessary or desirable to transfer, defend or perfect
the Company's ownership of such work and all rights incident thereto.
13. COVENANT NOT TO COMPETE. Unless the Company's Board of Directors
determines that any of the following conduct is in the Company's best interests,
during the Restricted Term, Gellein shall not:
(a) directly or indirectly for himself or for any other person or entity
engage, whether as owner, investor, creditor, consultant, partner,
shareholder, director, financial backer, agent, employee or otherwise, in
the business, enterprise or employment of owning, operating, marketing or
selling a time-share, vacation plan, vacation ownership or interval
ownership project within the Territory (as defined in the Employment
Agreement); or
(b) directly or indirectly for himself or for any other person or entity
sell, or otherwise procure purchasers for, any time-share, vacation plan,
vacation ownership or interval ownership project within the Territory; or
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(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) directly or indirectly for himself or for any other person or entity
become employed in any capacity by or otherwise render services in any
capacity to any national enterprise having time-share, vacation plan,
vacation ownership or interval ownership activities, including, without
limitation, Walt Disney Company, Hilton Hotels Corporation, Hyatt
Corporation, Four Seasons Hotels and Resorts, Inc., Marriott International,
Inc., Inter-Continental Hotels and Resorts, Inc., Promus Hotels, Inc.,
Fairfield Communities, Inc., Sunterra Corporation or Bass PLC or any of
their respective Affiliates; or
(e) directly or indirectly for himself or for any other person or entity
pursue or consummate or otherwise interfere with any Existing Project (as
defined in the Employment Agreement); or
(f) (i) directly or indirectly, for himself or any other person or
entity, pursue, consummate or otherwise interfere with any Prospective
Project (as defined in the Employment Agreement) or (ii) directly or
indirectly for himself or for any other person or entity become employed in
any capacity by or otherwise render services in any capacity to any other
person or entity (other than the Company, Parent and any Affiliate of the
Company or Parent) described in clause (ii) of the definition of Prospective
Project.
Notwithstanding the foregoing, Gellein may purchase stock as a
stockholder in any publicly traded company, including any company engaged in
the time-share or vacation ownership business; PROVIDED, HOWEVER, that
Gellein may not own (individually or collectively with Gellein's family
members, trusts for the benefit of Gellein's family members and affiliates
of Gellein) more than 5% of any company.
In light of the substantial consideration provided to Gellein in
connection with the transactions contemplated by this Agreement and the
Merger Agreement, Gellein hereby specifically acknowledges and agrees that
the provisions of this Section 13 (including, without limitation, its time
and geographic limits), as well as the provisions of Sections 12 and 14, are
reasonable and appropriate, and that Gellein will not claim to the contrary
in any action brought by the Company to enforce such any of such provisions.
14. COVENANT AGAINST SOLICITATION OF EMPLOYEES. During the Restricted Term,
Gellein shall not employ employees or agents or former employees or agents of
the Company, Parent or any Affiliate of the Company or Parent or, directly or
indirectly, solicit or otherwise encourage the employment of employees or agents
or former employees or agents of the Company, Parent or any Affiliate of the
Company or Parent; PROVIDED, HOWEVER, that this restriction shall not apply to
Gellein's secretaries or personal assistants or to former employees or agents
who, as of the date of termination of Gellein's employment by the Company, have
not worked for any of the Company, Parent or any Affiliate of the Company or
Parent during the twelve preceding months.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<TABLE>
<S> <C> <C>
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ RUSSELL STERNLICHT
-----------------------------------------
Name: Russell Sternlicht
Title: Senior Vice President
FIRE ACQUISITION CORP.
By: /s/ RUSSELL STERNLICHT
-----------------------------------------
Name: Russell Sternlicht
Title: Vice President
NEVEAST LIMITED PARTNERSHIP
By: /s/ RONALD SMITH
-----------------------------------------
Name: Ronald Smith
Title: President, NevJan I, Inc., General
Partner
NEVWEST LIMITED PARTNERSHIP
By: /s/ RONALD SMITH
-----------------------------------------
Name: Ronald Smith
Title: President, NevGel, Inc., General
Partner
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
*THE RAYMOND L. GELLEIN, JR. GRANTOR
RETAINED ANNUITY TRUST
By: /s/ RAYMOND L. GELLEIN, SR.
-----------------------------------------
Name: Raymond L. Gellein, Sr.
Title: Trustee
*THE MATTHEW JAMES GELLEIN
IRREVOCABLE TRUST
By: /s/ CATHERINE G. MALE
-----------------------------------------
Name: Catherine G. Male
Title: Trustee
*THE BRETT TYLER GELLEIN
IRREVOCABLE TRUST
By: /s/ CATHERINE G. MALE
-----------------------------------------
Name: Catherine G. Male
Title: Trustee
*THE JANICE G. GELLEIN GRANTOR
ANNUITY TRUST
By: /s/ RAYMOND L. GELLEIN, SR.
-----------------------------------------
Name: Raymond L. Gellein, Sr.
Title: Trustee
*THE CATHERINE MALE GIFT TRUST
By: /s/ RAYMOND L. GELLEIN, SR.
-----------------------------------------
Name: Raymond L. Gellein, Sr.
Title: Trustee
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
*THE CHERIE DOHERTY GIFT TRUST
By: /s/ RAYMOND L. GELLEIN, SR.
-----------------------------------------
Name: Raymond L. Gellein, Sr.
Title: Trustee
*THE SUSAN FAETZ GIFT TRUST
By: /s/ RAYMOND L. GELLEIN, SR.
-----------------------------------------
Name: Raymond L. Gellein, Sr.
Title: Trustee
</TABLE>
- ------------------------
* (Agreed solely for purposes of Sections 1, 3, 4, 5, 7 and 8).
14
<PAGE>
APPENDIX C
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT (this "AGREEMENT"), dated as of July 18, 1999, among
Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation ("PARENT"),
Fire Acquisition Corp., a Florida corporation and a wholly-owned subsidiary of
Parent ("SUB"), Jeffrey A. Adler ("ADLER"), Rija Limited Partnership, a Nevada
limited partnership ("RIJA"), the Jeffrey A. Adler Grantor Annuity Trust #1
("ANNUITY TRUST #1"), the Jeffrey A. Adler Grantor Annuity Trust #2 ("ANNUITY
TRUST #2"), the ARA Trust ("ARA TRUST") and the DLA Trust ("DLA TRUST" and,
together with Annuity Trust #1, Annuity Trust #2 and ARA Trust, the "TRUSTS")
(Adler, Rija and the Trusts are collectively referred to herein as the
"SHAREHOLDERS" and individually referred to herein as a "SHAREHOLDER");
PROVIDED, HOWEVER, that the obligations of Annuity Trust #1, Annuity Trust #2,
ARA Trust and DLA Trust shall be limited to those set forth in Sections 1, 3, 4,
5, 7 and 8 of this Agreement.
WHEREAS Parent, Sub and Vistana, Inc. a Florida corporation (the "COMPANY"),
propose to enter into an Agreement and Plan of Merger dated as of even date
herewith (as the same may be amended or supplemented, the "MERGER AGREEMENT")
providing for the merger of the Company into Sub pursuant to which each issued
and outstanding share of common stock, par value $.01 per share, of the Company
(the "COMPANY COMMON STOCK"), not owned by Parent, the Company or their
respective wholly-owned subsidiaries will be converted into (i) the Exchange
Ratio (as defined in the Merger Agreement) of Units (as defined in the Merger
Agreement) plus (ii) $5.00 in cash;
WHEREAS the Shareholders own in the aggregate 6,207,250 shares of Company
Common Stock (the "OWNED SHARES");
WHEREAS the Shareholders have each executed a written consent to the Merger
and the Merger Agreement pursuant to Section 607.0704 of the Florida Business
Corporation Act;
WHEREAS certain of the Shareholders have granted to certain employees and
former employees of the Company or its affiliates options to acquire an
aggregate of 915,000 (the "OPTION SHARES") of the Owned Shares pursuant to those
certain Shareholder Option Agreements described on Annex A hereto (the "OPTION
AGREEMENTS"); and
WHEREAS as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Shareholders enter into this
Agreement.
NOW, THEREFORE, to induce Parent and Sub to enter into, and in consideration
of their entering into, the Merger Agreement, and in consideration of the
premises and the representations, warranties and agreements contained herein,
the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
hereby jointly and severally represent and warrant to Parent and Sub as follows:
(a) AUTHORITY. Each Shareholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each Shareholder,
and the consummation of the transactions contemplated hereby, has been duly
authorized by all necessary action on the part of each Shareholder. This
Agreement has been duly executed and delivered by each Shareholder and,
assuming the due authorization, execution and delivery by each of Parent and
Sub, constitutes a valid and binding obligation of each Shareholder
enforceable in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by general principles
governing the availability of equitable remedies. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of or default (with or without notice or
lapse of time or both) under any provision of any trust agreement,
partnership agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment,
<PAGE>
order, notice, decree, statute, law, ordinance, rule or regulation
applicable to any of the Shareholders or to any of the property or assets of
any of the Shareholders. Except for consents, approvals, authorizations and
filings as may be required under (A) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, the Securities Exchange Act of 1934,
as amended, the Securities Act of 1933, as amended, or (B) federal and state
land development, mortgage servicing and telemarketing laws, state time
share laws, state securities laws applicable to the sale or offer of VOIs
(as defined in the Merger Agreement), and seller of travel or travel agency
laws, no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality, domestic, foreign or
supranational, is required by or with respect to any Shareholder in
connection with the execution and delivery of this Agreement or the
consummation by any Shareholder of the transactions contemplated hereby.
(b) THE OWNED SHARES. The Shareholders have good and valid title to
the Owned Shares, free and clear of any claims, liens, encumbrances, pledges
and security interests whatsoever, except for the certain obligations to
transfer the Option Shares pursuant to the Option Agreements and certain
obligations pursuant to a certain Shareholders' Agreement dated as of
February 10, 1997 (the "SHAREHOLDERS' AGREEMENT"). The Shareholders own no
shares of Company Common Stock or other shares of capital stock of the
Company, other than the Owned Shares. Except for this Agreement, no proxies
or powers of attorney have been granted with respect to the Owned Shares
that will remain in effect after the execution of this Agreement. Except for
this Agreement and the Shareholders' Agreement, which the parties hereto
have agreed pursuant to a separate letter agreement, dated the date hereof,
shall be superseded by this Agreement (to the extent the terms thereof
conflict with the terms hereof) until, and terminate at, the Effective Time,
no voting arrangement (including voting agreement or voting trust) affecting
the Owned Shares shall remain in effect after the execution of this
Agreement.
(c) THE COMPANY. To the knowledge of the Shareholders, the
representations and warranties of the Company (i) set forth in Sections 3.8,
3.10, 3.11 and 3.16 of the Merger Agreement are true and correct and (ii)
set forth in Sections 3.5, 3.7 and 3.13 of the Merger Agreement are true and
correct.
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub hereby
represent and warrant to the Shareholders as follows:
(a) AUTHORITY. Each of Parent and Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Parent and Sub, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of Parent and Sub. This Agreement has been duly executed
and delivered by Parent and Sub and, assuming the due authorization,
execution and delivery by each of the Shareholders, constitutes a valid and
binding obligation of Parent and Sub enforceable in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by general principles governing the availability of equitable
remedies. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time or both) under any
provision of any charter, by-law, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, notice, decree, statute,
law, ordinance, rule or regulation applicable to any of Parent or Sub or to
any of the property or assets of any of Parent or Sub. Except for consents,
approvals, authorizations and filings as may be required under (A) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the
Securities Exchange Act of 1934, as amended, the
2
<PAGE>
Securities Act of 1933, as amended, or (B) federal and state land
development, mortgage servicing and telemarketing laws, state time share
laws, state securities laws applicable to the sale or offer of VOIs, and
seller of travel or travel agency laws, no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic, foreign or supranational, is required by or with
respect to any Shareholder in connection with the execution and delivery of
this Agreement or the consummation by either Parent or Sub of the
transactions contemplated hereby.
3. COVENANTS OF THE SHAREHOLDERS; IRREVOCABLE PROXY. Until the earlier of
(i) the Effective Time (as defined in the Merger Agreement) or (ii) the valid
termination of this Agreement pursuant to Section 7, the Shareholders agree as
follows:
(a) At any meeting of shareholders of the Company called to vote upon
the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with
respect to the Merger and the Merger Agreement is sought, the Shareholders
shall vote (or cause to be voted) all shares of Company Common Stock they
own or have voting control over in favor of the Merger, the approval of the
Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement.
(b) At any meeting of shareholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Shareholders' vote,
consent or other approval is sought, the Shareholders shall vote (or cause
to be voted) all shares of Company Common Stock owned by them against (i)
any merger agreement or merger (other than the Merger Agreement and the
Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of
or by the Company or any other Takeover Proposal (as defined in the Merger
Agreement), (ii) any amendment of the Company's Articles of Incorporation or
Amended and Restated By-Laws or other proposal or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify the
Merger, the Merger Agreement or any of the other transactions contemplated
by the Merger Agreement, or (iii) any action or agreement which would result
in a breach of any representation, warranty or covenant of the Company set
forth in the Merger Agreement.
(c) The Shareholders agree not to (i) Transfer or Otherwise Dispose (as
hereinafter defined) of, or enter into any Arrangement with respect thereto,
the Owned Shares to any person other than Sub or Sub's designee (except for
the transfer of any of the Option Shares pursuant to the Option Agreements),
or (ii) except for this Agreement, enter into any voting arrangement,
whether by proxy, voting agreement, voting trust or otherwise.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
deemed to restrict or prohibit the ability of each Shareholder to transfer
his shares to members of his immediate family or trusts or other entities in
connection with estate planning objectives, provided that such transferee
agrees in writing to be bound by the terms of this Agreement as though such
transferee were a Shareholder, and that notice and a copy of such agreement
are provided to Parent prior to such transfer. For purposes of this
Agreement, "TRANSFER OR OTHERWISE DISPOSE" means any sale, exchange,
redemption, assignment, gift, grant of a security interest, pledge or other
encumbrance, or the establishment of any voting trust or other agreement or
arrangement with respect to the transfer of voting rights or any other
beneficial interests in the Company Common Stock, the creation of any other
claim thereto or any other transfer or disposition whatsoever (including
involuntary sales, exchanges, transfers or other dispositions as a result of
a Takeover Proposal or otherwise, and whether or not for cash or other
consideration) affecting the right, title, interest or possession in, to or
of the Company Common Stock.
3
<PAGE>
(d) The Shareholders shall not, nor shall they authorize or permit any
financial advisor, attorney or other adviser, representative or agent of any
Shareholder to, (i) solicit, initiate or encourage the submission of, any
Takeover Proposal, (ii) enter into any agreement with respect to or approve
or recommend any Takeover Proposal or (iii) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal.
(e) Each Shareholder promptly (but in no event later than 24 hours)
shall advise Parent orally and in writing of (i) any Takeover Proposal or
any inquiry or any communication with respect to or which could lead to any
Takeover Proposal which such Shareholder shall have been approached or
solicited by any person with respect to, (ii) the material terms of such
Takeover Proposal (including a copy of any written proposal) and (iii) the
identity of the person or persons making any such Takeover Proposal, inquiry
or communication.
(f) The Shareholders hereby irrevocably appoint Parent as the attorney
and proxy of the Shareholders, with full power of substitution, to vote all
Owned Shares (other than Option Shares transferred pursuant to the terms of
the Option Agreements) that the Shareholders are entitled to vote at any
meeting of shareholders of the Company (whether annual or special and
whether or not an adjourned or postponed meeting) as set forth in Section
3(a); PROVIDED that in any such vote pursuant to such proxy, Parent shall
not have the right (and such proxy shall not confer the right) to vote to
modify or amend the Merger Agreement to reduce the rights or benefits of the
Company or any shareholders of the Company under the Merger Agreement or to
reduce the obligations of Parent thereunder. THIS PROXY AND POWER OF
ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Each Shareholder
hereby revokes, effective upon the execution and delivery of this Agreement,
all other proxies and powers of attorney with respect to Owned Shares that
such Shareholder may have heretofore appointed or granted, and no subsequent
proxy or power of attorney (except in furtherance of the Shareholders'
obligations under Section 3(a)) shall be given or written consent executed
(and if given or executed, shall not be effective) by any Shareholder with
respect thereto so long as this Agreement remains in effect. Each
Shareholder shall forward to the Parent and Sub any proxy cards that such
Shareholder receives with respect to the Merger.
(g) Subject to the terms of the letter agreement referenced in Section
1(b), the Shareholders agree to take all action necessary to suspend or
terminate all covenants, agreements and arrangements of the Shareholders
contained in the Shareholders' Agreement.
4. FURTHER ASSURANCES. Each Shareholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as Parent
or Sub may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly-owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns and, in the case of any Shareholder that is an individual, the heirs,
executors and administrators of such Shareholder.
6. INDEMNIFICATION.
(a) SHAREHOLDERS' INDEMNIFICATION OF PARENT AND SUB. Subject to
Section 6(f) below, the Adler Group (as defined below) shall defend,
indemnify and hold harmless Parent and Sub and their
4
<PAGE>
respective successors and assigns, against and in respect of any and all
assessments, claims, demands, losses, damages, expenses (including without
limitation, the reasonable fees and disbursements of legal counsel),
liabilities and judgments (collectively, "Losses and Expenses") resulting
from any inaccuracy in or breach of any warranty or representation, or any
nonfulfillment of any agreement on the part of any Shareholder under this
Agreement; PROVIDED, HOWEVER, that (i) the Adler Group's aggregate liability
for any inaccuracy in or breach of any representation or warranty contained
in Section 1(a), (b) or (c)(i) shall be limited to $20,000,000, and (ii) the
Adler Group's aggregate liability for any inaccuracy in or breach of any
representation or warranty contained in Section 1(c)(ii) shall be limited to
$30,000,000; PROVIDED, that in no event shall the Adler Group's aggregate
liability for any inaccuracy in or breach of any representation or warranty
in Sections 1(a), (b) or (c) exceed $30,000,000; PROVIDED, FURTHER, that the
Adler Group shall only be liable under the foregoing clauses (i) and (ii) if
the aggregate Losses and Expenses incurred by Parent and Sub and their
respective successors and assigns exceed $2,500,000 in the aggregate, and
only for the amount of such Losses and Expenses that exceeds $2,500,000;
PROVIDED, FURTHER, that the Adler Group shall not be liable for any
inaccuracies in or breaches of any representations or warranties contained
in Section 1(c) unless the Effective Time has occurred.
(b) PARENT'S INDEMNIFICATION OF THE SHAREHOLDERS. Parent shall defend,
indemnify and hold harmless the Shareholders against and in respect of any
and all assessments, claims, demands, losses, damages, expenses (including
without limitation, the reasonable fees and disbursements of legal counsel),
liabilities and judgments resulting from any misrepresentation, any
inaccuracy in or breach of any warranty or representation, or any
nonfulfillment of any agreement on the part of Parent or Sub under this
Agreement.
(c) NOTICE OF CLAIMS. If any Claim (as hereinafter defined) is
instituted or asserted by any person in respect to which any party to this
Agreement is entitled to indemnification pursuant to this Agreement, the
indemnified party, after receipt by it of written notice of the commencement
or assertion of such Claim, shall promptly cause a written notice of such
Claim to be made to the party required to furnish such indemnity; PROVIDED
that failure to give such notice shall not (a) relieve the indemnifying
party of its indemnification obligations hereunder, unless such failure to
provide notice shall have prejudiced the rights of the indemnifying party,
or (b) result in any liability of the indemnified party to the indemnifying
party, except, in the case of clause (b), to the extent of damages and costs
caused by such failure to so notify. For purposes of this Section 6,
"Claim(s)" shall mean any legal proceeding(s), claim(s), or demand(s)
instituted or asserted by any person in respect to which any party to this
Agreement is entitled to indemnification pursuant to this Agreement, and
"Defense" shall mean the investigation, defense, settlement, or other
disposition of any Claim.
(d) DEFENSE OF CLAIMS. Subject to the next sentence, the indemnifying
party shall have the right, at its option and expense, to assume any Defense
of any Claim, provided that within ten (10) days of receiving the notice
with respect to such Claim pursuant to the above notice provision (or within
such shorter period of time as an answer to or other responsive action may
be required), the indemnifying party, by notice delivered to the indemnified
party, elects to assume such Defense and each indemnifying party
acknowledges its obligation hereunder to indemnify the indemnified party
with respect to such Claim. Notwithstanding the foregoing, the indemnifying
party shall not have the right to assume the Defense of any Claim if (i)
representation of both the indemnified party and indemnifying party by the
same counsel might be prohibited by rules or regulations governing the
professional conduct of such counsel due to actual or potential differing
interests between them; (ii) the indemnified party determines in good faith
that there is a substantial likelihood that such Claim may materially and
adversely affect it or its affiliates other than as a result of monetary
damages imposed thereon; or (iii) the indemnified party determines
5
<PAGE>
in good faith that the indemnifying party has insufficient financial
resources to satisfy any monetary damages reasonably likely to result from
such Claim.
If the indemnifying party has assumed the Defense of a Claim in
accordance with the first paragraph of this Section 6(d), then the following
shall apply: (i) except as provided in clause (v) below the indemnified
party shall have the right to participate and assist in, but not control,
the Defense of such Claim and to employ its own counsel in connection
therewith; (ii) except as provided in clause (v) below the indemnifying
party shall not be liable to the indemnified party for the fees or expenses
of the indemnified party's counsel or other expenses incurred by the
indemnified party in connection with participating in the Defense of such
Claim, except that the indemnifying party shall be liable for any such fees
and expenses incurred prior to the time that the indemnifying party assumed
such Defense or except to the extent such participation was requested by the
indemnifying party; (iii) counsel used by the indemnifying party in
connection with the Defense of such Claim shall be reasonably satisfactory
to the indemnified party; (iv) except as provided in clause (v) below, the
indemnifying party shall have no liability with respect to any compromise or
settlement of such Claim effected without its consent, which consent shall
not be unreasonably withheld; (v) if the indemnifying party shall fail or
omit diligently to prosecute the Defense of such Claim, then (A) the
indemnified party shall have the right to control the Defense of such Claim,
(B) the indemnifying party shall be liable to the indemnified party for the
fees and expenses of the indemnified party's counsel and other expenses
incurred by the indemnified party in connection with the Defense of such
Claim and (C) the indemnifying party shall be liable for any settlement of
such Claim effected by the indemnified party; and (vi) the indemnifying
party shall not effect any compromise or settlement of such Claim without
the consent of the indemnified party, which consent shall not be
unreasonably withheld, unless such compromise or settlement includes a full
release of the indemnified party, neither the indemnified party's business
nor its name nor the business or name of any of its affiliates will be
damaged or adversely affected by such settlement, and such settlement is
limited strictly to monetary damages.
If the indemnifying party does not assume the Defense of a Claim
(whether because it elects not to or has no right to) the following shall
apply: (i) the indemnifying party shall have the right, at its sole cost and
expense, to participate in, but not control, the Defense of such Claim and
to employ its own counsel in connection therewith; and (ii) the indemnifying
party shall have no liability with respect to any compromise or settlement
of such Claims effected without its consent, which shall not be unreasonably
withheld.
(e) SATISFACTION OF INDEMNIFICATION OBLIGATION. The Adler Group shall
satisfy any indemnification obligation to Parent and Sub through the payment
of cash or the surrender of Units to Parent. If any member of the Adler
Group elects to satisfy any obligation by the surrender of Units, such Units
shall be valued at the Market Price (as hereinafter defined) of a Unit on
the date of surrender of such Units. For purposes of this Agreement, the
"Market Price" of a Unit on any date means the average of the Average Prices
(as hereinafter defined) for the 20 consecutive New York Stock Exchange
trading days immediately preceding such date. The "AVERAGE PRICE" for any
date means the average of the daily high and low prices per Unit as reported
on the New York Stock Exchange Composite Transactions reporting system (as
published in The Wall Street Journal or, if not published therein, in
another authoritative source mutually selected by the Company and Parent).
(f) NOTIFICATION OF CERTAIN MATTERS. If, prior to the Effective Time,
one or more of the Shareholders provides written notice to Parent of any
fact or event which the notice states has caused or may cause any
representation or warranty contained in Section 1(c) to be untrue or
inaccurate in any material respect (an "Update Notice") and Parent elects to
close the Merger notwithstanding such notice, then, notwithstanding anything
to the contrary herein, the Adler
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<PAGE>
Group shall not be liable pursuant to this Section 6 or otherwise for any
inaccuracies in or breaches of any representations or warranties contained
in Section 1(c) caused by the fact or event so described in such Update
Notice; PROVIDED, HOWEVER, that 50% of the amount of any Losses and Expenses
resulting from any such inaccuracies or breaches shall be counted in
determining whether the amount of aggregate Losses and Expenses exceeds the
$2,500,000 threshold as provided in the third proviso to Section 6(a).
7. TERMINATION. This Agreement shall terminate only upon a valid
termination of the Merger Agreement pursuant to its terms.
8. GENERAL PROVISIONS.
(a) SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants and agreements made by the parties to this Agreement shall survive
the closing hereunder notwith-standing any investigation at any time made by
or on behalf of any party hereto; PROVIDED, HOWEVER, that (i) the
representations and warranties contained in Sections 1(a), (b), (c)(i) and
2(a) shall terminate 1 year from the date of the Effective Time and (ii) the
representations and warranties contained in Section 1(c)(ii) shall terminate
at the earlier of (x) March 31, 2001 and (y) the date of delivery by
Parent's independent accountants of an audit report on Parent's December 31,
2000 financial statements.
(b) SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
within the United States, this being in addition to any other remedy to
which they are entitled at law or in equity.
(c) EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(d) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(e) NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i)
when delivered personally, (ii) if transmitted by fax when confirmation of
transmission is received, or (iii) if sent by registered or certified mail,
return receipt requested, or by private courier when received; and shall be
addressed as follows:
(i) if to Parent or Sub, to:
Starwood Hotels & Resorts
Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Attention: Thomas C. Janson, Jr.
Facsimile: (914) 640-8250
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<PAGE>
with a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
Attention: Scott M. Freeman
Facsimile: (212) 906-2021
(ii) if to the Shareholders, to:
Jeffrey A. Adler
[address omitted]
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Martin L. Edelman
Facsimile: (212) 856-7808
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
(e) INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counter parties have been
signed by each of the parties and delivered to the other party, it being
understood that each party need not sign the same counterpart.
(g) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
together with all other agreements executed by the parties hereto on the
date hereof (including the documents and instruments referred to herein),
except the letter agreement referenced in Section 1(b) or as otherwise
provided in the Merger Agreement (i) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to any
applicable conflicts of law.
(i) WAIVERS. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently given for the purposes of this Agreement if, as to any party,
it is in writing signed by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the
right of any party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to constitute a waiver
of any other or subsequent breach.
8
<PAGE>
9. ADLER'S CAPACITY. The parties hereto agree and acknowledge that Adler
does not make any agreement or understanding in his capacity as a director or
officer of the Company. Adler has entered into this Agreement solely in his
capacity as the record holder and beneficial owner of the Owned Shares and
nothing herein shall expand, limit or affect any actions taken by Adler in his
capacity as an officer or director of the Company.
10. LIMITATION ON TRANSFER OF UNITS.
(a) Adler and Rija (the "Adler Group") agree that they will not sell,
transfer, assign or otherwise dispose of, hypothecate or otherwise encumber
(voluntarily or involuntarily) (any such sale, transfer, assignment,
disposition, hypothecation or encumbrance being referred to as a "transfer")
any of the Units they receive in the Merger, except that:
(i) the foregoing restrictions on transfer will lapse with respect to
twenty percent (20%) of the Units the Adler Group receives in the
Merger six months after the Effective Time;
(ii) the foregoing restrictions on transfer will lapse with respect to
an additional twenty percent (20%) of the Units the Adler Group
receives in the Merger twelve months after the Effective Time;
(iii) the foregoing restrictions on transfer will lapse with respect to
an additional thirty percent (30%) of the Units the Adler Group
receives in the Merger eighteen months after the Effective Time; and
(iv) the foregoing restrictions on transfer will lapse with respect to
the remaining balance of the Units the Adler Group receives in the
Merger twenty-four months after the Effective Time.
The transfer restrictions contained in this clause (a) shall terminate
immediately upon the valid termination of Adler's employment after the
Effective Time without Cause or for Good Reason (as such terms are
defined in the Employment Agreement, dated as of July 18, 1999 between
Adler and the Company). Notwithstanding the transfer restrictions set
forth in this clause (a), nothing set forth herein shall prohibit any
member of the Adler Group from transferring Units (including selling
Units pursuant to the terms of such Option Agreements and using the
proceeds from such sale to satisfy any obligation under such Option
Agreements) in order to fulfill its obligations under the Option
Agreements.
(b) Each member of the Adler Group agrees that each stock certificate
representing Units issued to any member of the Adler Group shall bear, among
others, the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF A SHAREHOLDERS AGREEMENT DATED JULY 18,
1999 BETWEEN THE REGISTERED HOLDER HEREOF AND STARWOOD HOTELS &
RESORTS WORLDWIDE, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC."
11. FORFEITURE. If Adler's employment with the Company is terminated for
any reason other than (i) by the Company without Cause, (ii) by Adler for Good
Reason or (iii) as a result of Adler's death or Permanent Disability, during the
period commencing on the Effective Date and ending on the day immediately prior
to the first anniversary of the Effective Date, then the Adler Group shall
surrender and forfeit (and immediately deliver to the Company for cancellation)
a number of Units equal to the Forfeiture Number (as hereinafter defined). If
Adler's employment with the Company is terminated for any reason other than (i)
without Cause, (ii) by Adler for Good Reason or (iii) as a result of Adler's
death or Permanent Disability, during the period commencing on the first
anniversary of the Effective
9
<PAGE>
Date and ending on the day immediately prior to the second anniversary of the
Effective Date, then the Adler Group shall surrender and forfeit (and
immediately deliver to the Company for cancellation) a number of Units equal to
the product of (i) the Forfeiture Number and (ii) one-half. For purposes of this
Agreement, the "Forfeiture Number" shall mean a number equal to (i) $10,000,000
divided by (ii) the Market Price of a Unit on the Effective Date and the terms
"Cause," "Good Reason" and "Permanent Disability" shall have the meanings
ascribed to them in the form of Employment Agreement by and between Adler and
the Company attached to Section 6.3(g) of the Parent Letter delivered in
connection with the Merger Agreement.
12. CONFIDENTIAL INFORMATION AND OWNERSHIP OF PROPERTY.
(a) During the period commencing on the Effective Date and ending on the
sixth anniversary of the Effective Date (the "RESTRICTED TERM"), Adler agrees to
use all Confidential Information (as defined in the Employment Agreement) solely
in connection with the performance of services for or on behalf of the Company.
Adler shall not, during the Restricted Term, in any manner, either directly or
indirectly, (i) disseminate, disclose, use or communicate any Confidential
Information to any person or entity, regardless of whether such Confidential
Information is considered to be confidential by third parties, or (ii) otherwise
directly or indirectly misuse any Confidential Information; PROVIDED, HOWEVER,
that (y) none of the provisions of this Section 12 shall apply to disclosures
made for valid business purposes of the Company and (z) Adler shall not be
obligated to treat as confidential any Confidential Information that (I) was
publicly known at the time of disclosure to Adler; (II) becomes publicly known
or available thereafter other than by means in violation of this Agreement or
any other duty owed to the Company, Parent or any Affiliate (as defined in the
Employment Agreement) of the Company or Parent by any person or entity.
Notwithstanding the foregoing, Adler shall be permitted to disclose Confidential
Information to the extent required to enforce Adler's rights hereunder in any
litigation arising under, or pertaining to, this Agreement provided that Adler
shall give prior written notice to the Company of any such disclosure so that
the Company may have an opportunity to protect the confidentiality of such
Confidential Information in such litigation.
(b) Adler agrees that all works of authorship developed, authored, written,
created or contributed to during the Restricted Term for the benefit of the
Company, whether solely or jointly with others, shall be considered
works-made-for-hire. Adler agrees that such works shall be the sole and
exclusive property of the Company (or Parent or the appropriate Affiliate of the
Company or Parent) and that all right, title and interest therein or thereto,
including all intellectual property rights existing or obtained in connection
therewith, shall likewise be the sole and exclusive property of the Company (or
Parent or the appropriate Affiliate of the Company or Parent). Adler agrees
further that, in the event that any work is not considered to be
work-made-for-hire by operation of law, Adler will immediately, and without
further compensation, assign all of Adler's right, title and interest therein to
the Company (or Parent or the designated Affiliate), its successors and assigns.
At the request and expense of the Company, Adler agrees to perform in a timely
manner such further acts as may be necessary or desirable to transfer, defend or
perfect the Company's ownership of such work and all rights incident thereto.
13. COVENANT NOT TO COMPETE. Unless the Company's Board of Directors
determines that any of the following conduct is in the Company's best interests,
during the Restricted Term, Adler shall not:
(a) directly or indirectly for himself or for any other person or entity
engage, whether as owner, investor, creditor, consultant, partner, shareholder,
director, financial backer, agent, employee or otherwise, in the business,
enterprise or employment of owning, operating, marketing or selling a
time-share, vacation plan, vacation ownership or interval ownership project
within the Territory (as defined in the Employment Agreement); or
10
<PAGE>
(b) directly or indirectly for himself or for any other person or entity
sell, or otherwise procure purchasers for, any time-share, vacation plan,
vacation ownership or interval ownership project within the Territory; or
(c) have any business (as owner, investor, creditor, consultant, partner,
debtor or otherwise) or be employed in any capacity by a person or entity that
is engaged, directly or indirectly, in (i) operating, or providing sales,
marketing or development services to, a time-share, vacation plan, vacation
ownership or interval ownership project within the Territory, or (ii) an
activity formed or entered into for the primary purpose of engaging in a
time-share, vacation plan, vacation ownership or interval ownership business
within the Territory; or
(d) directly or indirectly for himself or for any other person or entity
become employed in any capacity by or otherwise render services in any capacity
to any national enterprise having time-share, vacation plan, vacation ownership
or interval ownership activities, including, without limitation, Walt Disney
Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and
Resorts, Inc., Marriott International, Inc., Inter-Continental Hotels and
Resorts, Inc., Promus Hotels, Inc., Fairfield Communities, Inc., Sunterra
Corporation or Bass PLC or any of their respective Affiliates; or
(e) directly or indirectly for himself or for any other person or entity
pursue or consummate or otherwise interfere with any Existing Project (as
defined in the Employment Agreement); or
(f) (i) directly or indirectly, for himself or any other person or entity,
pursue, consummate or otherwise interfere with any Prospective Project (as
defined in the Employment Agreement) or (ii) directly or indirectly for himself
or for any other person or entity become employed in any capacity by or
otherwise render services in any capacity to any other person or entity (other
than the Company, Parent and any Affiliate of the Company or Parent) described
in clause (ii) of the definition of Prospective Project.
Notwithstanding the foregoing, Adler may purchase stock as a stockholder in
any publicly traded company, including any company engaged in the time-share or
vacation ownership business; PROVIDED, HOWEVER, that Adler may not own
(individually or collectively with Adler's family members, trusts for the
benefit of Adler's family members and affiliates of Adler) more than 5% of any
company.
In light of the substantial consideration provided to Adler in connection
with the transactions contemplated by this Agreement and the Merger Agreement,
Adler hereby specifically acknowledges and agrees that the provisions of this
Section 13 (including, without limitation, its time and geographic limits), as
well as the provisions of Sections 12 and 14, are reasonable and appropriate,
and that Adler will not claim to the contrary in any action brought by the
Company to enforce such any of such provisions.
14. COVENANT AGAINST SOLICITATION OF EMPLOYEES. During the Restricted Term,
Adler shall not employ employees or agents or former employees or agents of the
Company, Parent or any Affiliate of the Company or Parent or, directly or
indirectly, solicit or otherwise encourage the employment of employees or agents
or former employees or agents of the Company, Parent or any Affiliate of the
Company or Parent; PROVIDED, HOWEVER, that this restriction shall not apply to
Adler's secretaries or personal assistants or to former employees or agents who,
as of the date of termination of Adler's employment by the Company, have not
worked for any of the Company, Parent or any Affiliate of the Company or Parent
during the twelve preceding months.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<TABLE>
<S> <C> <C>
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ RUSSELL STERNLICHT
-----------------------------------------
Name: Russell Sternlicht
Title: Senior Vice President
FIRE ACQUISITION CORP.
By: /s/ RUSSELL STERNLICHT
-----------------------------------------
Name: Russell Sternlicht
Title: Vice President
JEFFREY A. ADLER
/s/ JEFFREY A. ADLER
---------------------------------------------
RIJA LIMITED PARTNERSHIP
By: /s/ RONALD SMITH
-----------------------------------------
Name: Ronald Smith
Title: Treasurer of Alexdann Corporation,
General Partner
*THE JEFFREY A. ADLER
GRANTOR ANNUITY TRUST #1
By: /s/ JEFFREY A. ADLER
-----------------------------------------
Name: Jeffrey A. Adler
Title: Trustee
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
*THE JEFFREY A. ADLER
GRANTOR ANNUITY TRUST #2
By: /s/ JEFFREY A. ADLER
-----------------------------------------
Name: Jeffrey A. Adler
Title: Trustee
*THE ARA TRUST
By: /s/ LEE I. MILLER
-----------------------------------------
Name: Lee I. Miller
Title: Trustee
*THE DLA TRUST
By: /s/ LEE I. MILLER
-----------------------------------------
Name: Lee I. Miller
Title: Trustee
</TABLE>
- ------------------------
* (Agreed solely for purposes of Sections 1, 3, 4, 5, 7 and 8).
13
<PAGE>
APPENDIX D
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
July 18, 1999
The Board of Directors
and Special Committee of the Board of Directors
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Members of the Board of Directors and Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Vistana, Inc. ("Vistana") of the
Merger Consideration (as defined below) to be received pursuant to and subject
to the terms of the Agreement and Plan of Merger, dated as of July 18, 1999 (the
"Merger Agreement"), among Starwood Hotels and Resorts Worldwide, Inc.
("Starwood"), Fire Acquisition Corp., a wholly owned subsidiary of Starwood
("Sub"), and Vistana. As more fully described in the Merger Agreement, (i)
Vistana will be merged with and into Sub (the "Merger") and (ii) each
outstanding share of the common stock, par value $0.01 per share, of Vistana
(the "Vistana Common Stock") will be converted into (a) $5.00 in cash (the "Cash
Amount"), plus (b) that number of shares of the common stock, par value $0.01
per share, of Starwood (the "Starwood Common Stock") and Class B Shares, par
value $0.01 per share (the "Class B Shares" and, when attached to shares of
Starwood Common Stock, the "Starwood Units"), of Starwood Hotels and Resorts, a
real estate investment trust (a "REIT") and a subsidiary of Starwood (the
"Trust"), equal to the quotient of (x) $14.00 divided by (y) the average of the
average daily high and low prices per Unit as reported on the New York Stock
Exchange Composite Transactions reporting system for the 20 consecutive trading
days immediately preceding the fifth trading day prior to the effective time of
the Merger (the number of Units into which shares of Vistana Common Stock will
be so converted, the "Exchange Ratio" and, together with the Cash Amount, the
"Merger Consideration"); provided that in no event will the Exchange Ratio be
less than an amount equal to $14.00 divided by $38.00 or greater than an amount
equal to $14.00 divided by $30.00.
In arriving at our opinion, we reviewed the Merger Agreement and certain related
documents, and held discussions with certain senior officers, directors and
other representatives and advisors of Vistana and certain senior officers,
representatives and advisors of Starwood concerning the businesses, operations
and prospects of Vistana and Starwood. We examined certain publicly available
business and financial information relating to Vistana and Starwood as well as
certain financial forecasts for Vistana and publicly available financial
forecasts for Starwood and other information and data for Vistana and Starwood
which were provided to or otherwise discussed with us by the managements of
Vistana and Starwood. We reviewed the financial terms of the Merger as set forth
in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of the Vistana Common Stock and
Starwood Units; the historical and projected earnings and other operating data
of Vistana and Starwood; and the capitalization and financial condition of
Vistana and Starwood. We considered, to the extent publicly available, the
financial terms of certain other transactions recently effected which we
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of Vistana and Starwood. In addition to the
<PAGE>
The Board of Directors
and Special Committee of the Board of Directors
Vistana, Inc.
July 18, 1999
Page 2
foregoing, we conducted such other analyses and examinations and considered such
other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the managements of Vistana and Starwood that such forecasts and other
information and data were prepared on bases reflecting reasonable estimates and
judgments as to the future financial performance of Vistana and Starwood and the
other matters covered thereby. We have assumed, with your consent, that the
Merger will qualify as a tax-free reorganization for federal income tax
purposes. We also have assumed, with your consent, that the Trust was organized
and has operated in conformity with the requirements for qualification as a REIT
for federal income tax purposes and that the Merger and the transactions
contemplated thereby will not adversely affect the REIT status or operations of
the Trust. We are not expressing any opinion as to what the value of the
Starwood Units actually will be when issued pursuant to the Merger or the prices
at which the Starwood Units will trade or otherwise be transferable subsequent
to the Merger. We have not made or been provided with an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of Vistana
or Starwood nor have we made any physical inspection of the properties or assets
of Vistana or Starwood. In connection with our engagement, we were not requested
to, and we did not, participate in the negotiation or structuring of the Merger,
nor were we requested to, and we did not, solicit third party indications of
interest in the acquisition of all or a part of Vistana. We express no view as
to, and our opinion does not address, the relative merits of the Merger as
compared to any alternative business strategies that might exist for Vistana or
the effect of any other transaction in which Vistana might engage. Our opinion
is necessarily based upon information to us, and financial, stock market and
other conditions and circumstances existing and disclosed to us, as of the date
hereof.
Salomon Smith Barney Inc. has acted as financial advisor to the Special
Committee with respect to this opinion and will receive a fee for such services,
a significant portion of which is payable upon the delivery of this opinion. We
have in the past provided investment banking services to Vistana and Starwood
unrelated to the proposed Merger, for which services we have received
compensation. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of Vistana and Starwood for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. In addition, we and our
affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with Vistana, Starwood and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors and Special Committee in their evaluation
of the proposed Merger, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on any matters relating to the proposed Merger.
2
<PAGE>
The Board of Directors
and Special Committee of the Board of Directors
Vistana, Inc.
July 18, 1999
Page 3
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of Vistana Common Stock (other than
those stockholders who have delivered as of the date hereof written consents in
respect of the Merger).
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
3
