<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NOS. AND
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS GOVERNING INSTRUMENTS) IN ITS GOVERNING INSTRUMENTS)
2231 E. CAMELBACK ROAD, SUITE 410 2231 E. CAMELBACK ROAD, SUITE 400
PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85016
(602) 852-3900 (602) 852-3900
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARYLAND MARYLAND
(STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION)
52-0901263 52-1193298
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
RONALD C. BROWN ALAN M. SCHNAID
SENIOR VICE PRESIDENT AND VICE PRESIDENT AND CORPORATE CONTROLLER
CHIEF FINANCIAL OFFICER 2231 E. CAMELBACK ROAD, SUITE 400
2231 E. CAMELBACK ROAD, SUITE 410 PHOENIX, ARIZONA 85016
PHOENIX, ARIZONA 85016 (602) 852-3900
(602) 852-3900 (NAME AND ADDRESS OF AGENT FOR SERVICE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
KENNETH H. LEVIN, ESQ. GERALD D. SHEPHERD, ESQ.
SIDLEY & AUSTIN SULLIVAN & CROMWELL
555 WEST FIFTH STREET 125 BROAD STREET
LOS ANGELES, CALIFORNIA 90013 NEW YORK, NEW YORK 10004
(213) 896-6000 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares of beneficial interest, $0.01 par value, of Starwood Lodging
Trust paired with Shares of common stock, $0.01 par value, of Starwood
Lodging Corporation....................................................
- ------------------------------------------------------------------------------------------------------------------------------
Convertible Notes......................................................
- ------------------------------------------------------------------------------------------------------------------------------
Warrants to Purchase Debt Securities, Preferred Shares or Paired Common
Shares...............................................................
- ------------------------------------------------------------------------------------------------------------------------------
Shares of Preferred Stock, $0.01 par value, of Starwood Lodging
Trust................................................................
which may be paired with
Shares of Preferred Stock, $0.01 par value, of Starwood Lodging
Corporation..........................................................
- ------------------------------------------------------------------------------------------------------------------------------
Debt Securities........................................................
- ------------------------------------------------------------------------------------------------------------------------------
Total.......................................................... $2,000,000,000 $606,061(1)
==============================================================================================================================
</TABLE>
(1) Includes filing fees of $76,211 relating to $251,496,055 of securities of
the Trust and filing fees of $29,973 relating to $86,920,845 of securities
of the Corporation that were previously paid and are being carried forward
pursuant to Rule 429 under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
Pursuant to the provisions of Rule 429, the form of prospectus set forth
herein also relates to the Registrants' (i) Registration Statement on Form S-3
filed on November 16, 1995 (Nos. 33-64335 and 33-64335-01) (the "1995
Registration Statement") and (ii) Registration Statement on Form S-3 filed on
October 3, 1996 (Nos. 333-13411 and 333-13411-01) (the "1996 Registration
Statement"). This Registration Statement also constitutes Post-Effective
Amendment No. 2 to the 1995 Registration Statement and Post-Effective Amendment
No. 1 to the 1996 Registration Statement.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED , 1997
PROSPECTUS
STARWOOD LODGING
<TABLE>
<S> <C>
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
$1,600,000,000 $400,000,000
</TABLE>
COMMON STOCK, WARRANTS, PREFERRED
STOCK AND DEBT SECURITIES
Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the
"Corporation" and, with the Trust, the "Company") may from time to time offer in
one or more series securities with an aggregate public offering price of up to
$2,000,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of offering, such securities to consist of one or more of the following:
(i) shares of beneficial interest, $.01 par value, of the Trust (the "Trust
Shares") and shares of common stock, $.01 par value, of the Corporation (the
"Corporation Shares") which are "paired" and traded as units consisting of one
Trust Share and one Corporation Share (the "Paired Common Shares"); (ii)
convertible notes of the Trust and the Corporation (the "Convertible Notes");
(iii)(A) warrants to purchase Trust Shares and warrants to purchase Corporation
Shares which are "paired" and traded as units consisting of one warrant to
purchase Trust Shares and one warrant to purchase a like number of Corporation
Shares, (B) warrants to purchase shares of preferred stock of the Trust or the
Corporation, or (C) warrants to purchase debt securities of the Trust or the
Corporation (collectively, the "Warrants"); (iv) shares of preferred stock, $.01
par value, of the Trust (the "Trust Preferred Shares") and shares of preferred
stock, $.01 par value, of the Corporation (the "Corporation Preferred Shares"
and, with the Trust Preferred Shares, the "Preferred Shares") which may, but are
not required to, be "paired" with preferred stock of the other entity; and (v)
unsecured debt securities of the Trust or the Corporation (the "Debt
Securities"). The Trust or the Corporation may from time to time offer in one or
more series unsecured Debt Securities which may, but are not required to, be
paired with Debt Securities of the other entity. The Paired Common Shares,
Convertible Notes, Warrants, Preferred Shares and Debt Securities,
(collectively, the "Securities") may be offered, separately or together, in
separate series in amounts, at prices and on terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement"). Of the
$2,000,000,000 aggregate public offering price of Securities, up to
$1,600,000,000 will be offered by the Trust and up to $400,000,000 will be
offered by the Corporation.
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Paired Common Shares, any
initial public offering price; (ii) in the case of Convertible Notes, any
initial public offering price; (iii) in the case of Warrants, the duration,
offering price, securities purchasable upon exercise, exercise price and
detachability, if applicable; (iv) in the case of Preferred Shares, the specific
title and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights, and any initial public offering price; and (v) in the
case of Debt Securities, the specific title, aggregate principal amount,
currency, form (which may be registered or bearer, or certificated or global),
authorized denominations, maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the issuer or
repayment at the option of the holder, terms for sinking fund payments,
covenants and any initial public offering price. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Securities, in each case as may be appropriate to preserve
the status of the Trust as a real estate investment trust ("REIT") for United
States federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, relating to any listing on a securities exchange of the securities
covered by such Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Securities may be offered directly, through agents designated from time
to time by the Trust or the Corporation or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such series of Securities.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL
BOARD HAS PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE
INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
AVAILABLE INFORMATION
The Trust and the Corporation are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy or information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy or information statements and other information can be inspected
and copied at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Such reports, proxy or
information statements and other information concerning the Trust and the
Corporation can also be inspected at the offices of the New York Stock Exchange,
Public Reference Section, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the contents of
any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Trust, the Corporation and the Securities offered hereby, reference is made to
the Registration Statement and exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (SEC File Nos. 1-6828 and
1-7959) with the Commission under the Exchange Act are incorporated in this
Prospectus by reference and are made a part hereof:
1. The Company's Joint Annual Report on Form 10-K for the year ended December
31, 1996 (as amended by Form 10-K/A filed on April 25, 1997);
2. The Company's Joint Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997; (as amended by Form
10-Q/A dated November 10, 1997);
3. The Company's Joint Current Reports on Form 8-K, dated February 10, 1997,
February 14, 1997, March 14, 1997, March 20, 1997, March 21, 1997,
September 9, 1997, September 10, 1997, October 21, 1997 (as amended by Form
8-K/A dated October 29, 1997) and November 12, 1997;
4. The description of the Company's Paired Common Shares contained in the
Company's Registration Statement on Form 8-A, filed on October 3, 1986 and
any amendments or reports filed for the purpose of updating such
descriptions which have been filed by the Company with the Commission; and
5. The Company's Definitive Joint Proxy Statement filed on November 12, 1997
(other than the portions thereof that are, in accordance with the rules of
the Commission, deemed not to be filed under the Exchange Act).
Each document filed by the Trust or the Corporation subsequent to the date
of this Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act and prior to termination of the offering of all Securities to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and shall be part hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously-filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
Copies of all documents incorporated by reference, other than exhibits to
such documents not specifically incorporated by reference therein, will be
provided without charge to each person to whom this Prospectus is delivered,
upon oral or written request to Starwood Lodging Corporation, 2231 E. Camelback
Road, Suite 400, Phoenix, Arizona 85016; Attention: Alan M. Schnaid.
2
<PAGE> 4
THE COMPANY
The Company is a fully integrated owner/operator of hotels which is
comprised of the Trust, which has owned hotel assets since 1969, and the
Corporation which has managed hotel assets since 1980. As of October 31, 1997,
the Company owned, operated and managed a geographically diversified portfolio
of hotel assets (the "Hotel Assets"), including fee, ground lease and first
mortgage interests in 119 hotel properties, containing over 32,200 rooms located
in 30 states, the District of Columbia and Mexico. Ninety-eight of such hotels
are operated under licensing, membership, franchise or management agreements
with national hotel organizations, including Ritz Carlton(R), Westin(R),
Marriott(R), Hilton(R), Sheraton(R), Omni(R), Doubletree(R), Embassy Suites(R),
Harvey(R), Radisson(R), Clarion(R), Holiday Inn(R), Residence Inn(R), Days
Inn(R), Ramada(R), Quality Inn(R) and Vagabond Inn(R).
Ritz Carlton(R), Westin(R), Marriot(R), Hilton(R), Sheraton(R), Omni(R),
Doubletree(R), Embassy Suites(R), Harvey(R), Radisson(R), Clarion(R), Holiday
Inn(R), Residence Inn(R), Days Inn(R), Ramada(R), Quality Inn(R) and Vagabond
Inn(R) are trademarks of third parties, none of which is affiliated with the
Company. A grant of any licensing, membership, franchise or management agreement
for any of the Company's hotels is not intended as, and should not be
interpreted as, an express or implied approval or endorsement by any such third
party (or any of their respective affiliates, subsidiaries or divisions) of the
Company or the Securities offered hereby. None of the foregoing organizations
nor any of their parents, subsidiaries, divisions or affiliates has endorsed or
approved this Prospectus or any Prospectus Supplement or any sale of Securities.
In furtherance of the Company's strategy to enhance, expand and diversify
its hotel portfolio and to develop or acquire a global brand, the Company has
entered into (i) an agreement to acquire Westin Hotels & Resorts Worldwide, Inc.
("Westin Worldwide") and certain affiliated entities (collectively, "Westin"),
and (ii) an agreement to acquire ITT Corporation ("ITT"). See "Proposed
Acquisition of Westin" and "Proposed Acquisition of ITT."
The Company expects to continue to make opportunistic hotel acquisitions,
reinvest strategically in its existing portfolio and aggressively manage the
Company's owned hotels. The Company will continue to pursue the acquisition of
hotels, primarily in the midscale and upscale segments, that have attractive
yields on investment that the Company believes can be sustained and improved
over time. Consistent with this strategy, the Company invested approximately
$841 million in hotel acquisitions during 1996 and approximately $1.2 billion in
1997 through October 31. See "Other Recent Developments."
Management believes that the Company's "paired share" ownership structure
gives it a competitive advantage over most other hotel REITs and other hotel
owners/operators with respect to owning and operating hotels. Most hotel REITs
cannot operate their hotels and therefore must enter into agreements with third
party lessees/operators. The Company's shareholders own both the owner, the
Trust, and the lessee/operator, the Corporation, of the Company's hotels.
Therefore, the Company's shareholders retain the economic benefits of both the
lease payments received by the Trust and the operating profits realized by the
Corporation while maintaining the tax benefits of the Trust's REIT status.
Furthermore, the Company is able to prevent the erosion of value of its assets
that results from encumbering such properties with long-term third party leases
or management contracts. The pairing arrangement creates total commonality of
ownership, as the Trust Shares and the Corporation Shares are paired on a
one-for-one basis and may only be held or transferred as units consisting of one
Trust Share and one Corporation Share.
Under the REIT qualification requirements of the Code, REITs generally must
lease their hotels to third party operators. Since such leases must be
structured so that the third party operator captures a portion of each hotel's
current cash flow and future growth, the shareholders of a typical hotel REIT do
not receive all of the economic benefits of both hotel ownership and hotel
operations. Leases may create conflicts of interest between the REIT and the
operator of each hotel, particularly when insiders of the REIT own an economic
interest in the operator. The Paired Common Share structure eliminates potential
conflicts of interest between the hotel owner and the hotel operator. Although
the Code has prohibited the pairing of shares between a REIT and an operating
company since 1983, this rule does not apply to the Company because its Paired
Common Share structure has existed since 1980. The Trust is the largest hotel
REIT and one of only two hotel REITs that has the paired common share structure.
3
<PAGE> 5
The Trust conducts substantially all of its business and operations through
SLT Realty Limited Partnership (the "Realty Partnership"), and the Corporation
conducts substantially all of its business and operations through SLC Operating
Limited Partnership (the "Operating Partnership" and together with the Realty
Partnership, the "Partnerships"), which leases from the Realty Partnership all
but three of the hotel properties owned by the Realty Partnership. The Company
is the sole general partner of the Realty Partnership and the managing general
partner of the Operating Partnership, owning a controlling interest of 81.5% in
the Realty Partnership and 81.2% in the Operating Partnership as of October 31,
1997. The remaining interest in each of the Partnerships is owned predominantly
by Starwood Capital Group, L.L.C and certain of its affiliates ("Starwood
Capital"). The Company currently expects that future real estate acquisitions by
the Trust will generally be made through the Realty Partnership and will be
leased to and operated by the Operating Partnership. Certain assets are or may
be held by partnerships or limited liability companies owned or controlled in
whole or in part by the Company.
The Trust was organized in 1969 as a Maryland real estate investment trust.
The Trust's executive offices are located at 2231 E. Camelback Road, Suite 410,
Phoenix, Arizona 85016; telephone (602) 852-3900.
The Corporation is a Maryland corporation formed in 1980. The Corporation's
executive offices are located at 2231 E. Camelback Road, Suite 400, Phoenix,
Arizona 85016; telephone (602) 852-3900.
PROPOSED ACQUISITION OF WESTIN
On September 8, 1997, a Transaction Agreement (the "Transaction Agreement")
was entered into among the Trust, the Realty Partnership, the Corporation and
the Operating Partnership (collectively, the "Starwood Entities"), WHWE L.L.C.
("WHWE"), Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital
Corporation ("Nomura"), Juergen Bartels ("Bartels" and, together with WHWE,
Woodstar and Nomura, the "Members"), Westin Worldwide, W&S Lauderdale Corp.
("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St. John Hotel Company,
Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta"
and, together with Westin Worldwide, Lauderdale, Seattle, St. John and Denver,
"Westin") and W&S Hotel L.L.C. At the annual meetings of the shareholders of the
Trust and the stockholders of the Corporation currently scheduled to be held on
December 12, 1997, proposals to approve the acquisition of Westin by the Company
will be submitted to the shareholders of the Trust and the stockholders of the
Corporation for their approval. The consummation of the acquisition is subject
to obtaining such approvals.
WESTIN
As of October 31, 1997, Westin owned, managed, franchised or represented
108 first class hotel and resort properties worldwide. Westin's primary business
strategy is to provide, for its own hotels and to the other owners of Westin's
hotel and resort properties, focused, responsive, high quality marketing,
reservations, management and, as appropriate, franchise services that are
designed to increase the operating revenues and profitability of the properties
and to increase hotel and resort customer satisfaction.
Of the 108 Westin properties worldwide, 56 are owned or managed, 36 are
franchised and 16 are represented. Of the owned or managed hotels, Westin is the
100% owner of, or has a controlling or significant interest in, 11 properties
(six of which are fee simple real property ownership, two of which are the
ownership of the hotel subject to a ground lease and three of which are
leaseholds) and is a minority owner of five properties. In addition, Westin owns
and operates the unbranded Cherry Creek Inn in Denver, Colorado, and owns a 25%
interest in an office building in Seattle, Washington, which serves as the
corporate headquarters of Westin.
Westin Hotel Company, originally founded as Western Hotels in 1930, became
Western International Hotels in 1963 and adopted the Westin name and logo in the
late 1970's. It grew from its initial 17 hotels located in the Pacific Northwest
to 82 properties when it was acquired by its current ownership in May 1995, and
has since grown to its current 108 first class hotel and resort properties
throughout the world through a combination of its own hotel development efforts
and working with other hotel owners to enable Westin to
4
<PAGE> 6
serve as manager, franchisor or representative. Today, Westin's hotel and resort
properties are located throughout the United States and in Argentina, Brazil,
Canada, China, England, France, Germany, Guatemala, Indonesia, Japan, Korea,
Malaysia, Mexico, the Netherlands, Panama, the Philippines, Portugal, Singapore,
Switzerland and Thailand.
THE TRANSACTION AGREEMENT
The Transaction Agreement provides that Westin Worldwide will be merged
into the Trust (the "Westin Merger"). In connection with the Westin Merger, all
of the issued and outstanding shares of capital stock of Westin Worldwide (other
than dissenting shares and shares held by Westin and its subsidiaries or shares
held by the Starwood Entities and their subsidiaries) will be converted into an
aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $.01 per
share (the "Class A EPS"), of the Trust and 5,294,783 Class B Exchangeable
Preferred Shares, stated value $38.50 per share (the "Class B EPS" and, together
with the Class A EPS, the "Exchangeable Preferred Stock"), of the Trust and cash
in the amount of $177.9 million. The Transaction Agreement provides for an
adjustment to the cash consideration paid in connection with the Westin Merger
under certain circumstances, including adjustments based on the aggregate
indebtedness and working capital of Westin on the closing date and the capital
expenditures made by Westin between the date the Transaction Agreement was
signed and the closing date. The Transaction Agreement also permits Westin
Worldwide to make a cash dividend in an amount up to $160 million to its
stockholders during 1997, which dividend Westin Worldwide had determined that it
expected to make prior to the execution of the Transaction Agreement and
irrespective of the closing under the Transaction Agreement.
The Transaction Agreement also contemplates that the stockholders of
Lauderdale, Seattle and Denver will contribute all of the outstanding shares of
such companies to the Realty Partnership and that the Realty Partnership will
issue to such stockholders an aggregate of 597,844 units of the Realty
Partnership ("Realty Partnership Units"). In addition, in connection with the
foregoing share contributions, the Realty Partnership will assume, repay or
refinance the indebtedness of Lauderdale, Seattle and Denver and assume up to
$147.2 million of indebtedness expected to be incurred by the Members prior to
such contributions. The Transaction Agreement also permits Lauderdale and
Seattle to make cash dividends in an aggregate amount up to $6 million to their
stockholders during 1997, which dividends Lauderdale and Seattle had determined
that they expected to make prior to the execution of the Transaction Agreement
and irrespective of the closing under the Transaction Agreement. The Transaction
Agreement also permits Denver to make a cash dividend to its stockholders in an
amount equal to Denver's earnings and profits for 1997, which dividend Denver
had determined that it expected to make prior to the execution of the
Transaction Agreement and irrespective of the closing under the Transaction
Agreement. In the event that Denver makes any such cash dividend, the cash
portion of the consideration to be paid in connection with the Westin Merger
will be decreased by an amount equal to the amount of such dividend.
The Transaction Agreement also contemplates that the stockholders of
Atlanta and St. John will contribute all of the outstanding shares of such
companies to the Operating Partnership and that the Operating Partnership will
issue to such stockholders an aggregate of 393,156 units of the Operating
Partnership. In addition, in connection with the foregoing share contributions,
the Operating Partnership will assume, repay or refinance indebtedness of
Atlanta and St. John and assume up to $6 million of indebtedness expected to be
incurred by the Members prior to such contributions. The Transaction Agreement
also contemplates that prior to the closing date, the Realty Partnership will
lend Atlanta approximately $34.2 million and permit Atlanta to pay a dividend of
such amount to its stockholders, which dividend Atlanta had determined that it
expected to make prior to the execution of the Transaction Agreement and
irrespective of the closing under the Transaction Agreement.
The Exchangeable Preferred Stock and the Realty Partnership Units to be
issued in connection with the Westin Merger and the contribution of Seattle,
Lauderdale, Denver, St. John and Atlanta to the Realty Partnership and the
Operating Partnership will be exchangeable on a one-for-one basis (subject to
certain adjustments) for Paired Common Shares. The Realty Partnership Units will
also be exchangeable for shares of Class B EPS on a one-for-one basis. In
addition, the shares of Class B EPS will have a liquidation preference of $38.50
and provide the holders with certain rights to require the Trust to redeem such
shares at a
5
<PAGE> 7
price of $38.50 after the fifth anniversary of the Closing Date. The number of
Paired Common Shares issuable upon the conversion of all of the Exchangeable
Preferred Stock would represent, in the aggregate on a fully diluted basis
(after giving effect to this Offering and to such issuances), approximately
% of the issued and outstanding Trust Shares on , 1997.
In addition to obtaining the approvals of the holders of the outstanding
Paired Shares, consummation of this acquisition is subject to numerous
conditions, including, among other things, that the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act shall have expired or been
terminated; an opinion shall have been delivered by counsel to the Starwood
Entities with respect to certain tax matters; there shall have been no change in
the general economic, financial or market conditions in the United States that
materially and adversely affects the ability of the Starwood Entities to obtain
the financing necessary to consummate the transactions contemplated by the
Transaction Agreement; and the owners of hotels party to management, franchise
or similar agreements with the Westin Companies from whom consents, approvals or
authorizations are required to be obtained in connection with the consummation
of the transactions contemplated by the Transaction Agreement shall not have
delivered written notices of their intention to terminate agreements that would
account for a specified amount of the projected revenues for 1998.
The Transaction Agreement provides that if the Transaction Agreement is
terminated under certain circumstances, the Starwood Entities will be required
to pay Westin a termination fee of $5 million and all costs and expenses
incurred by Westin and the Members in connection with the Transaction Agreement
and the transactions contemplated thereby in an amount not to exceed $5 million.
In order to facilitate the acquisition of Westin, the Company expects that
prior to the consummation of that transaction the Company will offer additional
Paired Common Shares pursuant to one or more additional offerings. The Company
may also finance a portion of the purchase price with funds borrowed under its
revolving credit and term loan facility, or with the proceeds of other
borrowings. See "Other Recent Developments -- New Credit Facility."
TAX CONSEQUENCES OF THE ACQUISITION OF WESTIN
The Company believes that the Merger will be treated for federal income
purposes as a reorganization within the meaning of Section 368(a) of the Code.
Accordingly, except to the extent Westin Worldwide sells assets to the
Corporation prior to the Merger, no gain or loss will be recognized by Westin
Worldwide as a result of the Merger. No gain or loss will be recognized by the
Trust, the Corporation (which is not a party to the Merger) or the Company's
existing shareholders as a result of the Merger. Except to the extent such
companies sell assets to the Corporation as part of the transaction, no gain or
loss should be recognized by the Company or by Seattle, Lauderdale, Denver,
Atlanta or St. John as a result of the contributions of their stock to the
Partnerships. Commencing with their taxable years ending December 31, 1998,
Seattle, Lauderdale and Denver intend to elect to be taxed as REITs.
Also as part of the Westin acquisition, Westin Worldwide and the Trust
(after the Merger) will transfer certain of the assets of Westin Worldwide to
subsidiaries in which the Trust will own the nonvoting preferred stock and
common stock with less than 10% of the voting power (the "Management
Subsidiaries"). The remainder of the voting stock of the Management Subsidiaries
will be owned by the Corporation. The Trust believes that none of the Management
Subsidiaries will be providing services to the Corporation or will be managing
or operating any assets owned directly or indirectly by the Trust. If one or
more of the Management Subsidiaries were to provide services to the Corporation
or were to manage or operate any assets owned directly or indirectly by the
Trust, then it is possible that the Trust would not be able to qualify as a
REIT.
In addition, the Trust will be acquiring certain intangible assets of
Westin Worldwide, principally its trade names and goodwill. The Trust believes,
that, based on its analysis of the estimated value of the stock of the
Management Subsidiaries and such intangible assets, the acquisition and holding
of these assets will not cause the Trust to fail any of the asset tests required
for qualification as a REIT; however, no assurances can be given that this will
not occur.
6
<PAGE> 8
PROPOSED ACQUISITION OF ITT
On October 20, 1997, the Company announced that it had entered into a
definitive agreement providing for ITT Corporation ("ITT") to merge with a
subsidiary of the Corporation (the "ITT Merger"). The terms of the ITT Merger
are set forth in the Agreement and Plan of Merger dated as of October 19, 1997,
among the Corporation, the Trust, Chess Acquisition Corp. and ITT (the "ITT
Merger Agreement").
At special meetings of the shareholders of the Trust and the stockholders
of the Corporation anticipated to be held in January 1998, it is expected that
proposals to approve the ITT Merger and related transactions will be submitted
to the shareholders of the Trust and the stockholders of the Corporation for
their approval. The consummation of the ITT Merger is subject to obtaining such
approvals. Neither the consummation of the ITT Merger nor the consummation of
the acquisition of the Westin Companies is contingent on, or subject to the
closing of, the other of such transactions.
ITT
ITT is one of the world's largest hotel and gaming companies, and is also
engaged in the telephone directories publishing business (through ITT World
Directories, Inc.) and the post-secondary technical education business (through
ITT Educational Services, of which it owns 83.3%).
ITT conducts its hotels and gaming businesses through its subsidiaries ITT
Sheraton Corporation, Ciga S.pA. and Caesars World, Inc. Through the Sheraton,
The Luxury Collection, Ciga, Four Points and Caesars brand names, ITT owns,
leases, manages or franchises 424 hotels in 62 countries. Gaming operations are
marketed under the Caesars and Sheraton names and are currently represented in
Las Vegas, Nevada; Atlantic City, New Jersey; Halifax, Nova Scotia; Sydney, Nova
Scotia; Lake Tahoe, Nevada; Tunica County, Mississippi; Lima, Peru; Cairo,
Egypt; Windsor, Ontario; and Townsville, Australia.
The combination of the Company, Westin and ITT would create a global hotel
company with approximately 650 hotels in approximately 70 countries, and with
combined revenues of over $10 billion. If the Westin and ITT acquisitions are
both completed, the Company would own six international hospitality brands:
Westin, Sheraton, CIGA, Four Points, the Luxury Collection and Caesars.
THE MERGER AGREEMENT
The ITT Merger Agreement currently provides that each share of ITT's common
stock, no par value, together with each associated preferred stock purchase
right, will be converted into the right to receive the "Exchange Ratio" (as
defined below) of Paired Common Shares and $15.00 cash. The "Exchange Ratio"
will be a number equal to the quotient of (i) $67.00 divided by (ii) the "Market
Price" (as defined below) of the Paired Common Shares on the fifth New York
Stock Exchange, Inc. ("NYSE") trading day prior to the date of the meeting of
ITT stockholders to vote on the ITT Merger Agreement; however, in no event will
the Exchange Ratio be (A) greater than an amount equal to $67.00 divided by
$53.263, or (B) less than an amount equal to $67.00 divided by $61.263. "Market
Price" of the Paired Common Shares on any date means the average of the daily
closing prices per Paired Common Share as reported on the NYSE Composite
Transactions reporting system for the 20 consecutive NYSE trading days
immediately preceding such date.
On November 6, 1997, the Company proposed to ITT to amend the Merger
Agreement to increase the consideration to be paid by the Company in the ITT
Merger to $85 per share of common stock of ITT, with ITT stockholders able to
elect to receive up to 30% but not less than 18% of the aggregate consideration
in cash, and with the remainder to be paid in Paired Common Shares (subject to
the "collar" provisions described above). In addition, the Company proposed to
increase the consideration paid by 7% per annum, payable in cash, to the extent
the ITT Merger occurs after February 1, 1998.
The Merger Agreement provides that ITT must use reasonable efforts to enter
into agreements to sell assets of ITT as agreed upon between ITT and the
Corporation on terms acceptable to ITT and must permit the Trust and its
advisors to participate in such process. At ITT's election, such agreements may
provide that any such sale shall not be consummated until after the consummation
of the ITT Merger and may provide that such agreements are terminable by ITT if
the Merger Agreement is terminated for any reason. ITT may not enter into a
definitive agreement with respect to any such sale without the prior approval of
the Company.
Prior to the consummation of the ITT Merger, the Trust may declare a
dividend not to exceed $1.5 billion, payable to its shareholders of record as of
such time and payable in property other than cash (the
7
<PAGE> 9
"Special Distribution"), which property may be acquired by the Corporation in
exchange for shares of the Corporation's capital stock.
Termination of the Merger Agreement under certain circumstances in which
the Company is not in material breach of the Merger Agreement, including a
material breach by ITT or the approval or recommendation by the board of
directors of ITT of another proposal by a third party to acquire ITT, will
require ITT to pay the Corporation a termination fee of $225 million ($195
million if such termination occurs, in certain cases, prior to November 21,
1997), plus reimbursement of fees and expenses incurred by the Company in
connection with the proposed acquisition of ITT.
In addition to obtaining the approvals of the holders of the outstanding
Paired Shares, consummation of this acquisition is subject to numerous
conditions, including, among other things, that the stockholders of ITT shall
have approved the Merger Agreement; the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act shall have expired or been
terminated; an opinion shall have been delivered by counsel to the Trust with
respect to certain tax matters; the satisfaction of certain arrangements under
New Jersey gaming laws; and the receipt of all necessary consents, approvals,
orders or authorizations of any governmental entity with jurisdiction in respect
of gaming laws (other than New Jersey), the U.S. Federal Communications
Commission, state educational authorities, non-governmental educational
accrediting commissions and the U.S. Department of Education.
In order to facilitate the acquisition of ITT, prior to the consummation of
this transaction the Company may offer additional Paired Common Shares pursuant
to one or more additional offerings. The Company expects to finance a portion of
the purchase price with funds borrowed under its revolving credit and term loan
facility and with the proceeds of other borrowings. See "Other Recent
Developments -- New Credit Facility."
TAX CONSEQUENCES OF THE ITT MERGER
No gain or loss should be recognized by the Trust or the Corporation as a
result of the ITT Merger or the Special Distribution.
The Special Distribution should be taxed to a shareholder of the Trust as
follows: first, as a dividend to the extent of the allocable portion of the
Trust's earnings and profits; second, as a return of capital to the extent of
such shareholder's adjusted basis in his or her Trust Shares; and thereafter as
gain from the sale or exchange of Trust Shares. The Trust's earnings and profits
will be allocable to the Special Distribution in the same proportion as the
Trust's total earnings and profits for the taxable year in which the Special
Distribution is made bears to the total distributions made to shareholders of
the Trust in such taxable year. Gain recognized by a shareholder of the Trust
should be treated as capital gain, and shareholders of the Trust who are
individuals may be entitled to lower capital gains tax rates depending on the
holding period of the Trust Shares. The shareholders of the Trust should have a
basis in the property that constitutes the Special Distribution equal to the
fair market value of such property.
The property distributed as the Special Distribution is expected to be
acquired by the Corporation in exchange for additional Corporation Shares at or
about the consummation of the ITT Merger. A stockholder's basis in such
additional Corporation Shares generally should equal the fair market value of
the property distributed to such stockholder in connection with the Special
Distribution.
As a result of the earnings and profits allocation rules discussed above,
the Special Distribution is likely to result in shareholders of the Trust (other
than shareholders who receive their Trust Shares as a result of the ITT Merger)
being allocated more of the earnings and profits of the Trust than such
shareholders would have been allocated in the absence of the Special
Distribution. Shareholders of the Trust who are shareholders at the time the
Special Distribution is made are therefore likely to have taxable income in
excess of the income they would have had had the Trust made only its regular
cash distributions.
It is possible that the IRS may assert that the Special Distribution and
its acquisition by the Corporation should be treated for federal income tax
purposes in a manner other than the manner described above. Such a
recharacterization by the IRS could result in federal income tax consequences to
the shareholders and stockholders of the Company that are different from those
described above. Although the Company believes that any such recharacterization
by the IRS is unlikely to be upheld by a court, no assurances can be given.
8
<PAGE> 10
OTHER RECENT DEVELOPMENTS
MEETINGS OF THE SHAREHOLDERS AND THE STOCKHOLDERS
At the annual meetings of the shareholders of the Trust and the
stockholders of the Corporation, scheduled to be held on December 12, 1997, the
shareholders and the stockholders will be asked to (i) to consider and vote upon
a proposal to approve the acquisition of Westin and the related transactions
described under "Possible Acquisition of Westin," (ii) to amend the Pairing
Agreement between the Trust and the Corporation to permit the issuance of the
Exchangeable Preferred Stock pursuant to the Transaction Agreement, (iii) to
consider and vote upon a proposed amendment to the Declaration of Trust to
change the name of the Trust to "Starwood Hotel and Resorts Trust," (iv) to
consider and vote upon a proposed amendment to the Articles of Incorporation to
change the name of the Corporation to "Starwood Hotels & Resorts Worldwide,
Inc.," (v) to elect as trustees Bruce W. Duncan, Jean-Marc Chapus and Barry S.
Sternlicht, each of whom is currently a trustee, (vi) to elect as directors
Jonathan D. Eilian, and Barry S. Sternlicht, each of whom is currently a
director, and (vii) to consider and vote upon the approval of an amendment and
restatement of the 1995 Long-Term Incentive Plan.
At the special meetings of the shareholders of the Trust and the
stockholders of the Corporation expected to be held in January 1988 to approve
the acquisition of ITT, the shareholders and the stockholders will also be asked
(i) to consider and approve the Special Distribution by the Trust and the
issuance of shares of common stock of the Corporation in connection therewith,
and (ii) to consider and vote upon proposed amendments to the Declaration of
Trust and the Articles of Incorporation to increase the number of authorized
Trust Shares and Corporation Shares, respectively.
PUBLIC POLICY ADVISORY COMMITTEE
On November 7, 1997, the Corporation announced that Senator Robert Dole had
accepted an invitation to be the Chair of the Corporation's newly formed Public
Policy Advisory Committee. Senator Dole served as a United States Senator from
to 1996, was the Senate Minority Leader from to 1995, and was the
Senate Majority Leader from 1995 to 1996. The other members of the Advisory
Committee are James Miller, a former senior U.S. Treasury official in the Bush
Administration; John A. Merrigan, an attorney who will act as counsel to the
Advisory Committee; and Jeffrey R. Rosenthal, Chief Operating Officer of
Starwood Capital.
ELECTION OF TRUSTEE
On November 6, 1997, the Board of Trustees of the Trust elected Senator
George Mitchell as a Trustee. Senator Mitchell served as a United States Senator
from 1980 to 1997 and was the Senate Majority Leader from 1989 to 1995.
ACQUISITIONS
Consistent with its strategy of expanding through opportunistic hotel
acquisitions, since December 31, 1996, the Company completed the acquisition of
the following hotel properties:
<TABLE>
<CAPTION>
PROPERTY OR PROPERTIES LOCATION(S) DATE PURCHASE PRICE
- ------------------------------------ ------------------------ -------------- --------------
<S> <C> <C> <C>
Deerfield Beach Hilton.............. Deerfield Beach, FL January 1997 $ 11.5 million
Radisson Denver South............... Denver, CO January 1997 $ 21.8 million
Days Inn............................ Chicago, IL February 1997 $ 48.0 million
Hermitage Suites.................... Nashville, TN March 1997 $ 15.8 million
Hotel De La Poste................... New Orleans, LA March 1997 $ 16.0 million
Marriott Suites..................... San Diego, CA April 1997 $ 32.5 million
Tremont Hotel....................... Chicago, IL April 1997 $ 14.4 million
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
PROPERTY OR PROPERTIES LOCATION(S) DATE PURCHASE PRICE
- ------------------------------------ ------------------------ -------------- --------------
<S> <C> <C> <C>
Raphael Hotel....................... Chicago, IL May 1997 $ 17.8 million
Stamford Sheraton(1)................ Stamford, CT June 1997 $ 14.6 million
Radisson Hotel...................... Southfield, MI July 1997 $ 40.0 million
Westin Regina Resorts (3
Properties)....................... Los Cabos, Cancun and August 1997 $133.0 million
Puerto Vallarta,
Mexico
Crowne Plaza Hotel.................. New Orleans, LA September 1997 $ 58.8 million(2)
One Washington Circle............... Washington, DC September 1997 $ 19.0 million
Radisson Plaza and Suite Hotel...... Indianapolis, IN October 1997 $ 54.0 million
</TABLE>
- ---------------
(1) The Company acquired notes secured by this property in October 1996 and
completed the acquisition of this property in June 1997.
(2) The Company concurrently sold three hotels operated under Best Western
franchises to one of the sellers of this property for $12 million.
In addition, (i) in February 1997, the Company acquired HEI Hotels LLC
("HEI"), a hotel management company, and a portfolio of ten hotels owned by HEI
and PRISA II, an institutional real estate investment fund managed by Prudential
Real Estate Investors, for $112.0 million in cash and notes and approximately
6.548 million units of partnership interest in the Partnerships, each of which
is exchangeable for one Paired Common Share ("Units"), and (ii) in September
1997, the Company acquired a portfolio of 15 hotels owned by Flatley Co./Tara
Hotels for approximately $470 million (the "Flatley Portfolio").
The Company is evaluating numerous other hotel properties for acquisition.
The Company intends to finance the acquisition of hotel properties through cash
flow from operations, through borrowings under credit facilities and, when
market conditions warrant, through the issuance of debt or equity securities.
HOTEL DEVELOPMENT
The Company has commenced the development of two hotels. In May 1997, the
Company acquired the site and development rights to construct a 423-room hotel
in San Francisco, California. This hotel is estimated to cost approximately $73
million and is scheduled to open in May 1999. In August 1997, the Company began
construction of a 426-room hotel in Seattle, Washington. This hotel is also
estimated to cost approximately $73 million and is scheduled to open in early
1999. In October 1997 the Company formed a joint venture (of which the Company
owns 50%) to convert a 474,000 square foot, 31-story office building in Denver,
Colorado into a four-star hotel. The estimated cost of the project is $68.6
million.
NEW CREDIT FACILITY
In September 1997, the Company entered into a new revolving credit and term
loan facility that was arranged and structured by Bankers Trust Company and
co-arranged by Lehman Brothers Holdings, Inc. with BankBoston, N.A. and Bank of
Montreal, N.A. (the "Credit Facility"). The Credit Facility is unsecured and
consists of a $600 million revolving credit facility and a $600 million term
loan. Amounts outstanding under the Credit Facility bear interest at a rate over
the London Interbank Offered Rate ("LIBOR") that varies based on the Company's
leverage; as of September 30, 1997, the rate was LIBOR plus 1.75%.
Borrowings under the Credit Facility were utilized to retire approximately
$650 million of the Company's other indebtedness and to fund the purchase of the
Flatley Portfolio. As of October 31, 1997, the Company had borrowed $1,007
million and had available $193 million under the Credit Facility. All borrowings
under the Credit Facility are due in full in September 2000.
The Company may seek to increase the amount it may borrow under the Credit
Facility in order to facilitate the acquisition of Westin. There can be no
assurance that, if sought, such an increase will be granted
10
<PAGE> 12
by the lenders under the Credit Facility or that, if the facility is so
increased, borrowings thereunder will be used for such purpose.
RECENT STOCK SALES
On October 2, 1997, the Company consummated the sale of 2,482,700 Paired
Common Shares to certain institutional investors for aggregate net proceeds of
$131.5 million.
On October 14, 1997, the Company sold 2,185,000 Paired Common Shares to
Union Bank of Switzerland ("UBS") for approximately $125.1 million in a private
placement. The Company paid UBS a customary placement fee.
Substantially all of the proceeds from these stock sales were used to repay
indebtedness outstanding under the Credit Facility.
Concurrently with the sale of shares to UBS, the Company entered into a
Forward Stock Agreement with UBS (the "Forward Contract") pursuant to which the
Company will have the right at any time during a preliminary term of one year to
deliver or receive Paired Common Shares, in settlement of the Forward Contract,
based on the market price of the Paired Common Shares over a specified "Unwind
Period" (as defined), as compared to a "Forward Price" (as defined, but
essentially equal to $57.25 per share, plus an implicit interest factor less
dividends declared on the Paired Common Shares, in each case during the term of
the Forward Contract).
The Company has the obligation to settle under the Forward Contract at the
end of one year unless UBS agrees to extend the term of the Forward Contract.
The Forward Contract requires an earlier settlement upon the occurrence of
certain events of default or substantial declines in the market price of the
Paired Common Shares. The Company has the right under the Forward Contract to
settle any obligation to deliver shares by making a cash payment in lieu of such
shares, but cannot compel UBS to settle UBS' delivery obligation by paying cash
to the Company. The Forward Contract enables the Company to benefit from an
increase in the market price of the Paired Common Shares during the term of the
Forward Contract, and obligates the Company to deliver additional shares in case
of market price declines.
In the event the Forward Price is more than the then current market price
(determined quarterly during the term of the Forward Contract), the Company will
be obligated to deliver additional Paired Common Shares (or at the Company's
election, cash) to UBS to be held as security for the Company's settlement
obligations. Any shares so delivered will be issued and outstanding when
delivered and will adjust the Forward Price in accordance with the formula
contained in the Forward Contract.
Upon final settlement of the Forward Contract, the Company is obligated to
pay a placement fee based on the amount of the net stock settlement, if any, as
well as an unwind accretion fee equal to one-half of the settlement amount times
an interest factor calculated for the number of actual days the Forward Contract
was in effect prior to final settlement.
POTENTIAL LEGISLATIVE ACTION
The Chairman of the House Ways & Means Committee of the U.S. House of
Representatives has announced that although he has no intentions of repealing
the existing "grandfathering" of existing paired share REITs such as the Trust,
the staff of the Committee will look into the issue of whether restrictions
should be placed on such REITs. See "Federal Income Taxation of the
Trust -- Requirements for Qualification -- Paired Shares."
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<PAGE> 13
USE OF PROCEEDS
The Company will use the net proceeds of any sale of Securities, if and to
the extent provided in any applicable Prospectus Supplement relating to the sale
of such Securities, to finance future acquisitions by the Company. Otherwise,
the net proceeds will be used by the Company to (i) make loans to the
Partnerships or (ii) make contributions to the Partnerships in return for
securities of the Partnerships. The allocation of the net proceeds of any sale
of Securities between the Realty Partnership and the Operating Partnership shall
be set forth in the applicable Prospectus Supplement.
Except as otherwise provided in the applicable Prospectus Supplement, the
Partnerships intend to use any such net proceeds for working capital and general
business purposes, which may include the reduction of certain outstanding
indebtedness, the financing of future acquisitions and the improvement of
certain properties in their portfolio.
Pending application of the net proceeds, the Partnerships will invest such
portion of the net proceeds in interest-bearing accounts and short-term,
interest-bearing securities, which, in the case of the Realty Partnership, are
consistent with the Trust's intention to qualify for taxation as a REIT. Such
investments may include, for example, obligations of the Government National
Mortgage Association, other governmental and government agency securities,
certificates of deposit, interest-bearing bank deposits and mortgage loan
participations.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------------
SEPTEMBER 30, 1997 1996 1995 1994 1993 1992
- ------------------- ----- ----- ---- ---- ------
<S> <C> <C> <C> <C> <C>
1.88x 2.30x 2.31x .74x* .54x* (.39x)*
</TABLE>
- ---------------
* Earnings were inadequate to cover fixed charges by $19,743,000 in 1992,
$7,032,000 in 1993 and $4,663,000 in 1994.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings represent pretax income from
continuing operations. Fixed charges consist of interest expense (including
interest costs capitalized) and amortization of debt issuance costs. The Company
has not issued any preferred stock; therefore, the ratios of earnings to
combined fixed charges and preferred stock dividends are the same as the ratios
presented above.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under one or more indentures (an
"Indenture"), in each case among the Trust or the Corporation, as the case may
be, the Corporation, as guarantor (if applicable), and a trustee (a "Trustee").
Any Indenture will be subject to, and governed by, the Trust Indenture Act of
1939, as amended (the "TIA"). The statements made hereunder relating to any
Indenture and the Debt Securities to be issued thereunder are summaries of the
anticipated provisions thereof and do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Indentures and such Debt Securities.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Trust or
the Corporation, as the case may be, and will either rank equally with all other
unsecured and unsubordinated indebtedness of the issuing entity ("Senior
Securities") or, if so provided in the applicable Prospectus Supplement, be
subordinated in right of payment to the prior payment in full of the Senior Debt
as defined below) of the issuing entity as described under "-- Subordination"
("Subordinated Securities"). The Debt Securities may be issued without limit as
to
12
<PAGE> 14
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
governing board of the Trust or the Corporation, respectively, or as established
in one or more indentures supplemental to the applicable Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series.
Debt securities issued by the Trust may be guaranteed by the Corporation;
however, the Trust may not guarantee Debt Securities issued by the Corporation.
Any Indenture may provide that there may be more than one Trustee
thereunder. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by a Trustee may be taken by each such Trustee with respect to, and only
with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) whether such Debt Securities are Senior Securities or Subordinated
Securities;
(4) if such Debt Securities will be issued by the Trust, whether such
Debt Securities will be guaranteed by the Corporation;
(5) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities that is convertible into Paired
Common Shares or Preferred Shares, or the method by which any such portion
shall be determined;
(6) if convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Paired Common Shares or Preferred Shares receivable
on conversion;
(7) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(8) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(9) the date or dates, or the method for determining such date or
dates, from which any interest will accrue; the dates on which any such
interest will be payable; the record dates for such interest payment dates,
or the method by which any such date shall be determined; the person to
whom such interest shall be payable; and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(10) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable and such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange; and where notices or demands to or upon the Trust or the
Corporation, as the case may be, may be served in respect of such Debt
Securities, any applicable Guarantees and the applicable Indenture;
13
<PAGE> 15
(11) the period or periods within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Trust or the
Corporation, as the case may be, if the issuer is to have such an option;
(12) the obligation, if any, of the issuer to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof; and the period or periods
within which, the price or prices at which and the terms and conditions
upon which such Debt Securities will be redeemed, repaid or purchased, as a
whole or in part, pursuant to such obligation;
(13) if other than United States dollars, the currency or currencies
in which such Debt Securities are denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(14) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies), and the manner in which such
amounts shall be determined;
(15) the covenants and events of default or covenants of such Debt
Securities, to the extent different from or in addition to those described
herein;
(16) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(17) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(18) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein, or any modification thereof;
(19) whether and under what circumstances the Trust or the
Corporation, as the case may be, will pay additional amounts on such Debt
Securities in respect of any tax, assessment or governmental charge and, if
so, whether such issuer will have the option to redeem such Debt Securities
in lieu of making such payment; and
(20) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special
United States federal income tax, accounting and other considerations applicable
to Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in the applicable Prospectus Supplement, an Indenture will not contain any
other provisions that would limit the ability of either the Trust or the
Corporation to incur indebtedness or that would afford holders of the Debt
Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Trust or the Corporation, the management of the Trust
or the Corporation, or any affiliate of any such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar transaction
involving the Trust or the Corporation that may adversely affect the holders of
the Debt Securities. Restrictions on ownership and transfers of the Paired
Common Shares and Preferred Shares are designed to preserve the Trust's status
as a REIT and, therefore, may act to prevent or hinder a change of control. See
"Description of Paired Common Shares -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares" and "Description of Preferred
Shares -- Ownership Limits; Restrictions on Transfer; Repurchase and Redemption
of Shares." Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the events of default or covenants that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
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GUARANTEES
The Corporation may unconditionally and irrevocably guarantee, on a senior
or subordinated basis, the due and punctual payment of principal of, premium, if
any, and interest on Debt Securities issued by the Trust, and the due and
punctual payment of any sinking fund payments thereon, when and as the same
shall become due and payable, whether at a maturity date, by declaration of
acceleration, call for redemption or otherwise. The applicability and terms of
any such guarantee relating to a series of Debt Securities will be set forth in
the applicable Prospectus Supplement relating to such Debt Securities.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are registered securities (other than
registered securities issued in global form, which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on Debt Securities will be
payable at the corporate trust office of the Trustee, the address of which will
be stated in the applicable Prospectus Supplement; provided, however, that, at
the option of the Trust or the Corporation, as the case may be, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds (except that payment by wire transfer of immediately
available funds will be required with respect to principal of (and premium, if
any) and interest on all Global Securities).
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the relevant regular record date
and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the applicable
Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office of
the Trustee referred to above. Every Debt Security surrendered for conversion,
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Trustee,
the Trust or the Corporation may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the Trustee) initially designated by the Trust or the Corporation, as the case
may be, with respect to any series of Debt Securities, such entity may at any
time rescind the designation of any such transfer agent or approve a change in
the location through which any such transfer agent acts, except that the Trust
or the Corporation, as the case may be, will be required to maintain a transfer
agent in each place of payment for such series. The Trust or the Corporation, as
the case may be, may at any time designate additional transfer agents with
respect to any series of Debt Securities.
Neither the Trust, the Corporation nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of the Debt Securities to be redeemed and ending at the close of
business on (A) if such Debt Securities are issuable only in registerable form,
the day of the mailing of the relevant notice of redemption, and (B) if such
Debt Securities are issuable as bearer securities, the day of the first
publication of the relevant notice of redemption or, if such Debt Securities are
also issuable as registered securities and there is no publication, the
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mailing of the relevant notice of redemption, or (ii) to register the transfer
of or exchange any security issued in registerable form so selected for
redemption in whole or in part, except, in the case of any registered security
to be redeemed in part, the portion thereof not to be redeemed, or (iii) to
exchange any bearer security so selected for redemption except that such a
bearer security may be exchanged for a registered security of that series and
like tenor, on the condition that such registered security shall be
simultaneously surrendered for redemption, or (iv) to issue, register the
transfer of or exchange any Debt Security which has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
Any of the Trust and the Corporation may consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity, provided that (a) either the Trust or the Corporation, as the case
may be, shall be the continuing entity, or the successor entity (if other than
the Trust or the Corporation, as the case may be) formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium, if
any) and interest on all the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the applicable indenture (b) immediately after giving effect to such
transaction, no event of default under the indentures, and no event which, after
notice or the lapse of time, or both, would become such an event of default,
shall have occurred and be continuing; and (c) an officer's certificate and
legal opinion covering such conditions shall be delivered to the Trustee.
If this Prospectus is being delivered in connection with a series of Debt
Securities that provides for the optional redemption, prepayment or conversion
of such Debt Securities upon the occurrence of a change of control of the
Company, the applicable Prospectus Supplement will disclose: (i) the effects
that such provisions may have in deterring certain mergers, tender offers or
other takeover attempts, as well as any possible adverse effect on the market
price of the Company's securities or the ability to obtain additional financing
in the future; (ii) that the Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other applicable securities laws in
connection with such provisions and any related offers by the Company and, to
the extent that convertible securities are the subject of a Prospectus
Supplement, that the Company will comply with Rule 13e-4 under the Exchange Act;
(iii) whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such Debt Securities
may be effectively subordinated; (iv) any limitations on the Company's financial
or legal ability to repurchase such Debt Securities upon the triggering of an
event risk provision requiring such a repurchase or offer to repurchase; (v) the
impact, if any, under the governing instrument of the failure to repurchase,
including whether such failure to make any required repurchases in the event of
that change of control will create an event of default with respect to such Debt
Securities or will become an event of default only after the continuation of
such failure for a specified period of time after written notice is given to the
Company by the trustee or to the Company and the trustee by the holders of a
specified percentage in aggregate principal amount of such Debt Securities then
outstanding; (vi) that there can be no assurance that sufficient funds will be
available at the time of the triggering of an event risk provision to make any
required repurchases; (vii) if such Debt Securities are to be subordinated to
other obligations of the Company or its subsidiaries that would be accelerated
upon the triggering of a change in control, fundamental change or poison put
feature, the material effect thereof on the change in control, fundamental
change or poison put option and such Debt Securities; (viii) the extent that
there is a definition of "Change in Control" that includes the concept of "all
or substantially all," a quantification of such term or, in the alternative, the
established meaning of the phrase under the applicable governing law of the
Indenture. If an established meaning for the phrase is not available, then the
effects of such an uncertainty on the ability of a holder of such Debt
Securities to determine when a "Change of Control" has occurred; and (ix) if
applicable, whether the "Change of Control" provisions will be triggered if
change in control of the Board of Directors occurs as a result of a proxy
contest involving the solicitation of revocable proxies.
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CERTAIN COVENANTS
Existence. Except as permitted under "--Merger, Consolidation or Sale,"
each of the Trust and the Corporation will be required to do or cause to be done
all things necessary to preserve and keep in full force and effect its
existence, rights and franchises; provided, however, that each of the Trust and
the Corporation shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business.
Maintenance of Properties. Each of the Trust and the Corporation will be
required to cause all of its material properties used or useful in the conduct
of its business or the business of any subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and to cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Trust or the
Corporation, as the case may be, may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that each of the Trust and the Corporation shall not
be required to continue the operation or maintenance of any such property or
prevented from disposing of such property if it determines that such
discontinuance or disposal is desirable in the conduct of the business.
Insurance. Each of the Trust and the Corporation will be required to, and
will be required to cause each of its subsidiaries to, keep all of its insurable
properties insured against loss or damage at least equal to their then full
insurable value with insurers of recognized responsibility.
Payment of Taxes and Other Claims. Each of the Trust and the Corporation,
as the case may be, will be required to pay or discharge or cause to be paid or
discharged before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges levied or imposed upon it or any subsidiary
or upon its income, profits or property or that of any subsidiary, and (ii) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a material lien upon the property of the Trust, the Corporation or any
subsidiary; provided, however, that the Trust and the Corporation, as the case
may be, shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
Provision of Financial Information. Whether or not the Trust or the
Corporation, as the case may be, is subject to Section 13 or 15(d) of the
Exchange Act, the Trust or the Corporation, as the case may be, will, be
required within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject to (i) transmit by
mail to all Holders of its Debt Securities, as their names and addresses appear
in the security register for such Debt Securities, without cost to such Holders,
copies of the annual reports and quarterly reports which the Trust or the
Corporation, as the case may be, would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Trust or
the Corporation, as the case may be, were subject to such Sections and (ii) file
with any Trustee copies of the annual reports, quarterly reports and other
documents which the Trust or the Corporation, as the case may be, would have
been required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Trust or the Corporation, as the case may be, were subject
to such Sections and (iii) promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective holder.
Additional Covenants. Any additional or different covenants of the Trust or
the Corporation with respect to any series of Debt Securities will be set forth
in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (b) default in the payment of the principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance, or breach, of any other covenant of
the Trust or
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the Corporation contained in the applicable Indenture (other than a covenant
added to such Indenture solely for the benefit of a series of Debt Securities
issued thereunder other than such series), such default having continued for 60
days after written notice as provided in such Indenture; (e) default in the
payment of an aggregate principal amount exceeding a specified amount of any
evidence of indebtedness of the Trust or the Corporation, as the case may be, or
any mortgage, indenture or other instrument under which such indebtedness is
issued or by which such indebtedness is secured, such default having occurred
after the expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled; (f) certain
events of bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of the Trust or the Corporation, as the case may
be, or any Significant Subsidiary or any of their respective property; and (g)
any other event of default provided with respect to a particular series of Debt
Securities. The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the Trust
or the Corporation, as the case may be.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or indexed securities, such portion of the principal
amount as may be specified in the terms thereof) of all of the Debt Securities
of that series to be due and payable immediately by written notice thereof to
the Trust or the Corporation, as the case may be (and to the applicable Trustee
if given by the holders). However, at any time after such a declaration of
acceleration with respect to Debt Securities of such series (or of all Debt
Securities then outstanding under any Indenture, as the case may be) has been
made, but before a judgment or decree for payment of the money due has been
obtained by the applicable Trustee, the holders of not less than a majority in
principal amount of outstanding Debt Securities of such series (or of all Debt
Securities then outstanding under the applicable Indenture, as the case may be)
may rescind and annul such declaration and its consequences if (a) the Trust or
the Corporation, as the case may be, shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
outstanding under any Indenture, as the case may be), plus certain fees,
expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal of (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in the Indenture. Any
Indenture will also provide that the holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security or such series or (y) in respect of a covenant or
provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the holder of each outstanding Debt Security
affected thereby.
Each Trustee will be required to give notice to the holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default has been cured or waived; provided, however, that such Trustee may
withhold notice to the holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified responsible officers of such Trustee consider such
withholding to be in the interest of such holders.
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to the
applicable Indenture or for any remedy thereunder, except in the case of failure
of the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of Debt
Securities from instituting suit
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for the enforcement of payment of the principal of (and premium, if any) and
interest on such Debt Securities at the respective due dates thereof.
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any holders of any
series of Debt Securities then outstanding under such Indenture, unless such
holders shall have offered to the Trustee thereunder reasonable security or
indemnity. The holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series (or of all Debt Securities then
outstanding under an Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Trust or the
Corporation, as the case may be, will be required to deliver to each Trustee a
certificate, signed by one of several specified officers of the Company, stating
whether or not such officer has knowledge of any default under the applicable
Indenture and, if so, specifying each such default and the nature and status
thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities or series of outstanding Debt
Securities which are affected by such modification or amendment, provided,
however, that no such modification or amendment may, without the consent of the
holder of each such Debt Security affected thereby: (a) change the stated
maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security; (b) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any such Debt Security; (c) change the place
of payment, or the coin or currency, for payment of principal of, premium, if
any, or interest on any such Debt Security; (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any such Debt
Security; (e) reduce the above-stated percentage of outstanding Debt Securities
of any series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in such
Indenture; (f) modify any of the provisions set forth in such Indenture relating
to subordination; (g) change the redemption provisions set forth in such
Indenture in a manner adverse to the holders of Debt Securities; or (h) modify
any of the foregoing provisions or any of the provisions relating to the waiver
of certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the holder of such Debt
Security.
The holders of not less than a majority in principal amount of a series of
outstanding Debt Securities have the right to waive compliance by the Trust or
the Corporation, as the case may be, with certain covenants relating to such
series of Debt Securities in the Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Trust or the Corporation, as the case may be, and the respective Trustee
thereunder without the consent of any holder of Debt Securities for any of the
following purposes: (i) to evidence the succession of another person to the
Trust, or the Corporation, as the case may be, as obligor under such Indenture;
(ii) to add to the covenants of the Trust or the Corporation, as the case may
be, for the benefit of the holders of all or any series of Debt Securities or to
surrender any right or power conferred upon the Trust or the Corporation, as the
case may be, in such Indenture; (iii) to add events of default for the benefit
of the holders of all or any series of Securities; (iv) to add or change any
provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated
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form, provided that such action shall not adversely affect the interests of the
holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of an Indenture, provided that any such
change or elimination shall become effective only when there are no Debt
Securities outstanding of any series created prior thereto which are entitled to
the benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Paired Common Shares or Preferred Shares of the Company; (viii)
to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trusts under the Indenture by more than one
Trustee; (ix) to cure any ambiguity, defect or inconsistency in an Indenture,
provided that such action shall not adversely affect the interests of holders of
Debt Securities of any series in any material respect; or (x) to supplement any
of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities or of
any applicable guarantees, provided that such action shall not adversely affect
the interests of the holders of the Debt Securities of any series in any
material respect.
Each Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the United States dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the United States dollar equivalent on the
issue date of such Debt Security of the amount determined as provided in (i)
above), (iii) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of such indexed security at
original issuance, unless otherwise provided with respect to such indexed
security pursuant to such indenture, and (iv) Debt Securities owned by the
Trust, the Corporation or any other obligor upon the Debt Securities or any
affiliate of the Trust, the Corporation or of such other obligor shall be
disregarded.
Each Indenture will contain provisions for convening meetings of the
holders of Debt Securities of a series. A meeting will be permitted to be called
at any time by the Trustee, and also, upon request, by the Trust, the
Corporation, or other obligor of such Debt Securities or the holders of at least
10% in principal amount of the outstanding Debt Securities of such series, in
any such case upon notice given as provided in such Indenture. Except for any
consent that must be given by the holder of each Debt Security affected by
certain modifications and amendments of an Indenture, any resolution presented
at a meeting or adjourned meeting duly reconvened at which a quorum is present
will be permitted to be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding Debt Securities of that series;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the holders of such specified percentage in principal amount of the outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of holders of Debt Securities of any series duly held in accordance with
an Indenture will be binding on all holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series, will constitute a quorum.
Notwithstanding the foregoing provisions, any Indenture will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that such Indenture expressly provides may be
made, given or
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taken by the holders of a specified percentage in principal amount of all
outstanding Debt Securities affected thereby, or of the holders of such series
and one or more additional series: (i) there shall be no minimum quorum
requirement for such meeting and (ii) the principal amount of the outstanding
Debt Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under such Indenture.
SUBORDINATION
Upon any distribution to creditors of the Trust or the Corporation, as the
case may be, in a liquidation, dissolution or reorganization, the payment of the
principal of and interest on any Subordinated Securities will be subordinated to
the extent provided in the applicable Indenture in right of payment to the prior
payment in full of all Senior Debt (as defined below), but the obligation of the
Trust or the Corporation, as the case may be, to make payment of the principal
and interest on such Subordinated Securities will not otherwise be affected. No
payment of principal or interest will be permitted to be made on Subordinated
Securities at any time if a default on Senior Debt exists that permits the
holders of such Senior Debt to accelerate its maturity and the default is the
subject of judicial proceedings or the Trust or the Corporation, as the case may
be, receives notice of the default. By reason of such subordination, in the
event of a distribution of assets upon insolvency, certain general creditors of
the Trust or the Corporation, as the case may be, may recover more, ratably,
than holders of Subordinated Securities.
Unless otherwise specified in the applicable Prospectus Supplement, Senior
Debt will be defined in the applicable Indenture as the principal of and
interest on, or substantially similar payments to be made by the Trust or the
Corporation, as the case may be, in respect of, the following, whether
outstanding at the date of execution of the applicable indenture or thereafter
incurred, created or assumed: (a) indebtedness of the Trust or the Corporation,
as the case may be, for money borrowed or represented by purchase-money
obligations, (b) indebtedness of the Trust or the Corporation, as the case may
be, evidenced by notes, debentures, or bonds, or other securities issued under
the provisions of an indenture, fiscal agency agreement or other agreement, (c)
obligations of the Trust or the Corporation, as the case may be, as lessee under
leases of property either made as part of any sale and leaseback transaction to
which the Trust or the Corporation, as the case may be, is a party or otherwise,
(d) indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Company, (e) indebtedness, obligations
and liabilities of others in respect of which the Trust or the Corporation, as
the case may be, is liable contingently or otherwise to pay or advance money or
property or as guarantor, endorser or otherwise or which the Trust or the
Corporation, as the case may be, has agreed to purchase or otherwise acquire,
and (f) any binding commitment of the Trust or the Corporation, as the case may
be, to fund any real estate investment or to fund any investment in any entity
making such real estate investment, in each case other than (1) any such
indebtedness, obligation or liability referred to in clauses (a) through (f)
above as to which, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is expressly provided that such
indebtedness, obligation or liability is not superior in right of payment to the
subordinated Securities or ranks pari passu with the Subordinated Securities,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Trust or the Corporation, as the case may be, to
substantially the same extent as or to a greater extent than the Subordinated
Securities are subordinated, and (3) the Subordinated Securities. There will not
be any restrictions in an Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the most recent fiscal
quarter of the Trust or Corporation, as the case may be.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Trust or the Corporation, as the case may be, may be permitted under
the applicable Indenture to discharge certain obligations to holders of any
series of Debt Securities that have not already been delivered to
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the Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
An Indenture may provide that, if certain provisions thereof are made
applicable to the Debt Securities of or within any series pursuant to such
Indenture, each of the Trust or the Corporation, as the case may be, may elect
either (a) to defease and be discharged from any and all obligations with
respect to such Debt Securities except for the obligation to pay additional
amounts, if any, upon the occurrence of certain events of tax, assessment or
governmental charge with respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities and to hold
moneys for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to such Debt Securities under certain sections, of such
Indenture (including the restrictions described under "Certain Covenants") and,
if provided pursuant to such Indenture, its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an event of default with respect to such Debt Securities
("covenant defeasance"), in either case upon the irrevocable deposit by the
Trust or the Corporation, as the case may be, with the Trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
such Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
an the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Trust or the Corporation, as the case may be, has delivered to the
Trustee an opinion of counsel (as specified in the applicable indenture) to the
effect that the holders of such Debt Securities will not recognize income, gain
or loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to United States federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service (the "IRS") or a
change in applicable United States federal income tax law occurring after the
date of the applicable Indenture.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Trust or the Corporation, as the case may be, has deposited funds and/or
Government Obligations to effect defeasance or covenant defeasance with respect
to Debt Securities of any series, (a) the holder of a Debt Security of such
series is
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entitled to, and does elect pursuant to the applicable Indenture or the terms of
such Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of such
Debt Security, or (b) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such Conversion Event based on the applicable market exchange rate.
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institution of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Community or (iii)
any currency unit or composite currency other than the ECU for the purposes for
which it was established. Unless otherwise provided in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest on
any Debt Security that is payable in a foreign currency that ceases to be used
by its government of issuance shall be made in United States dollars.
In the event the Trust or the Corporation, as the case may be, effects
covenant defeasance with respect to any Debt Securities and such Debt Securities
are declared due and payable because of the occurrence of any Event of Default
other than the Event of Default described in clause (d) under "Events of
Default, Notice and Waiver" with respect to specified sections of the Indenture
(which sections would no longer be applicable to such Debt Securities) or
described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there had been covenant defeasance,
the amount in such currency, currency unit or composite currency in which Such
Debt Securities are payable, and Government Obligations on deposit with the
applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their stated maturity but may not be sufficient to pay
amounts due on such Debt Securities at the time of the acceleration resulting
from such Event of Default. However, the Trust or the Corporation, as the case
may be, would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Debt Securities
is convertible into Paired Common Shares or Preferred Shares will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include whether such Debt Securities are convertible into Paired Common Shares
or Preferred Shares, the conversion price (or manner of calculation thereof),
the conversion period, provisions as to whether conversion will be at the option
of the holders or the Trust or the Corporation, as the case may be, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Debt Securities and
any restrictions on conversion, including restrictions directed at maintaining
the Trust's REIT status.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary ("the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Declaration of Trust authorizes the Trust to issue 135 million shares
of beneficial interests in the Trust, including (i) 100 million Trust Shares,
(ii) 20 million excess trust shares, with a par value of $0.01 per share
("Excess Common Trust Shares"), and (iii) 5 million excess Preferred Shares,
with a par value of $0.01 per share ("Excess Preferred Trust Shares" and,
together with the Excess Common Trust Shares, the "Excess Trust Shares").
Subject to the requirement that the aggregate number of shares of beneficial
interest issued and outstanding does not exceed 135,000,000, the Declaration of
Trust grants the Board of Trustees the power to create and authorize the
issuance of shares of beneficial interest of one or more additional classes,
including preferred shares ("Trust Preferred Shares") in one or more classes or
series, having such voting rights, such rights to dividends and distribution and
rights in liquidation, such conversion, exchange and redemption rights and such
designations, preferences and participations and other limitations and
restrictions as are not prohibited by the Declaration of Trust or applicable law
and as are specified by the Board of Trustees in its discretion. As of October
15, 1997, the Board of Trustees had not created or authorized any class or
series of Trust Preferred Shares and no Excess Trust Shares were outstanding.
The Articles of Incorporation authorize the Corporation to issue 135
million shares, consisting of (i) 100 million Corporation Shares, (ii) 20
million shares of excess common stock, with a par value of $0.01 per share
("Excess Corporation Common Stock"), (iii) 10 million shares of preferred stock,
with a par value of $0.01 per share ("Corporation Preferred Shares"), and (iv) 5
million shares of excess preferred stock, with a par value of $0.01 per share
("Excess Corporation Preferred Stock" and, together with the Excess Corporation
Common Stock, the "Excess Corporation Stock"). The Corporation Preferred Shares
are issuable in classes or series with such rights, preferences, privileges and
restrictions as the Board of Directors may determine, including voting rights,
redemption provisions, dividend rates, liquidation preferences and conversion
rights. As of October 31, 1997, no such class or series of Corporation Preferred
Shares had been established and no Excess Corporation Stock was outstanding.
However, the Trust intends to create and issue two series of Preferred Shares in
connection with the acquisition of Westin. See "Proposed Acquisition of Westin."
As of October 31, 1997 there were 63,249,247 Paired Common Shares
outstanding (including 11,924,707 Paired Common Shares reserved for issuance
upon exchange of units of partnership interest ("Units") of the Realty
Partnership and the Operating Partnership currently held by Starwood Capital and
other persons). Each outstanding Paired Common Share entitles the holder to one
vote on all matters presented to shareholders for a vote.
PREEMPTIVE RIGHTS
Holders of Trust Shares and Corporation Shares do not have preemptive
rights with respect to the issuance of additional shares. Accordingly, any
issuance of authorized but unissued shares could have the effect of diluting the
earnings per share and book value per share of currently outstanding shares.
DESCRIPTION OF PREFERRED SHARES
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which a Prospectus
Supplement may relate. The statements below describing the Preferred Shares are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Declaration of Trust and the Articles of
Incorporation and any amendment to the Declaration of Trust or the Articles of
Incorporation designating terms of a series of Preferred Shares (a "Designating
Amendment").
The Trust may authorize and issue Trust Preferred Shares without the
issuance by the Corporation of corresponding shares, and the Corporation may
authorize and issue Corporation Preferred Shares without the issuance by the
Trust of corresponding shares. Furthermore, the Pairing Agreement does not limit
the power
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of the Boards of the Trust and the Corporation to independently determine the
rights, preferences and restrictions of such shares. However, if either the
Trust or the Corporation were to issue Preferred Shares for which the other
entity did not issue corresponding (i.e., paired) shares in an amount such that
greater than 50% of such entity's beneficial equity interests were represented
by such unpaired Preferred Shares, then the Trust and the Corporation could lose
their status as "grandfathered" from the application of Section 269B of the
Internal Revenue Code of 1986 as amended (the "Code") and thus jeopardize the
Trust's ability to qualify as a REIT. (See "Federal Income Taxation of the
Trust -- Background.") Neither the Trust nor the Corporation intends to issue
unpaired Preferred Shares in excess of such limitation.
TERMS
Subject to the limitations prescribed by the Declaration of Trust and the
Articles of Incorporation, respectively, each of the Board of Trustees and the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Shares and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of such board. The Preferred Shares will, when issued, be
fully paid and nonassessable by the Trust or the Corporation, as the case may be
(except as described under "-- Shareholder Liability" below) and will have no
preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares and whether
such Preferred Shares are paired;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), periodic and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for redemption, if applicable, of such Preferred
Shares;
(7) The provision for a sinking fund, if any, for such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange.
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Paired Common Shares, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
depositary shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to
such Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Trust or the Corporation, respectively;
(14) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Trust or the Corporation, respectively; and
(15) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Trust as a REIT.
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RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Trust or the Corporation,
respectively, rank (i) senior to all classes or series of Paired Common Shares
and to any other equity securities ranking junior to such Preferred Shares; (ii)
on a parity with all equity securities issued by the Trust or the Corporation,
respectively, the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Shares; and (iii) junior to all
equity securities issued by the Trust or the Corporation, respectively, the
terms of which specifically provide that such equity securities rank senior to
the Preferred Shares. The term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees or the Board of Directors, as
the case may be, out of the respective assets of the Trust or the Corporation
legally available for payment, cash dividends at such rates and on such dates as
will be set forth in the applicable Prospectus Supplement. Each such dividend
shall be payable to holders of record as they appear on the share transfer books
of the Trust or the Corporation, as the case may be, on such record dates as
shall be fixed by the Board of Trustees or the Board of Directors.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement, if the Board of Trustees or the Board of
Directors fails to declare a dividend payable on a dividend payment date on any
series of the Preferred Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Trust or the Corporation, as the case may be, will have no obligation to
pay the dividend accrued for such period, whether or not dividends on such
series are declared payable on any future dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Trust or
the Corporation, as the case may be, of any other series ranking, as to
dividends, on a parity with or junior to the Preferred Shares of such series for
any period unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the Preferred Shares of such series for all past dividend
periods and the then current dividend period or (ii) if such series of Preferred
Shares does not have a cumulative dividend, full dividends for the then current
dividend period have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such payment on the
Preferred Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of Preferred
Shares ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per share of
Preferred Shares of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Preferred Shares of such series (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Shares does not have a cumulative dividend) and such other series of Preferred
Shares bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on Preferred
Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series
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have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in shares of Paired Common Shares or
other capital shares ranking junior to the Preferred Shares of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Paired Common
Shares, or any other capital shares of the Trust or the Corporation, as the case
may be, ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation, nor shall any shares of Paired
Common Shares, or any other capital shares of the Trust or the Corporation, as
the case may be, ranking junior to or on a parity with the Preferred Shares of
such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the Trust
or the Corporation, as the case may be, except by conversion into or exchange
for other capital shares of the Trust or the Corporation, as the case may be,
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Trust or the Corporation, as the case may be, as a whole or in part, in each
case upon the terms, at the times and at the redemption prices set forth in such
Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that shall be redeemed by the Trust or the Corporation, as the
case may be, in each year commencing after a date to be specified, at a
redemption price per share to be specified, together with an amount equal to all
accrued and unpaid dividends thereon (which shall not, if such Preferred Shares
do not have a cumulative dividend, include any accumulation in respect of unpaid
dividends for prior dividend periods) to the date of redemption. The redemption
price may be payable in cash or other property, as specified in the applicable
Prospectus Supplement. If the redemption price for Preferred Shares of any
series is payable only from the net proceeds of the issuance of capital shares
of the Trust or the Corporation, as the case may be, the terms of such Preferred
Shares may provide that, if no such capital shares shall have been issued or to
the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Shares shall
automatically and mandatorily be converted into the applicable capital shares of
the Trust or the Corporation, as the case may be, pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Shares shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends of the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of any series of Preferred Shares shall be redeemed unless all
outstanding Preferred Shares of such series are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Trust or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Preferred Shares of such series. In addition, unless
(i) if such series of Preferred Shares has a cumulative dividend, full
cumulative dividends on all outstanding shares of any series of Preferred Shares
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividends
periods and the then current dividend period, and (ii) if such series of
Preferred Shares does not have a cumulative dividend, full dividends on the
Preferred Shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Trust or the Corporation, as
the case may be, shall not purchase or otherwise acquire directly or indirectly
any shares of Preferred Shares of such series (except by conversion into or
exchange for capital shares of the Trust or the Corporation, as the case
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may be, ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation); provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Trust or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Trust or the Corporation, as the case may be, and such shares
may be redeemed pro rata from the holders of record of such shares in proportion
to the number of such shares held or for which redemption is requested by such
holder (with adjustments to avoid redemption of fractional shares) or by lot in
a manner determined by the Trust or the Corporation, as the case may be.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Trust or the Corporation, as the case may be. Each notice shall state: (i)
the redemption date, (ii) the number of shares and series of the Preferred
Shares to be redeemed; (iii) the redemption price; (iv) the place or places
where certificates for such Preferred Shares are to be surrendered for payment
of the redemption price; (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date; and (vi) the date upon which the
holder's conversion rights, if any, as to such shares shall terminate, if fewer
than all the shares of Preferred Shares of any series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the number of
shares of Preferred Shares to be redeemed from each such holder. If notice of
redemption of any Preferred Shares has been given and if the funds necessary for
such redemption have been set aside by the Trust or the Corporation, as the case
may be, in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, and all rights of the holders of such
shares will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust or the Corporation, as the case may be, then, before
any distribution or payment shall be made to the holders of any Paired Common
Shares or any other class or series of capital shares of the Trust or the
Corporation, as the case may be, ranking junior to the Preferred Shares in the
distribution of assets upon any liquidation, dissolution or winding up of the
Trust or the Corporation, as the case may be, the holders of each series of
Preferred Shares shall be entitled to receive out of assets of the Trust or the
Corporation, as the case may be, legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Shares will have no right or claim to any of
the remaining assets of the Trust or the Corporation, as the case may be. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Trust or the Corporation, as the case
may be, are insufficient to pay the amount of the liquidating distributions on
all outstanding Preferred Shares and the corresponding amounts payable on all
shares of other classes or series of capital shares of the Trust or the
Corporation, as the case may be, ranking on a parity with the Preferred Shares
in the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of capital shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Trust or the Corporation, as the
case may be, shall be distributed among the holders of any other classes or
series of capital shares ranking junior to the Preferred Shares upon
liquidation, dissolution or winding up, according to their respective rights and
preferences and in each case according to their respective number of shares. For
such purposes, the consolidation or merger of the Trust or the Corporation, as
the case may be, with or into any other corporation, trust or entity, or the
sale, lease or conveyance of all or substantially all of the property or
business of the Trust or the Corporation, as the case may be, shall not be
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deemed to constitute a liquidation, dissolution or winding up of the Trust or
the Corporation, as the case may be.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Shares shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Shares (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
trustees or directors of the Trust or the Corporation, as the case may be, at a
special meeting called by the holders of record of at least ten percent (10%) of
any series of Preferred Shares so in arrears (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of the shareholders) or at the next annual meeting of stockholders. Directors so
elected shall serve until the next annual meeting or until their respective
successors are elected and qualify, or if sooner until all dividends in arrears
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment. In such case, the entire board of the Trust or the
Corporation, as the case may be, will be increased by two trustees or directors.
Unless provided otherwise for any series of Preferred Shares, so long as
any shares of Preferred Shares remain outstanding, the Trust or the Corporation,
as the case may be, will not, without the affirmative vote or consent of the
holders of at least two-thirds of the shares of each series of Preferred Shares
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (such series voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of any class or series of capital stock
ranking prior to such series of Preferred Shares with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up or reclassify any authorized capital stock of the Trust or the Corporation,
as the case may be, into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Declaration of
Trust or the Articles of Incorporation or the Designating Amendment for such
series of Preferred Shares, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Shares or the holders
thereof; provided, however, with respect to the occurrence of any of the Events
set forth in (ii) above, so long as the Preferred Shares remain outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Trust or the Corporation, as the case may be, may
not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Shares and provided further that (x) any
increase in the amount of the authorized Preferred Shares or the creation or
issuance of any other series of Preferred Shares, or (y) any increase in the
amount of authorized shares of such series or any other series of Preferred
Shares, in each case ranking on a parity with or junior to the Preferred Shares
of such series with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Paired Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Paired Common Shares into which the shares of Preferred Shares are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders or the
Trust or the Corporation, as the case may be, the events requiring an
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adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Shares and any restrictions
on conversion, including restrictions directed at maintaining the Trust's REIT
status.
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF SHARES
As discussed below under "Description of Paired Common Shares -- Ownership
Limits; Restrictions on Transfer; Repurchase and Redemption of Shares," for the
Trust to qualify as a REIT under the Code, the Trust must meet several
requirements concerning the ownership of its shares. To assist the Trust in
meeting this requirement, the Trust may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the Trust's
outstanding equity securities, including any Preferred Shares of the Trust.
Therefore, the Designating Amendment for each series of Preferred Shares may
contain provisions restricting the ownership and transfer of the Preferred
Shares. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Shares.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF PAIRED COMMON SHARES
GENERAL
All Paired Common Shares offered hereby will be duly authorized, fully paid
and nonassessable. Subject to the preferential rights of any other shares or
series of shares of beneficial interest and to the provisions of the Declaration
of Trust regarding Excess Trust Shares and the Articles of Incorporation
regarding Excess Corporation Stock, holders of Paired Common Shares will be
entitled to receive dividends if, as and when authorized and declared by the
Board of Trustees or the Board of Directors, as the case may be, out of assets
legally available therefor and to share ratably in the assets of the Trust or
the Corporation legally available for distribution to its shareholders in the
event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Trust or the
Corporation.
The Paired Common Shares currently outstanding are listed for trading on
the New York Stock Exchange (the "NYSE"). The Trust and the Corporation will
apply to the NYSE to list the additional Paired Common Shares to be sold
pursuant to any Prospectus Supplement, and the Trust and the Corporation
anticipate that such shares will be so listed.
Subject to the provisions of the Declaration of Trust regarding Excess
Trust Shares and the Articles of Incorporation regarding Excess Corporation
Stock, each outstanding Paired Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees or directors, and, except as otherwise required by law or except as
provided with respect to any other class or series of shares of beneficial
interest, the holders of such Paired Common Shares will possess the exclusive
voting power. There is no cumulative voting in the election of trustees or
directors, which means that the holders of a majority of the outstanding Paired
Common Shares can elect all of the trustees or directors then standing before
election and the holders of the remaining shares of beneficial interest, if any,
will not be able to elect any trustees or directors.
Holders of Paired Common Shares have no conversion, sinking fund,
redemption or preemptive rights to subscribe for any securities of the Trust of
the Corporation, as the case may be.
Subject to the provisions of the Declaration of Trust regarding Excess
Shares and the Articles of Incorporation regarding Excess Corporation Stock,
Paired Common Shares will have equal dividend, distribution, liquidation and
other rights, and will have no preference, exchange, or except as expressly
required by the Maryland statute governing real estate investment trusts formed
under Maryland law (the "Maryland REIT Law") and the Maryland General
Corporation Law, as amended (the "MGCL"), appraisal rights.
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THE PAIRING AGREEMENT
The Trust and the Corporation have entered into an agreement dated June 25,
1980, as amended (the "Pairing Agreement") pursuant to which all outstanding
Trust Shares and Corporation Shares are "paired" on a one-for-one basis. The
following is a summary of certain provisions of the Pairing Agreement. This
summary does not purport to be complete and is qualified in its entirety by
reference to the text of the Pairing Agreement, a copy of which is incorporated
by reference as an exhibit to the Registration Statement.
Transfer of Paired Common Shares. Under the Pairing Agreement, Trust Shares
are transferable only together with an equal number of Corporation Shares, and
Corporation Shares are transferable only together with an equal number of Trust
Shares. Certificates evidencing Trust Shares and Corporation Shares are required
by the Pairing Agreement to include a reference to this transfer restriction.
The Declaration of Trust and the Articles of Incorporation contain similar
restrictions on the transfer of Trust Shares and Corporation Shares, as well as
other restrictions on the transfer and ownership of Trust Shares and Corporation
Shares. The Pairing Agreement also provides that any Excess Trust Shares and any
Excess Corporation Stock which may be issued will be paired in the same manner
as the Trust Shares and Corporation Shares are paired.
Issuance of Shares. Under the Pairing Agreement, the Trust may not issue
Trust Shares and the Corporation may not issue Corporation Shares unless
provision is made for the acquisition by the same person of the same number of
shares of the other entity. The Trust and the Corporation must agree on the
manner and basis of allocating the consideration to be received upon such
issuance, or on the payment by one entity to the other of cash or other
consideration in lieu of a portion of the consideration to be received upon
issuance of such Paired Common Shares.
Share Dividends, Reclassifications and other Similar Events. Neither the
Trust nor the Corporation may declare or pay any dividend or other distribution
payable in Trust Shares or Corporation Shares, issue any rights or warrants to
purchase Trust Shares or Corporation Shares, or subdivide, combine or otherwise
reclassify such shares, unless the other entity concurrently takes the same
action.
Amendment and Termination. The Pairing Agreement may be amended by the
Board of Trustees and the Board of Directors, provided that an amendment
permitting the separate issuance and transfer of Trust Shares and Corporation
Shares must be approved by a majority of each of the outstanding Trust Shares
and the outstanding Corporation Shares. The Pairing Agreement may be terminated
only with the affirmative vote of the holders of a majority of each of the
outstanding Trust Shares and the outstanding Corporation Shares. Upon such
termination, the Trust Shares and the Corporation Shares could be delisted by
the NYSE if the Trust and the Corporation, respectively, did not as separate
entities then meet the listing requirements of such Exchange.
Preferred Shares. The Trust may authorize and issue other classes or series
of shares of beneficial interest in addition to the Trust Shares without the
issuance by the Corporation of corresponding shares, and the Corporation may
authorize and issue shares of Corporation Preferred Stock without the issuance
by the Trust of corresponding shares. Furthermore, the Pairing Agreement does
not limit the power of the Boards of the Trust and the Corporation to
independently determine the rights, preferences and restrictions of such shares.
MARYLAND TAKEOVER LEGISLATION
Under the MGCL, certain "business combinations" (including mergers,
consolidations, share exchanges, or, in certain circumstances, asset transfers
or issuances or reclassifications of equity securities) between a Maryland
corporation or a Maryland real estate investment trust and any person who
beneficially owns 10% or more of the voting power of the corporation's or
trust's shares or an affiliate of the corporation or trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting shares
of the corporation or trust (an "Interested Stockholder") or an affiliate
thereof, are prohibited or restricted unless exempted. The Company has exempted
all "business combinations" involving any party from the business combination
provisions of the MGCL.
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Under Maryland law, under certain circumstances "control shares" of a
Maryland corporation or a Maryland real estate investment trust acquired in a
"control share acquisition" may have no voting rights. The Company has exempted
all control share acquisitions involving any person from the MGCL.
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF SHARES
The Declaration of Trust and the Articles of Incorporation provide that,
subject to certain exceptions specified in the Declaration of Trust and the
Articles of Incorporation, no one person or group of related persons may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
8.0% of the capital stock, whether measured by vote, value or number of Paired
Common Shares (the "Ownership Limitation") (other than for shareholders who
owned in excess of 8.0% as of January 31, 1995 (the date the reorganization of
the Company (the "Reorganization") closed), who may not so own or be deemed to
own more than the lesser of 9.9% or the number of Paired Common Shares they held
on such date) of the outstanding Paired Common Shares or Preferred Shares which
may be issued, or any combination thereof. The Board of Trustees and the Board
of Directors may waive the Ownership Limitation if evidence satisfactory to the
Board of Trustees and the Board of Directors and the tax counsel to the Trust
and the Corporation is presented that such ownership will not jeopardize the
Trust's status as a REIT. As a condition of such waiver, each of the Board of
Trustees and the Board of Directors may require opinions of counsel satisfactory
to it and/or an undertaking from the applicant with respect to preserving the
REIT status of the Trust. If shares which would cause the Trust to be
beneficially owned by fewer than 100 persons are issued or transferred to any
person, such issuance or transfer shall be null and void and the intended
transferee will acquire no rights to the stock. Any acquisition of capital stock
of the Trust or the Corporation and continued holding or ownership of capital
stock of the Trust or the Corporation constitutes, under the Declaration of
Trust and the Articles of Incorporation, a continuous representation of
compliance with the Ownership Limitation.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of Paired Common Shares or Preferred Shares
in violation of the Ownership Limitation, such transfer with respect to that
number of shares that would be owned by the transferee in excess of the
Ownership Limitation would be deemed void ab initio and such Paired Common
Shares or Preferred Shares would automatically be exchanged for Excess Shares or
Excess Preferred Stock, respectively (collectively, "Excess Stock"), authorized
by the Declaration of Trust and the Articles of Incorporation, according to
rules set forth in the Declaration of Trust and the Articles of Incorporation,
to the extent necessary to ensure that the purported transfer or other event
does not result in ownership of Paired Common Shares or Preferred Shares or
Excess Stock in violation of the Ownership Limitation. Any purported transferee
or other purported holder of Excess Stock is required to give written notice to
the Trust and the Corporation of a purported transfer or other event that would
result in the issuance of Excess Stock.
Any Excess Trust Shares and Excess Corporation Stock which may be issued
will be "paired" in the same manner that the Trust Shares and the Corporation
Shares are currently paired. Excess Stock is not Treasury stock but rather
continues as issued and outstanding capital stock of the Trust and the
Corporation. While outstanding, Excess Stock will be held in trust. The trustees
of such trusts shall be appointed by the Trust and the Corporation and shall be
independent of the Trust, the Corporation and the holder of Excess Stock. The
beneficiary of such trust shall be one or more charitable organizations selected
by the trustee. If, after the purported transfer or other event resulting in an
exchange of Paired Common Shares or Preferred Shares for Excess Stock and prior
to the discovery by the Trust and the Corporation of such exchange, dividends or
distributions are paid with respect to the Paired Common Shares or Preferred
Shares that were exchanged for Excess Stock, then such dividends or
distributions are to be repaid to the trustee upon demand for payment to the
charitable beneficiary. While Excess Stock is held in trust, an interest in that
trust may be transferred by the trustee only to a person whose ownership of
Paired Common Shares or Preferred Shares will not violate the Ownership
Limitation, at which time the Excess Stock will be automatically exchanged for
the same number of Paired Common Shares or Preferred Shares of the same type and
class as the Paired Common Shares or Preferred Shares for which the Excess Stock
was originally exchanged. The Declaration of Trust and the Articles of
Incorporation contain provisions that are designed to ensure that the purported
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transferee or other purported holder of the Excess Stock may not receive in
return for such a transfer an amount that reflects any appreciation in the
Paired Common Shares or Preferred Shares for which such Excess Stock was
exchanged during the period that such Excess Stock was outstanding. Any amount
received by a purported transferee or other purported holder in excess of the
amount permitted to be received must be turned over to the charitable
beneficiary of the trust. If the foregoing restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee or holder of any Excess Stock may be deemed, at the
option of the Trust and the Corporation, to have acted as an agent on behalf of
the Trust and the Corporation in acquiring or holding such Excess Stock and to
hold such Excess Stock on behalf of the Trust and the Corporation.
The Declaration of Trust and the Articles of Incorporation further provide
that the Trust and the Corporation may purchase, for a period of 90 days during
the time the Excess Stock is held in trust, all or any portion of the Excess
Stock from the original transferee-shareholder at the lesser of the price paid
for the Paired Common Shares or Preferred Shares by the purported transferee (or
if no notice of such purchase price is given, at a price to be determined by the
Board of Trustees and the Board of Directors, in their sole discretion, but no
lower than the lowest market price of such stock (based on the market price of
the Paired Common Shares or Preferred Shares) at any time during the period in
which the Excess Stock is held in trust) and the closing market price for the
Paired Common Shares or Preferred Shares on the date the Trust and the
Corporation exercise their option to purchase. The 90-day period begins on the
date of the violative transfer if the original transferee-shareholder gives
notice to the Trust and the Corporation of the transfer or (if no notice is
given) the date the Board of Trustees and the Board of Directors determine that
a violative transfer has been made.
The Ownership Limitation will not be removed automatically even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limitation would require an amendment to the Declaration of Trust and the
Articles of Incorporation. Amendments to the Declaration of Trust and to the
Articles of Incorporation generally require the affirmative vote of holders
owning a majority of the outstanding Trust Shares and Corporation Shares
respectively, except that changes to the Ownership Limitation require two-thirds
approval. In addition to preserving the Trust's status as a REIT, the Ownership
Limitation may have the effect of precluding an acquisition of control of the
Trust and the Corporation without the approval of the Board of Trustees and the
Board of Directors.
All persons who own, directly or by virtue of the attribution provisions of
the Code, 5% or more (or such other percentage as may be required by the Code or
regulations promulgated thereunder) of the outstanding Paired Common Shares,
Preferred Shares or Excess Stock must file an affidavit with the Trust and the
Corporation containing the information specified in the Declaration of Trust and
the Articles of Incorporation before January 30 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Trust and the
Corporation in writing such information with respect to the direct, indirect and
constructive ownership of shares as the Board of Trustees or the Board of
Directors deems necessary to comply with the provisions of the Declaration of
Trust and the Articles of Incorporation or the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
CONVERTIBLE NOTES
In order to facilitate an underwritten offering by the Company of Paired
Common Shares or any other equity securities of the Trust or the Corporation,
underwriters may purchase a series of Starwood Lodging Convertible Notes (the
"Notes"). The Notes will be automatically converted into Paired Common Shares or
other equity securities (at a conversion price equal to the public offering
price of the Paired Common Shares or such other securities, as the case may be)
upon certification to the Note Trustee (defined below) of the transfer of
beneficial ownership of the Notes to any person or entity which is not an
underwriter or a selected dealer in the offering or an affiliate of any of
either. The automatic conversion will take place without physical delivery of
the Notes to any transferee of an underwriter, selected dealer or affiliate:
such transferee will receive only a certificate for the Paired Common Shares
issued upon such conversion. The structure of such an offering is designed to
avoid the possibility that the underwriters, selected dealers and the affiliates
of either, or
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any of them, acquire 8.0% or more of the Paired Common Shares in violation of
the Ownership Limitation. See "Description of Paired Common Shares -- Ownership
Limits; Restrictions on Transfer; Repurchase and Redemption of Shares."
Because the Notes automatically will be converted into Paired Common Shares
upon sale to the public, no market for the Notes is expected to develop. The
following description of the Notes is provided in the event that any Notes are
acquired and held by any underwriter, selected dealer or affiliate of any of
either, in whose hands the Notes do not automatically convert into Paired Common
Shares.
The Notes are to be issued under an indenture (the "Note Indenture") to be
dated as of the date of such underwritten offering between the Company and the
trustee (the "Note Trustee"). The following statements relating to the Notes and
the Note Indenture are summaries, do not purport to be complete and are
qualified in their entirety by reference to the Notes and the Note Indenture.
The Notes will not bear interest. The Notes will be issued in registered
form in denominations of the same dollar amount as a multiple of the public
offering price of the Paired Common Shares and will be unsecured, several
obligations of the Trust and the Corporation maturing on the date six months
after the date of issuance of such series of Notes. At the option of the
Company, the maturity date of the Notes may be extended at any time or from time
to time, by written notice to the Note Trustee prior to the maturity date,
including any extension thereof, to a date not later than the second anniversary
of the initial maturity date.
There are no redemption or sinking fund provisions applicable to the Notes
and the Notes are not subject to redemption prior to maturity by the Trust and
the Corporation or either of them.
The following are Events of Default under the Note Indenture: failure of
the Trust or the Corporation to pay principal owing by it in respect of any Note
when due; failure of the Trust or the Corporation to comply with any of its
other agreements in the Notes or the Note Indenture, continued for 90 days after
notice is given as provided in the Note Indenture; and certain events of
bankruptcy, insolvency or reorganization. If an Event of Default occurs and is
continuing, either the Note Trustee or the holders of at least 25% in aggregate
principal amount of the Notes outstanding may declare the entire principal
amount of the Notes to be due and payable immediately.
The Note Indenture provides that, subject to the duty of the Note Trustee
during default to act with the required standard of care, the Note Trustee will
be under no obligation to exercise any of its rights or powers under the Note
Indenture unless it shall have received reasonable security and indemnity from
the holders of the Notes against any costs, expenses or liabilities. Subject to
such provisions for the indemnification of the Note Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Note Trustee or exercising any trust or power conferred
on the Note Trustee.
The Note Indenture does not require the Company to furnish to the Note
Trustee any periodic evidence as to the absence of any default under the Note
Indenture or the compliance by the Company with the terms of the Note Indenture.
The Note Indenture or the Notes may be amended or supplemented without the
consent of the noteholders in certain circumstances and with the consent of
holders of at least a majority of the principal amount of the Notes at the time
outstanding, subject to certain exceptions. Any past default, or compliance with
any provision may be waived with the consent of the holders of a majority of the
principal amount of the Notes at the time outstanding.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Paired Common Shares is
ChaseMellon Shareholder Services L.L.C., Los Angeles, California.
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DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Shares or Paired Common Shares. Warrants may be issued independently
or together with Debt Securities, Preferred Stock or Paired Common Shares
offered by any Prospectus Supplement and may be attached to or separate from
such Securities. Each series of Warrants will be issued under a separate warrant
agreement (a "Warrant Agreement") to be entered into between the Company and a
bank or trust company, as warrant agent (the "Warrant Agent"), all as set forth
in the Prospectus Supplement relating to the particular issue of offered
Warrants. The Warrant Agent will act solely as an agent of the Company in
connection with the Warrants of such series and will not assume any obligation
or relationship of agency or trust for or with any holders or beneficial owners
of Warrants. The following summaries of certain provisions of the Warrant
Agreements and Warrants do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
Warrant Agreement and the Warrant certificates relating to each series of the
Warrants which will be filed with the Commission and incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
at or prior to the time of the issuance of such series of Warrants.
The applicable Prospectus Supplement will describe the terms of such
Warrants, including the following where applicable: (i) the title of such
Warrants; (ii) the aggregate number of such Warrants; (iii) the price or prices
at which such Warrants will be issued; (iv) the currencies in which the price of
such Warrants may be payable; (v) the designation, aggregate principal amount
and terms of the securities purchasable upon exercise of such Warrants; (vi) the
designation and terms of the series of Debt Securities, Preferred Shares or
Paired Common Shares with which such Warrants are being offered and the number
of such Warrants being offered with each such security; (vii) the date, if any,
on and after which such Warrants and the related securities will be transferable
separately; (viii) the price at which and currency or currencies, including
composite currencies, in which the securities purchasable upon exercise of such
Warrants may be purchased; (ix) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (x) any material United States federal income tax
consequences; (xi) the terms, if any, on which the Company may accelerate the
date by which the Warrants must be exercised; and (xii) any other terms of such
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations that may be relevant to a prospective holder of Securities. This
summary is for information purposes only and is not tax advice. Except as
discussed below, no ruling or determination letters from the IRS have been or
will be requested by the Company on any tax issue connected with this
Registration Statement. This summary is based upon the Code, as currently in
effect, applicable Treasury Regulations thereunder and judicial and
administrative interpretations thereof, all of which are subject to change,
including changes that may be retroactive. No assurance can be given that the
IRS will not challenge the propriety of one or more of the tax positions
described herein or that such a challenge would not be successful.
The tax treatment of a holder of any of the Securities will vary depending
upon the terms of the specific securities acquired by such holder, as well as
such holder's particular situation. The discussion below addresses federal
income tax considerations to holders of Paired Common Shares. Federal income tax
considerations relevant to holders of Securities other than Paired Common Shares
will be provided in the applicable Prospectus Supplement relating thereto. This
summary does not purport to deal with all aspects of taxation that may be
relevant to particular holders of Paired Common Shares or other Securities 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 (including
dealers in securities, foreign persons, life insurance companies, tax-exempt
organizations, financial institutions, and taxpayers subject to the alternative
minimum tax). The discussion below assumes that the Paired Common Shares are
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or will be held as capital assets within the meaning of Section 1221 of the
Code. No assurance can be given that legislative, judicial or administrative
changes will not affect the accuracy of any statements in this Prospectus with
respect to transactions entered into or contemplated prior to the effective date
of such changes.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.
FEDERAL INCOME TAXATION OF THE TRUST
BACKGROUND
In 1980, prior to the establishment of the Corporation and the pairing of
its shares with the shares of the Trust, the IRS issued a Private Letter Ruling
(the "Ruling") to the Trust in which the IRS held that the pairing of the Trust
Shares and the Corporation Shares and the operation of the Corporation would not
preclude the Trust from qualifying as a REIT. Subsequent to the issuance of the
Ruling, (i) the IRS announced that it would no longer issue rulings to the
effect that a REIT whose shares are paired with those of a non-REIT will qualify
as a REIT if the activities of the paired entities are integrated, and (ii)
Congress, in 1984, enacted Section 269B of the Code, which treats a REIT and a
non-REIT, the paired shares of which were not paired on or before June 30, 1983,
as one entity for purposes of determining whether either company qualifies as a
REIT. Section 269B of the Code has not applied to the Trust and the Corporation
(since the Trust Shares and the Corporation Shares were paired prior to that
date), and the Ruling's conclusions were not adversely affected thereby.
In 1994, the Trust requested and received a determination letter from the
IRS (the "IRS Letter"). The IRS Letter provides that the Trust's failure to send
the shareholder demand letters required by the REIT Provisions (defined below)
terminated its election to be taxed as a REIT beginning with the Trust's taxable
year ended December 31, 1991 and permits the Trust to re-elect to be taxed as a
REIT commencing with its taxable year ended December 31, 1995. The IRS Letter
also directed the Trust to file amended federal income tax returns for its
taxable years ended December 31, 1991 and 1992 as a C corporation (and not as a
REIT) and to file its federal income tax returns for its taxable years ended
December 31, 1993 and 1994 as a C corporation. The Trust has filed such returns.
Because the Trust had net losses for federal income tax purposes and did not pay
any dividends during its taxable years ended December 31, 1991, 1992, 1993 and
1994, the IRS Letter did not result in the Trust owing any federal income tax.
The Trust has instituted REIT compliance controls that are intended to prevent
the reoccurrence of any such failure to comply with the reporting and
recordkeeping requirements for REITs.
GENERAL
The Trust has elected to be taxed as a REIT under Sections 856 through 860
of the Code and applicable Treasury Regulations (the "REIT Requirements" or
"REIT Provisions"), commencing with its taxable year ended December 31, 1995.
The Trust believes that, commencing with such taxable year, it was organized and
operated in such a manner so as to qualify for taxation as a REIT and the Trust
intends to continue to operate in such a manner; however no assurance can be
given that the Trust has qualified as a REIT or will continue to so qualify.
The REIT Provisions are highly technical and complex. The following sets
forth the material aspects of the REIT Provisions that govern the federal income
tax treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the REIT Provisions and administrative and judicial interpretations
thereof.
Prior to the issuance of any of the Securities, and if requested by the
purchaser, Sidley & Austin, counsel to the Company, will render an opinion to
the effect that, commencing with the Trust's taxable year ended
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December 31, 1995, the Trust was organized and has operated in conformity with
the requirements for qualification as a REIT, and its proposed method of
operation will enable it to continue to meet the requirements for qualification
and taxation as a REIT under the Code for its subsequent taxable years. It must
be emphasized that Sidley & Austin's opinion would be based on the IRS Letter
and various assumptions and will be conditioned upon certain representations
made by the Trust and the Corporation as to factual matters. In particular,
Sidley & Austin's opinion would be based upon factual representations of the
Trust concerning its business and properties. Moreover, such qualification and
taxation as a REIT depends upon the Trust's ability to meet, through actual
annual operating results, certain distribution levels, specified diversity of
stock ownership, and various other qualification tests imposed under the REIT
Provisions, as discussed below. The Trust's annual operating results will not be
reviewed by Sidley & Austin. Accordingly, no assurance can be given that the
actual results of the Trust's operation for any particular taxable year will
satisfy such requirements. Further, the anticipated federal income tax treatment
described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative, or judicial action at any time. For a discussion of
the tax consequences of failure to qualify as a REIT, see "-- Failure to
Qualify."
As long as the Trust qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on net income that it currently
distributes to shareholders. This treatment substantially eliminates the "double
taxation" (once at the corporate level and again at the shareholder level) that
generally results from investment in a regular corporation.
Even if the Trust qualifies for taxation as a REIT, however, it may be
subject to federal income or excise tax as follows. First, the Trust will be
taxed at regular corporate rates on any undistributed REIT taxable income (as
discussed below), including undistributed net capital gains. Second, under
certain circumstances, the Trust may be subject to the "alternative minimum tax"
on its items of tax preference, if any. Third, if the Trust has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired on foreclosure or otherwise on default on a loan
secured by such property or a lease of such property) or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the Trust has net income
from "prohibited transactions" (which are, in general, certain sales or other
dispositions of property, other than foreclosure property, held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Trust should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Trust fails the 75% or
95% test, multiplied by a fraction intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust will be subject to a
4% excise tax on the excess of such required distributions over the amounts
actually distributed. Seventh, pursuant to IRS Notice 88-19, if the Trust has a
net unrealized built-in gain, with respect to any asset (a "Built-in Gain
Asset") held by the Trust on January 1, 1995 or acquired by the Trust from a
corporation that is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in certain transactions in which the basis
of the Built-in Gain Asset in the hands of the Trust is determined by reference
to the basis of the asset in the hands of the C corporation, and the Trust
directly or indirectly recognizes gain on the disposition of such asset during
the 10-year period (the "Recognition Period") beginning on January 1, 1995 with
respect to assets held by the Trust on such date or, with respect to other
assets, the date on which such asset was acquired by the Trust, then, to the
extent of the Built-in Gain (i.e., the excess of (a) the fair market value of
such asset over (b) the Trust's adjusted basis in such asset, determined as of
the beginning of the Recognition Period), such gain will be subject to tax at
the highest regular corporate rate pursuant to Treasury Regulations that have
not yet been promulgated. The results described above with respect to the
recognition of Built-in Gain assume that the Trust will make an election
pursuant to IRS Notice 88-19 with respect to assets acquired by the Trust from a
corporation that is or has been a C corporation. The Trust believes that it will
have Built-in-Gain Assets as of January 1, 1995 and, thus, direct or indirect
sales of assets by the Trust after 1994 could result in a federal income tax
liability to the Trust.
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REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Trust must elect to be so treated and must meet
on a continuing basis certain requirements (as discussed below) relating to the
Trust's organization, sources of income, nature of assets, and distribution of
income to shareholders.
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for the REIT Provisions; (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (defined in the
Code to include certain entities); (vii) as of the close of the taxable year,
has no earnings and profits accumulated in any non-REIT year; (viii) is not
electing to be taxed as a REIT prior to the fifth taxable year which begins
after the first taxable year for which its REIT status terminated or was revoked
or the IRS has waived the applicability of such waiting period; (ix) that has
the calendar year as its taxable year; and (x) that meets certain other tests,
described below, regarding the nature of its income and assets. The REIT
Provisions provide that conditions (i) to (iv), inclusive, must be met during
the entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. Conditions (v) and (vi) will not apply until after
the first taxable year for which an election is made by the REIT to be taxed as
a REIT.
The Trust believes that it satisfies conditions (i) through (x) (described
above). In addition, the Declaration of Trust and the Articles of Incorporation
provide for restrictions regarding the transfer and ownership of shares, which
restrictions are intended to assist the Trust in continuing to satisfy the share
ownership requirements described in conditions (v) and (vi) above. See
"Description of Paired Common Shares -- Ownership Limits: Restrictions on
Transfer; Repurchase and Redemption of Shares." With respect to its taxable
years ending before January 1, 1998, in order to maintain its election to be
taxed as a REIT, the Trust must also maintain certain records and request
certain information from its shareholders designed to disclose the actual
ownership of its stock. The Trust believes that it has complied and will comply
with these requirements.
If a REIT owns a "Qualified REIT Subsidiary," the Code provides that such
Qualified REIT Subsidiary is disregarded for federal income tax purposes, and
all assets, liabilities and items of income, deduction and credit of the
Qualified REIT Subsidiary are treated as assets, liabilities and such items of
the REIT itself. A Qualified REIT Subsidiary is a corporation all of the capital
stock of which is owned by the REIT and, for taxable years beginning on or
before August 5, 1997, has been owned by the REIT from the commencement of such
corporation's existence.
In the case of a REIT that is a partner in a partnership, the REIT
Provisions provide that the REIT is deemed to own its proportionate share of the
assets of the partnership based on the REIT's capital interest in the
partnership and is deemed to be entitled to the income of the partnership
attributable to such proportionate share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of satisfying the gross income tests and the
asset tests, described below. Similar treatment applies with respect to
lower-tier partnerships which the REIT indirectly owns through its interests in
higher-tier partnerships. Thus, the Trust's proportionate share of the assets,
liabilities and items of income of the Realty Partnership and the other
partnerships and limited liability companies in which the Trust owns a direct or
indirect interest (collectively, the " Realty Subsidiary Entities"), will be
treated as assets, liabilities and items of income of the Trust for purposes of
applying the gross income test and the asset test described below, provided that
the Realty Partnership and the Subsidiary Entities are treated as partnerships
for federal income tax purposes. See "-- Federal Income Tax Aspects of the
Partnerships and the Subsidiary Entities" below. If the gross income test and
the asset test described below were applied to partnerships in a manner
different from that described in this paragraph, then the Trust
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might not be able to satisfy one or more of the gross income test or asset test
described below and, thus, could lose its REIT status.
Paired Shares. Section 269B of the Code provides that if the shares of a
REIT and a non-REIT are paired, then the REIT and the non-REIT shall be treated
as one entity for purposes of determining whether either company qualifies as a
REIT. If Section 269B applied to the Trust and the Corporation, then the Trust
would not be able to satisfy the gross income tests (described below) and thus
would not be eligible to be taxed as a REIT. Section 269B does not apply,
however, if the shares of the REIT and the non-REIT were paired on or before
June 30, 1983 and the REIT was taxable as a REIT on or before June 30, 1983. As
a result of this grandfathering rule, Section 269B has not applied to the Trust
and the Corporation. This grandfathering rule does not, by its terms, require
that the Trust be taxed as a REIT at all times after June 30, 1983. Prior to the
issuance of any of the Securities, and if requested by the purchaser, Sidley &
Austin will render an opinion to the effect that the IRS Letter and the
termination of the Trust's REIT election for the taxable years ended December
31, 1991 through 1994 did not result in Section 269B becoming applicable to the
Trust. There are, however, no judicial or administrative authorities
interpreting this grandfathering rule. Therefore, Sidley & Austin's opinion
would be based solely on the literal language of the statutory grandfathering
rule.
Even though Section 269B of the Code does not apply to the Trust and the
Corporation, the IRS could assert that the Trust and the Corporation should be
treated as one entity under general tax principles. In general, such an
assertion should only be upheld if the separate corporate identities are a sham
or unreal. Not all of the trustees of the Trust are also directors of the
Corporation and no individual serves as an officer of both the Trust and the
Corporation. In addition, the Trust, the Corporation, the Realty Partnership,
the Operating Partnership, each Realty Subsidiary Entity and each partnership or
limited liability company owned in whole or in part by the Operating Partnership
("Operating Subsidiary Entity") have separate creditors and are subject to
different state law licensing and regulatory requirements. The Trust and the
Corporation have represented that they and the Realty Partnership, the Operating
Partnership, the Realty Subsidiary Entities and the Operating Subsidiary
Entities will each maintain separate books and records and all material
transactions among them have been and will be negotiated and structured with the
intention of achieving an arm's-length result. Prior to the issuance of any of
the Securities, and if requested by the purchaser, Sidley & Austin will render
an opinion to the effect that, based on the foregoing, the separate corporate
identities of the Trust and the Corporation will be respected.
Due to the paired structure, the Trust, the Corporation, the Realty
Partnership, the Operating Partnership, the Subsidiary Entities and the
Operating Subsidiary Entities are controlled by the same interests. As a result,
the IRS could, pursuant to Section 482 of the Code, seek to distribute,
apportion or allocate gross income, deductions, credits or allowances between or
among them if it determines that such distribution, apportionment or allocation
is necessary in order to prevent evasion of taxes or to clearly reflect income.
The Trust and the Corporation believe that all material transactions between
them and among them and the Realty Partnership, the Operating Partnership, the
Subsidiary Entities and the Operating Subsidiary Entities have been and will be
negotiated and structured with the intention of achieving an arm's-length
result. As a result, the potential application of Section 482 of the Code should
not have a material effect on the Trust or the Corporation.
Income Tests. In order to maintain qualification as a REIT, the Trust must
annually satisfy certain gross income requirements (the "gross income tests").
First, at least 75% of the Trust's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined types of
income derived directly or indirectly from investments relating to real property
or mortgages on real property (including "rents from real property," as
described below, and in certain circumstances, interest) or from certain types
of qualified temporary investments. Second, at least 95% of the Trust's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from the same items which qualify under the 75% income test
and from dividends, interest, and gain from the sale or disposition of stock or
securities that do not constitute dealer property or from any combination of the
foregoing. Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less
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than 30% of the Trust's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received or deemed to be received by the Trust will qualify as "rents
from real property" for purposes of the gross income tests only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales (or items thereof). Second, the Code provides that rents received from
a tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or a direct or indirect owner of 10% or more of the
REIT directly or indirectly, owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, a REIT may provide
services to its tenants and the income will qualify as "rents from real
property" only if the services are of a type that a tax-exempt organization can
provide to its tenants without causing its rental income to be unrelated
business taxable income under the Code. Services that would give rise to
unrelated business taxable income if provided by a tax-exempt organization
("Prohibited Services") must be provided by an "independent contractor" who is
adequately compensated and from whom the REIT does not derive any income.
Payments for services furnished (whether or not rendered by an independent
contractor) that are not customarily provided to tenants in properties of a
similar class in the geographic market in which the REIT's property is located
will not qualify as "rents from real property." For taxable years beginning
after August 5, 1997, the provision of Prohibited Services by a REIT in
connection with a lease of real property will not cause the rent to fail to
qualify as "rents from real property" unless the amount treated as received for
the Prohibited Services exceeds 1% of all amounts received or accrued during the
taxable year directly or indirectly by the REIT with respect to such property.
Substantially all of the Trust's income will be derived from its
partnership interest in the Realty Partnership and the Realty Subsidiary
Entities. The Realty Partnership and the Realty Subsidiary Entities lease for a
fixed period all of their fee and leasehold interests in their hotels and
associated property to the Operating Partnership, to the Operating Subsidiary
Entities or to unrelated persons (the "Leases"). The Leases are net leases which
generally provide for payment of rent equal to the greater of a fixed rent or a
percentage rent. The percentage rent is calculated by multiplying fixed
percentages of the gross room revenues and, for certain hotels, fixed
percentages of other types of gross revenues in excess of certain levels.
In order for the rents paid under the Leases to constitute "rents from real
property," the Leases must be respected as true leases for federal income tax
purposes and not treated as service contracts, joint ventures or some other type
of arrangement. The determination of whether the Leases are true leases depends
upon an analysis of all of the surrounding facts and circumstances. In making
such a determination, courts have considered a variety of factors, including the
intent of the parties, the form of the agreement, the degree of control over the
property that is retained by the property owner and the extent to which the
property owner retains the risk of loss with respect to the property.
Prior to the issuance of any of the Securities and if requested by the
purchaser, Sidley & Austin will render an opinion to the effect that the Leases
will be treated as true leases for federal income tax purposes. This opinion
would be based, in part, on the following facts: (i) the lessors and the lessees
intend for their relationship to be that of lessor and lessee and each such
relationship will be documented by a lease agreement; (ii) the lessees will have
the right to exclusive possession and use and quiet enjoyment of the leased
premises during the term of the Leases; (iii) the lessees will bear the cost of,
and be responsible for, day-to-day maintenance and repair of the leased
premises, other than the cost of certain capital expenditures, and will dictate
how the leased premises are operated and maintained; (iv) the lessees will bear
all of the costs and expenses of operating the leased premises during the term
of the Leases; (v) the term of the Leases is less than the economic life of the
leased premises and the lessees do not have purchase options with respect to the
leased premises; (vi) the lessees are required to pay substantial fixed rent
during the term of the Leases; and (vii) each lessee stands to incur substantial
losses or reap substantial profits depending on how successfully it operates the
leased premises.
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Investors should be aware, however, that there are not controlling
authorities involving leases with terms substantially the same as the Leases.
Therefore, the opinion of Sidley & Austin would be based upon an analysis of the
facts and circumstances and upon rulings and judicial decisions involving
situations that are analogous. If any significant Lease is recharacterized as a
service contract or a partnership agreement, rather than as a true lease, the
Trust would not be able to satisfy either the 75% or 95% gross income tests and,
as a result, would lose its REIT status.
In order for rent payments under the Leases to qualify as "rents from real
property," the rent must not be based on the income or profits of any person.
The percentage rent under the Leases will qualify as "rents from real property"
if it is based on percentages of receipts or sales and the percentages (i) are
fixed at the time the Leases are entered into; (ii) are not renegotiated during
the term of the Leases in a manner that has the effect of basing percentage rent
on income or profits; and (iii) conform with normal business practice. More
generally, percentage rent will not qualify as "rents from real property" if,
considering the Leases and all the surrounding circumstances, the arrangement
does not conform with normal business practice, but is in reality used as a
means of basing the percentage rent on income or profits. The Trust and the
Corporation believe that the Leases conform with normal business practice and
the percentage rent will be treated as "rents from real property" under this
requirement. The Trust has further represented with respect to hotel properties
that the Realty Partnership may directly or indirectly acquire in the future
that it will not charge rent that is based in whole or in part on the income or
profits of any person (except by reason of being based on a fixed percentage of
receipts or sales, as described above).
Another requirement for rent payments under a Lease to constitute "rents
from real property" is that the rent attributable to personal property under the
Lease must not be greater than 15% of the rent received under the Lease. For
this purpose, rent attributable to personal property is the amount that bears
the same ratio to the total rent for the taxable year as the average of the
adjusted basis of the personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate adjusted basis of both the
real property and personal property leased under, or in connection with, such
lease. If the IRS were to successfully assert that with respect to one or more
of the Leases rent attributable to personal property is greater than 15% of the
total rent, then it is possible that the Trust would not be able to satisfy
either the 75% or 95% gross income tests and, as a result, would lose its REIT
status. With respect to both the Leases and future acquisitions, the Trust has
represented that it will monitor the 15% test to ensure continued qualification
as a REIT.
A third requirement for qualification of rent under the Leases as "rents
from real property" is that the Trust must not own, directly or constructively,
10% or more of the Operating Partnership or any Operating Subsidiary Entity (or
any other tenant under a Lease). If the Trust were to own directly or
indirectly, 10% or more of the Operating Partnership or any Operating Subsidiary
Entity (or such tenant), the rent paid by the tenant with respect to the leased
property would not qualify as income of the type that can be received by a REIT.
In order to prevent such a situation, which would likely result in the
disqualification of the Trust as a REIT, the Declaration of Trust and the
Articles of Incorporation contain restrictions on the amount of Trust Shares and
Corporation Shares that any one person can own. These restrictions generally
provide that any attempt by any one person to actually or constructively acquire
8.0% or more of the outstanding Paired Common Shares will be ineffective. See
"Description of Paired Common Shares -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares." However, notwithstanding such
restrictions, because the Code's constructive ownership rules for purposes of
the 10% ownership limit are broad and it is not possible to continually monitor
direct and indirect ownership of Paired Common Shares, it is possible that some
person may at some time own sufficient Paired Common Shares to cause the
termination of the Trust's REIT status.
Finally, rent under the Leases will not qualify as "rents from real
property" if either the Trust, the Realty Partnership or any Realty Subsidiary
Entity renders or furnishes Prohibited Services to the occupants of the
properties (subject to a de minimis rule for taxable years beginning after
August 5, 1997). So long as the Leases are treated as true leases, none of the
Trust, the Realty Partnership or any Realty Subsidiary Entity should be treated
as rendering or furnishing Prohibited Services to the occupants of the
properties.
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Based on the foregoing, prior to the issuance of any of the Securities, and
if requested by the purchaser, Sidley & Austin will render an opinion to the
effect that the rent payable under the Leases will be treated as "rents from
real property" for purposes of the 75% and 95% gross income tests. There can,
however, be no assurance that the IRS will not successfully assert a contrary
position or that there will not be a change in circumstances (such as the
entering into of new leases) which would result in a portion of the rent
received to fail to qualify as "rents from real property." In such case, it is
possible that the Trust would not be able to satisfy either the 75% or 95% gross
income test and, as a result, would lose its REIT status.
For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. The Realty Partnership and
certain of the Realty Subsidiary Entities hold notes and may advance money from
time to time to tenants for the purpose of financing tenant improvements, making
real estate loans or holding or acquiring additional notes. None of the notes
currently held by the Realty Partnership or the Realty Subsidiary Entities
provide for the payment of any amount based on the income or profits of any
person other than amounts based, on a fixed percentage or percentages of
receipts or sales. In addition, none of the Trust, the Realty Partnership or the
Realty Subsidiary Entities intend to charge interest that will depend in whole
or in part on the income or profits of any person or to make loans (not secured
in substantial part by real estate mortgages) in amounts that could jeopardize
the Trust's compliance with the 75% and 5% asset tests, discussed below. To the
extent the notes held by the Realty Partnership or the Realty Subsidiary
Entities are secured by real property, the interest received or accrued with
respect to such notes should be treated as qualifying income for both the 75%
and the 95% gross income tests. Certain of the notes held by the Realty
Partnership are not secured by real property. Interest received or accrued with
respect to such notes should be treated as qualifying income for the 95% gross
income test but should not be treated as qualifying income for the 75% gross
income tax. However, the Company believes that the amount of such interest will
not cause the Trust to fail to satisfy the 75% gross income test.
For taxable years beginning on or before August 5, 1997, any gross income
derived from a prohibited transaction is taken into account in applying the 30%
income test necessary to qualify as a REIT. The net income from a prohibited
transaction is subject to a 100% tax. The Trust believes that no asset directly
or indirectly owned by it is held for sale to customers and that sale of any
such property will not be in the ordinary course of business of the Trust, the
Realty Partnership or any Realty Subsidiary Entity.
If the Trust fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. It is not
possible to state whether in all circumstances the Trust would be entitled to
the benefit of these relief provisions. Even if these relief provisions apply, a
tax would be imposed with respect to the excess net income. No similar
mitigation provision applies if the Trust fails the 30% income test for a
taxable year beginning prior to January 1, 1998. In such case, the Trust will
cease to qualify as a REIT.
Asset Tests. In order to maintain qualification as a REIT, the Trust, at
the close of each quarter of its taxable year, must also satisfy three tests
relating to the nature of its assets. First, at least 75% of the value of the
Trust's total assets must be represented by "real estate assets" (including
stock or debt instruments held for not more than one year purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the Trust), cash, cash items, government securities and shares of REITs. Second,
not more than 25% of the Trust's total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by the Trust
may not exceed 5% of the value of the Trust's total assets, and the Trust may
not own more than 10% of any one issuer's outstanding voting securities.
The Trust believes that commencing with its taxable year ended December 31,
1995 it has complied with the asset tests. Substantially all of the Trust's
investments are in properties owned by the Realty Partnership and the Realty
Subsidiary Entities, at least 75% of which represent qualifying real estate
assets. A substantial portion of the indebtedness of the Operating Partnership
to the Realty Partnership may not be qualifying
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assets under the 75% asset test. However, such portion does not exceed 5% of the
value of the assets of the Realty Partnership and, thus, will not cause the
Trust to fail the 5% asset test.
After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient non-qualifying assets within 30 days after the close of that quarter.
The Trust intends to maintain adequate records of the value of its assets to
ensure compliance with the asset tests and to take such actions within 30 days
after the close of any quarter as may be required to cure any non-compliance.
Annual Distribution Requirements. The Trust, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Trust's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Trust's net capital gain) and (b) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
non-cash income. In addition, if the Trust directly or indirectly disposes of
any Built-in Gain Asset during its Recognition Period, the Trust will be
required, pursuant to IRS regulations that have not yet been promulgated, to
distribute at least 95% of the Built-in Gain (after tax), if any, recognized on
the disposition of such asset. Distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the Trust
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration. To the extent that the Trust
does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its "REIT taxable income," as adjusted, it will be subject to
tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements and to the extent practical, avoid payment of
material amounts of federal income or excise tax by the Trust. It is possible,
however, that the Trust, from time to time may not have sufficient cash or other
liquid assets to meet the distribution requirements described above. In order to
meet the distribution requirements in such cases, the Trust, the Realty
Partnership or a Realty Subsidiary Entity may find it necessary to arrange for
short-term or possible long-term borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Trust's deduction
for dividends paid for the earlier year. Thus, the Trust may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Trust
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Trust will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Trust fails to qualify will not be deductible by the Trust nor will they be
required to be made. As a result, the Trust's failure to qualify as a REIT could
reduce the cash available for distribution by the Trust to its shareholders. In
addition, if the Trust fails to qualify as a REIT, all distributions to
shareholders will be taxable as ordinary income to the extent of the Trust's
current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific statutory
provisions, the Trust will also be disqualified from taxation as a REIT for the
four taxable years following the year during which qualification was lost. It is
not possible to state whether in all circumstances the Trust would be entitled
to such statutory relief.
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FEDERAL INCOME TAXATION OF THE CORPORATION
The Corporation is the common parent of an affiliated group of corporations
filing a consolidated return (the "Corporation Group"). After obtaining certain
necessary licenses and regulatory approvals of certain gaming authorities,
substantially all of the Corporation Group's taxable income will consist of its
distributive share of the Operating Partnership's taxable income. The
Corporation Group will be subject to federal income tax on its taxable income.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED COMMON SHARES
FEDERAL INCOME TAXATION OF TAXABLE U.S. HOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Paired Common
Shares 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) an
estate or trust the income of which is subject to U.S. federal income taxation
regardless of its source. As long as the Trust qualifies as a REIT,
distributions made to the Trust's 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 them 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 holder has held its stock. However, corporate
holders may be required to treat up to 20% of certain capital gain dividends as
ordinary income, and capital gains dividends are not eligible for the
dividends-received deduction. Distributions in excess of the Trust's current and
accumulated earnings and profits will not be taxable to a holder to the extent
that they do not exceed the adjusted basis of the holder's Trust Shares, but
rather will reduce the adjusted basis of such Trust Shares. To the extent that
such distributions exceed the adjusted basis of a holder's Trust Shares they
will be included in income as long-term capital gain (or short-term capital gain
if the shares have been held for one year or less). In addition, any dividend
declared by the Trust in October, November or December of any year payable to a
holder of record on a specified date in any such month shall be treated as both
paid by the Trust and received by the holder on December 31 of such year,
provided that the dividend is actually paid by the Trust during January of the
following calendar year.
For taxable years beginning after August 5, 1997, if the Trust elects to
retain and pay tax on its net capital gains, the Trust's U.S. Shareholders would
be required to include their proportionate share of the undistributed long-term
capital gains in income and would receive a credit for their share of the tax
paid by the Trust. The basis of the Trust's U.S. Shareholders' Trust Shares
would be increased by a corresponding amount.
The Trust will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Trust up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed
above. As a result, holders may be required to treat certain distributions that
would otherwise result in a tax-free return of capital as taxable distributions.
Moreover, any "deficiency dividend" will be treated as a "dividend" (either as
ordinary or capital gain dividend, as the case may be), regardless of the
Trust's earnings and profits.
Distributions from the Trust and gain from the disposition of the Trust
Shares will not be treated as passive activity income and, therefore,
shareholders will not be able to apply any "passive losses" against such income.
Dividends from the Trust (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment interest expense limitation. Gain from the disposition of shares and
capital gains dividends will not be treated as investment income unless the
holders elect to have the gain taxed at ordinary income rates.
Distributions from the Corporation up to the amount of the Corporation's
current or accumulated earnings and profits will be taken into account by U.S.
Shareholders as ordinary income and will be eligible for the dividends-received
deduction for corporations. Distributions in excess of the Corporation's current
and accumulated earnings and profits will not be taxable to a holder to the
extent that they do not exceed the
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adjusted basis of the holder's Corporation Shares, but rather will reduce the
adjusted basis of such Corporation Shares. To the extent that such distributions
exceed the adjusted basis of a holder's Corporation Shares they will be included
in income as long-term capital gain (or short-term capital gain if the stock has
been held for one year or less).
In general, a U.S. Shareholder will realize capital gain or loss on the
disposition of Paired Common Shares equal to the difference between the amount
realized on such disposition and the holder's adjusted basis in such Paired
Common Shares. Such gain or loss will generally constitute long-term capital
gain or loss if the holder held such Paired Common Shares for more than one
year. However, any loss upon a sale or exchange of Trust Shares by a holder 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 required to be treated by such holder as long-term
capital gain.
For U.S. Shareholders who are individuals, the maximum capital gains tax
rate for sales of Paired Common Shares will be (i) 28%, if such shares have been
held for more than 12 but not more than 18 months, (ii) 20%, if such shares have
been held for more than 18 months, or (iii) 18%, if such shares have been held
for more than five years and the holding period for such shares begins after
December 31, 2000.
U.S. Shareholders may not include in their individual income tax returns
any net operating losses or capital losses of the Trust or the Corporation.
FEDERAL TAXATION OF TAX-EXEMPT HOLDERS OF PAIRED COMMON SHARES
The IRS has ruled that amounts distributed as dividends by a REIT to a
tax-exempt employee's pension trust do not constitute unrelated business taxable
income ("UBTI"). Based on this ruling and the analysis therein, distributions by
the Trust should not, subject to certain exceptions described below, be UBTI to
a qualified plan, IRA or other tax-exempt entity (a "Tax-Exempt Shareholder")
provided the Tax-Exempt Shareholder has not held its shares as "debt financed
property" within the meaning of the Code and the shares are not otherwise used
in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Trust Shares should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held such
Trust 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. Revenue
rulings are interpretive in nature and subject to revocation or modification by
the IRS.
For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans, exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code respectively, income from an
investment in the Trust will constitute UBTI unless the organization is able to
deduct properly amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in the Trust. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall (subject to a de minimis exception) be treated as UBTI
as to any trust that (i) is described in Section 401 (a) of the Code, (ii) is
tax-exempt under Section 501(a) of the Code, and (iii) holds more than 10% (by
value) of the interests in the REIT. Due to the Ownership Limitation, the Trust
does not expect to be a "pension held REIT" within the meaning of the Code.
FEDERAL TAXATION OF NON-U.S. HOLDERS OF PAIRED COMMON SHARES
The rules governing United States 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. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Shareholder in light of its particular
circumstances.
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Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the effect of federal, state, local, and foreign income tax laws with
regard to an investment in Paired Common Shares, including any reporting
requirements.
United States 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 or Corporation to Non-U.S. Shareholders.
The 1997 Final Regulations are generally effective for payments after December
31, 1998. The discussion below is not a complete explanation 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 Paired Common Shares if 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 investment in Paired Common Shares 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 and distributions by the Corporation will be treated as dividends of
ordinary income to the extent that they are made out of current or accumulated
earnings and profits of the Trust or the Corporation, as the case may be. Such
distributions ordinarily will be subject to United States withholding tax on a
gross basis at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Any such amounts withheld should be creditable
against the Non-U.S. Shareholder's United States federal income tax liability.
Distributions in excess of current or accumulated earnings and profits of
the Trust or the Corporation, as the case may be, will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the Non-U.S. Shareholder's Trust Shares or Corporation Shares, as the case may
be, but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Trust
Shares or Corporation Shares, as the case may be, they will give rise to gain
from the sale or exchange of Non-U.S. Shareholder's Paired Common Shares if the
Non-U.S. Shareholder otherwise would be subject to tax on any gain from the sale
or other disposition of Paired Common Shares, as described below. Distributions
to Non-U.S. Shareholders that reduce the adjusted basis of Trust Shares or
Corporation Shares and distributions to Non-U.S. Shareholders that exceed the
adjusted basis of Trust Shares or Corporation Shares will ordinarily be subject
to a withholding tax on a gross basis at a 10% rate, regardless of whether such
distributions result in gain to the Non-U.S. Shareholder. The Trust or the
Corporation, as the case may be, may apply to the IRS for a certificate that
reduces or eliminates this withholding tax. Any such amounts withheld should be
creditable against the Non-U.S. Shareholder's United States federal income tax
liability.
If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current or accumulated earnings and
profits, the distribution will generally be treated as a dividend for
withholding purposes. However, amounts thus withheld are generally refundable if
it is subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Trust or the Corporation, as
the case may be. The Trust and the Corporation expect to withhold United States
income tax at the rate of 30% on the gross amount of any such 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 and the Corporation, or (ii)
the Non-U.S. Shareholder files an IRS Form 4224 with the Trust and the
Corporation 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
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such gain as income effectively connected with a United States trade or
business. Non-U.S. Shareholders would thus generally be taxed at the same rates
applicable to U.S. Shareholders (subject to any applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Also, such gain may be subject to a 30% branch profits tax in the
hands of a Non-U.S. Shareholder that is a corporation, 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 Paired Common Shares. Gain recognized by a Non-U.S. Shareholder
upon a sale or other disposition of Paired Common Shares generally will not be
subject to United States federal income tax, if (i) in the case of Trust Shares,
the Trust is a "domestically controlled REIT" or (ii) (A) the Paired Common
Shares are regularly traded on an established securities market (e.g., the NYSE,
where the Paired Common Shares are currently traded) and (B) the selling
Non-U.S. Shareholder held 5% or less of the outstanding Paired Common Shares at
all times during 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 may 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, Paired Common Shares. 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 and the Corporation may be required to
withhold a portion of capital gain distributions made to any holders who fail to
certify their non-foreign status. Additional issues may arise pertaining to
information reporting and withholding with respect to Non-U.S. Shareholders and
each Non-U.S. Shareholder should consult his or her tax advisor with respect to
any such information reporting and withholding requirements.
FEDERAL INCOME TAX ASPECTS OF THE PARTNERSHIPS AND THE SUBSIDIARY ENTITIES
Substantially all of the Trust's assets are held directly or indirectly
through the Realty Partnership and substantially all of the Corporation's assets
are held directly or indirectly through the Operating Partnership.
The Realty Partnership, the Operating Partnership, the Realty Subsidiary
Entities and the Operating Subsidiary Entities involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of such partnerships or limited liability companies as a
partnership (as opposed to an association taxable as a corporation) for federal
income tax purposes. If any of such partnerships or limited liability companies
were to be treated as an association, it would be taxable as a corporation and,
therefore, subject to an entity level tax on its income. Such an entity level
tax is likely to substantially reduce the amount of cash available for
distribution to holders of Paired Common Shares. See "-- Federal Income Taxation
of the Corporation" above. In addition, if the Realty Partnership or any Realty
Subsidiary Entity were to be taxable as a corporation, the Trust would not
qualify as a REIT. Furthermore, any change in the status of a partnership or
limited liability company for tax purposes might be treated as a taxable event
in which case the Trust or the Corporation might incur a tax liability without
any related cash distributions.
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TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Realty Partnership, the Operating Partnership and
certain of the Realty Subsidiary Entities and the Operating Subsidiary Entities
have been formed by way of contributions of the Company's property and certain
property held by Starwood Capital. Consequently, allocations with respect to
such contributed property must be made in a manner consistent with Section
704(c) of the Code.
The Treasury Regulations under Section 704(c) of the Code allow
partnerships to use any reasonable method of accounting for Book-Tax Differences
so that the contributing partner receives the tax benefits and burdens of any
built-in gain or loss associated with the contributed property. However, the
special allocation rules of Section 704(c) of the Code do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Realty Partnership or the Operating
Partnership may cause the Trust or the Corporation, as the case may be, to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Trust or the Corporation to recognize taxable income in excess of cash
proceeds, which, in the case of the Trust, might adversely affect the Trust's
ability to comply with the REIT distribution requirements. See "-- Federal
Income Taxation of the Trust -- Requirements For Qualification -- Annual
Distribution Requirements." The foregoing principles also apply in determining
the earnings and profits of the Trust and the Corporation for purposes of
determining the portion of distributions taxable as dividend income. See
"-- Federal Income Taxation of Holders of Paired Common Shares." The application
of these rules over time may result in a higher portion of distributions being
taxed as dividends than would have occurred had the Trust and the Corporation
contributed assets with an adjusted tax basis equal to their fair market values.
PARTNERSHIP ANTI-ABUSE RULE
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is formed
or availed of in connection with a transaction a principal purpose of which is
to reduce substantially the present value of the partners' aggregate federal tax
liability in a manner that is inconsistent with the intent of the Partnership
Provisions, the IRS can recast the transaction for federal tax purposes to
achieve tax results that are consistent with the intent of the Partnership
Provisions. This analysis is to be made based on all facts and circumstances.
The Anti-Abuse Rule states that the intent of the Partnership Provisions
incorporates the following requirements: (i) the partnership must be bona fide
and each partnership transaction or series of related transactions must be
entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
Prior to the issuance of any of the Securities, and if requested by the
purchaser, Sidley & Austin will render an opinion to the effect that the
Company's structure is not inconsistent with the intent of the Partnership
Provisions and that, therefore, the IRS should not be able to invoke the
Anti-Abuse Rule to recast the structure of the Company for federal income tax
purposes. This opinion would be based on examples contained in the Anti-Abuse
Rule. However, no assurance can be given that the IRS or a court will concur
with such opinion.
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The Anti-Abuse Rule also provides that, unless a provision of the Code or
the Treasury Regulations prescribes the treatment of a partnership as an entity,
in whole or in part, and that treatment and the ultimate tax results, taking
into account all the relevant facts and circumstances, are clearly contemplated
by that provision, the IRS can treat a partnership as an aggregate of its
partners, in whole or in part, as appropriate to carry out the purpose of any
provision of the Code or the Treasury Regulations. Treatment of either
Partnership or any of the Subsidiary Entities, in whole or in part, as an
aggregate rather than an entity is unlikely to materially change the federal tax
consequences to any partner. In addition, the REIT Provisions generally treat a
partnership as an aggregate rather than an entity for purposes of applying the
REIT Requirements. Therefore, the Anti-Abuse Rule should not have a material
adverse effect on the federal income tax consequences to any partner or on the
ability of the Trust to qualify as a REIT.
OTHER TAX CONSEQUENCES
The Company and the holders of Securities may be subject to state or local
taxation in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Trust, the
Corporation and the holders of Securities may not conform to the federal income
tax consequences discussed above. CONSEQUENTLY, HOLDERS OF SECURITIES SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS
ON THE PURCHASE, OWNERSHIP AND SALE OF SECURITIES.
PLAN OF DISTRIBUTION
The Trust and the Corporation may sell Securities to or through
underwriters, and also may sell Securities directly to either purchasers or
through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Trust, the Corporation, or from purchasers of Securities,
for whom they may act as agents, in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of Securities may be deemed to be underwriters, and any
discounts or commissions they receive from the Trust or the Corporation and any
profit on the resale of Securities they realize may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the Trust or
the Corporation will be described, in the Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Paired Common Shares (which are listed on the New York Stock
Exchange). Any Paired Common Shares sold pursuant to a Prospectus Supplement
will be listed on such exchange. The Trust or the Corporation may elect to list
any series of Debt Securities or Preferred Shares on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for any of the
Securities.
Under agreements the Trust and the Corporation may enter into,
underwriters, dealers and agents who participate in the distribution of
Securities may be entitled to indemnification by the Trust or the Corporation
against certain liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Trust or the Corporation in the
ordinary course of business.
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If so indicated in the applicable Prospectus Supplement, the Trust or the
Corporation, as the case may be, will authorize underwriters or other persons
acting as the Trust's or the Corporation's agents to solicit offers by certain
institutions to purchase Securities from the Trust or the Corporation pursuant
to contracts providing for payment and delivery at a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Trust or the Corporation, as the case may be. The obligations of
any purchaser under any such contract will be subject to the condition that the
purchase of the Securities shall not at the time of delivery be prohibited under
the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
LEGAL MATTERS
Sidley & Austin, Los Angeles, California, has passed upon the validity of
the issuance of the Paired Common Shares offered pursuant to this Prospectus.
Lawyers at Sidley & Austin participating in this offering on behalf of such firm
own or hold options to purchase an aggregate of approximately 18,375 Paired
Common Shares. Sidley & Austin has relied upon the opinion of Piper & Marbury
L.L.P., Baltimore, Maryland, as to certain matters of Maryland law.
EXPERTS
The separate and combined financial statements and financial statement
schedules of Starwood Lodging Trust and Starwood Lodging Corporation for the
year ended December 31, 1996, and for each of the two years then ended appearing
in the Company's Joint Annual Report on Form 10-K, as amended, for the year
ended December 31, 1996; the financial statements for Westport Holdings, L.L.C.
for the year ended January 2, 1997, appearing in the Company's Joint Current
Report on Form 8-K dated February 14, 1997; and the financial statements of
Flatley Hotels for the year ended December 31, 1996, appearing in the Company's
Joint Current Report on Form 8-K dated September 10, 1997, incorporated by
reference in this Prospectus, have been audited by Coopers & Lybrand, L.L.P.,
independent auditors, as stated in their reports also incorporated by reference
herein. Such financial statements and financial statement schedules have been
incorporated by reference herein in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
The separate and combined financial statements and financial statement
schedules of Starwood Lodging Trust and Starwood Lodging Corporation for the
year ended December 31, 1994, incorporated by reference in this Prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report also incorporated by reference herein. Such financial statements and
financial statement schedules have been incorporated by reference herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The combined financial statements of Pru-HEI Hotel Group incorporated in
this Prospectus by reference to the Company's Joint Current Report on Form 8-K
dated February 10, 1997, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of W&S Hotel LLC and the combined
financial statements of the predecessor business incorporated by reference in
the Company's Joint Current Report on Form 8-K dated September 9, 1997, to the
extent and for the periods indicated in their report, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said reports.
50
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
Registration Fee........................................................ $ 606,061
NASD Filing Fee.........................................................
NYSE Listing Fee........................................................
Rating Agencies Fees....................................................
Printing and Engraving Expenses.........................................
Legal Fees and Expenses.................................................
Accounting Fees and Expenses............................................
Blue Sky Fees and Expenses..............................................
Fees and Expenses of Transfer Agent, Trustee and Depositary.............
Miscellaneous...........................................................
----------
Total......................................................... $
==========
</TABLE>
*Expenses are estimated except for the registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Certain provisions of the MGCL provide that the Company may, and in some
circumstances must, indemnify the trustees, directors and officers of the
Company against liabilities and expenses incurred by such person by reason of
the fact that such person was serving in such capacity, subject to certain
limitations and conditions set forth in the statute. The Corporation's Articles
of Incorporation and the Trust's Declaration of Trust provide that the
Corporation and Trust shall indemnify its directors, trustees and officers to
the extent permitted by the MGCL.
The Company has entered into indemnification agreements with its directors,
trustees and executive officers providing for the maintenance of directors,
trustees and officers liability insurance, subject to certain conditions, and
the indemnification of and advancement of expenses to such directors, trustees
and executive officers.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- -------------------------------------------------------------------------------------
<C> <S>
2.1 Transaction Agreement, dated as of September 8, 1997, by and among WHWE L.L.C.,
Woodstar Investor Partnership, Nomura Asset Capital Worldwide, Inc., Juergen Bartels,
Westin Hotels & Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp.,
Westin St. John Hotel Company, Inc., W&S Denver Corp., W&S Atlanta Corp., W&S Hotel
L.L.C., the Trust, the Realty Partnership, the Corporation and the Operating
Partnership (incorporated by reference to Exhibit 2 to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated September 9, 1997).
2.2 Agreement and Plan of Merger among the Corporation, Chess Acquisition Corp., the
Trust and ITT Corporation, dated as of October 19, 1997 (incorporated by reference to
Exhibit 2.1 to the Trust's and the Corporation's Joint Current Report on Form 8-K
dated October 21, 1997).
3.1* Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as amended
(incorporated by reference to Exhibit 3A to the Trust's and the Corporation's Joint
Current Report on Form 8-K dated January 31, 1995 (the "January 1995 Form 8-K")).
</TABLE>
II-1
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- -------------------------------------------------------------------------------------
<C> <S>
3.2* Amendment and Restatement of Articles of Incorporation of the Corporation, as amended
(incorporated by referenced to Exhibit 3B to the January 1995 Form 8-K).
3.3* Trustees' Regulations of the Trust, as amended (incorporated by referenced to Exhibit
3.3 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the
year ended December 31, 1994 (the "1994 Form 10-K")).
3.4* By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to
the 1994 Form 10-K).
4.1* Form of Indenture for Debt Securities (incorporated by reference to Exhibit 4.1 to
the Trust's and the Corporation's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on October 3, 1996 (Registration Nos. 333-13411
and 333-13411-01) (the "1996 Form S-3").
4.2* Form of Indenture for Convertible Notes (incorporated by reference to Exhibit 4.2 to
the 1996 Form S-3).
4.3* Form of Convertible Notes (included in Exhibit 4.2).
5.1++ Opinion of Sidley & Austin.
5.2++ Opinion of Piper & Marbury L.L.P.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Arthur Andersen LLP.
23.5++ Consent of Counsel (included in Exhibits 5.1 and 5.2).
24 Powers of Attorney (contained in signature pages hereto).
25.1++ Form T-1 of Trustee for the Notes.
25.2 Form T-1 of Trustee for the Convertible Notes (incorporated by reference to Exhibit
99.1 to the Trust's and the Corporation's Joint Current Report on Form 8-K dated
March 21, 1997).
</TABLE>
- ---------------
++ To be filed by amendment.
* Previously filed.
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of such Registrant
pursuant to the provisions described in Item 15 above, or otherwise, such
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 54
The undersigned Registrants hereby further undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (Section 230.424(b) of 17
C.F.R.) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrants hereby further undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrants further undertake that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 55
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the 12th day of
November, 1997.
STARWOOD LODGING TRUST
By: /s/ RONALD C. BROWN
------------------------------------
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints Ronald C. Brown and Madison F. Grose, and each of them, as his
attorneys-in-fact, with full power of substitution and resubstitution, to
execute in the name and on behalf of such person, individually and in the
capacity stated below, and to file all amendments and post-effective amendments
to this Registration Statement, which amendment or amendments may make such
changes in and additions to this Registration Statement as such
attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman, Chief Executive November 12, 1997
- ------------------------------------------ Officer and Trustee
Barry S. Sternlicht (Principal Executive
Officer)
President and Trustee November , 1997
- ------------------------------------------
Gary M. Mendell
/s/ RONALD C. BROWN Senior Vice President November 12, 1997
- ------------------------------------------ (Principal Financial and
Ronald C. Brown Accounting Officer)
/s/ STEVEN R. GOLDMAN Senior Vice President November 12, 1997
- ------------------------------------------ and Trustee
Steven R. Goldman
/s/ BRUCE W. DUNCAN Trustee November 12, 1997
- ------------------------------------------
Bruce W. Duncan
Trustee November , 1997
- ------------------------------------------
Madison F. Grose
</TABLE>
II-4
<PAGE> 56
<TABLE>
<C> <S> <C>
- ------------------------------------------ Trustee November , 1997
George J. Mitchell
/s/ ROGER S. PRATT Trustee November 12, 1997
- ------------------------------------------
Roger S. Pratt
/s/ STEPHEN R. QUAZZO Trustee November 12, 1997
- ------------------------------------------
Stephen R. Quazzo
Trustee November , 1997
- ------------------------------------------
Daniel H. Stern
</TABLE>
II-5
<PAGE> 57
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing a Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the 12th day of
November, 1997.
STARWOOD LODGING CORPORATION
By: /s/ ERIC A. DANZIGER
------------------------------------
Eric A. Danziger
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints Eric A. Danziger and Alan M. Schnaid, and each of them, as his
attorneys-in-fact, with full power of substitution and resubstitution, to
execute in the name and on behalf of such person, individually and in the
capacity stated below, and to file all amendments and post-effective amendments
to this Registration Statement, which amendment or amendments may make such
changes in and additions to this Registration Statement as such
attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman of the Board November 12, 1997
- ------------------------------------------ and Director
Barry S. Sternlicht
/s/ ERIC A. DANZIGER President and Chief Executive November 12, 1997
- ------------------------------------------ Officer (Principal Executive
Eric A. Danziger Officer)
/s/ ALAN M. SCHNAID Vice President and Corporate November 12, 1997
- ------------------------------------------ Controller (Principal
Alan M. Schnaid Financial and Accounting
Officer)
Director November , 1997
- ------------------------------------------
Jonathan D. Eilian
/s/ BRUCE M. FORD Director November 12, 1997
- ------------------------------------------
Bruce M. Ford
/s/ GRAEME W. HENDERSON Director November 12, 1997
- ------------------------------------------
Graeme W. Henderson
</TABLE>
II-6
<PAGE> 58
<TABLE>
<C> <S> <C>
/s/ EARLE F. JONES Director November 12, 1997
- ------------------------------------------
Earle F. Jones
Director November , 1997
- ------------------------------------------
Michael A. Leven
/s/ JEAN-MARC CHAPUS Director November 12, 1997
- ------------------------------------------
Jean-Marc Chapus
Director November , 1997
- ------------------------------------------
Daniel W. Yih
</TABLE>
II-7
<PAGE> 1
Exhibit 12.1
<TABLE>
<CAPTION>
9 MONTHS
ENDING 12 MONTHS ENDING
- ------------------------------------------------------------------------------------------------------------------------------------
9/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations before 38,904,000 36,112,000 18,138,000 (4,663,000) (7,032,000) (19,743,000)
provision for income taxes
Add back:
Portion of rents representative of interest expense
Amortization of debt issuance costs 3,087,000 4,548,000 670,000 86,000
Interest expense 41,139,000 23,337,000 13,138,000 17,606,000 15,187,000 14,208,000
---------- ---------- ---------- ---------- ---------- ----------
Income as adjusted 83,130,000 63,997,000 31,946,000 13,029,000 8,155,000 (5,535,000)
---------- ---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest expense 41,139,000 23,337,000 13,138,000 17,606,000 15,187,000 14,208,000
Amortization of debt issuance costs 3,087,000 4,548,000 670,000 86,000 -- --
Rents
Portion of rents representative of interest expense -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total fixed charges 44,226,000 27,885,000 13,808,000 17,692,000 15,187,000 14,208,000
---------- ---------- ---------- ---------- ---------- ----------
Ratio of Earnings to Fixed Charges 1.88 2.30 2.31 0.74 0.54 (0.39)
Earnings inadequate to cover fixed charges by: n/a n/a n/a 4,663,000 7,032,000 19,743,000
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement
of Starwood Lodging Trust and Starwood Lodging Corporation on Form S-3 being
filed under the Securities Act of 1933, as amended, of our report dated February
21, 1997 appearing in the Annual Report on Form 10-K, as amended, of Starwood
Lodging Trust and Starwood Lodging Corporation (collectively, the "Company") for
each of the two years ended December 31, 1996, of our report dated February 6,
1997 on the financial statements for Westport Holdings, L.L.C. for the year
ended January 2, 1997, appearing in the Company's Joint Current Report on Form
8-K dated February 14, 1997, and of our report dated August 29, 1997 (except for
Note 9 for which the date is September 10, 1997) on our audit of the financial
statements of The Flatley Hotels for the year ended December 31, 1996, appearing
in the Company's Current Report on Form 8-K dated September 10, 1997. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
November 10, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Starwood Lodging Trust and Starwood Lodging Corporation (the "Companies") on
Form S-3 of our report dated March 24, 1995 on the separate and combined
financial statements and financial statement schedules of the Companies
appearing in the Companies' Annual Report on Form 10-K/A for the year ended
December 31, 1996 and to the reference to us under the heading "Experts" in the
Prospectus which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 10, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated February 10, 1997 relating to the
combined financial statements of Pru-HEI Hotel Group, which appears in the
Current Report on Form 8-K of Starwood Lodging Trust and Starwood Lodging
Corporation dated February 10, 1997. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
New York, New York
November 10, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 of our report dated
February 14, 1997, on the consolidated financial statements of W&S Hotel L.L.C.
and the combined financial statements of the predecessor business included in
the Joint Current Report of Starwood Lodging Trust and Starwood Lodging
Corporation dated September 9, 1997, and to all references to our firm included
in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
November 10, 1997.
