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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 29, 1997)
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2,482,700 Paired Common Shares
STARWOOD LODGING
Starwood Lodging Trust Starwood Lodging Corporation
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Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the
"Corporation" and, with the Trust, the "Company") own and operate a portfolio of
primarily full-service hotels. At September 26, 1997, the Company owned,
operated and managed a geographically diverse portfolio of hotel assets,
including fee, ground lease and first mortgage interests in 118 hotel properties
containing over 32,100 rooms located in 30 states, the District of Columbia and
Mexico. All of the securities offered hereby (the "Offering") are being offered
by the Company and consist of shares of the Trust (the "Trust Shares") and
shares of the Corporation (the "Corporation Shares") which are "paired" and
trade as units consisting of one Trust Share and one Corporation Share (the
"Paired Common Shares"). The Trust elected to be taxed as a real estate
investment trust for federal income tax purposes (a "REIT") commencing with its
tax year ended December 31, 1995 and intends to continue to so qualify. To
ensure that the Trust qualifies as a REIT, ownership by any person is limited to
8.0% of the Paired Common Shares, subject to certain exceptions.
The Paired Common Shares are listed on the New York Stock Exchange ("NYSE")
under the symbol "HOT." On September 26, 1997, the last reported sales price of
the Paired Common Shares on the NYSE was $55.13 per Paired Common Share. See
"Price Range of Paired Common Shares and Distributions."
SEE "RISK FACTORS" ON PAGES S-4 TO S-8 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
PAIRED COMMON SHARES OFFERED HEREBY.
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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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE PAIRED COMMON SHARES ARE BEING SOLD DIRECTLY TO CERTAIN INSTITUTIONAL
PURCHASERS FOR AN AGGREGATE SALES PRICE OF $131,583,100. NO UNDERWRITING
DISCOUNTS OR COMMISSIONS WILL BE PAYABLE BY THE COMPANY IN CONNECTION WITH SUCH
SALES. SEE "PLAN OF DISTRIBUTION."
September 29, 1997
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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.
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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.
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The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus Supplement or the accompanying Prospectus or incorporated
therein by reference. Certain terms used but not defined herein are as defined
in the accompanying Prospectus. Unless otherwise indicated, the information
contained in this Prospectus Supplement is presented as of June 30, 1997. All
references to the "Company" or "Starwood Lodging" refer to the Trust and the
Corporation, and all references to the "Trust" and to the "Corporation" include
the Trust and the Corporation and those entities respectively owned or
controlled by the Trust or the Corporation, including SLT Realty Limited
Partnership (the "Realty Partnership") and SLC Operating Limited Partnership
(the "Operating Partnership"). The Realty Partnership and the Operating
Partnership are referred to collectively as the "Partnerships." Other than when
used in the financial statements incorporated herein or in the accompanying
Prospectus by reference, the term "on a fully diluted basis" assumes the
exchange by Starwood Capital Group, L.L.C., and certain of its affiliates
(collectively, "Starwood Capital") and the other limited partners of the
Partnerships of all of their exchangeable interests in the Partnerships
("Units") for Paired Common Shares, but not the exercise of outstanding options
or warrants.
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THE COMPANY
The Company is a fully integrated owner/operator of primarily full service
hotels. The Company is comprised of the Trust, which has owned hotel assets
since 1969, and the Corporation, which has managed hotel assets since 1980. As
of September 26, 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 118 hotel properties, containing
over 32,100 rooms located in 30 states, the District of Columbia and Mexico.
Ninety-eight of such hotels are operated under licensing, membership or
franchise 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). Management believes that the Company's "paired share" ownership
structure gives it a competitive advantage over most other hotel REITs and other
hotel owner/operators with respect to owning and operating hotels, as discussed
below.
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 an agreement to acquire Westin Hotels & Resorts Worldwide, Inc.
("Westin Worldwide") and certain affiliated entities (collectively, the "Westin
Companies"). See "Proposed Acquisition of the Westin Companies."
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 September 26. See "Other Recent Developments."
Substantially all of the Company's interests in the Hotel Assets are held
by and its operations conducted through the Realty Partnership and the Operating
Partnership, respectively. The Company is the sole general partner of the Realty
Partnership and the managing general partner of the Operating Partnership and as
of August 31, 1997, owned a controlling interest of 78.4% in the Realty
Partnership and 77.4% in the Operating Partnership.
The Company's paired share ownership structure gives it a competitive
advantage over most other hotel REITs and other hotel owners/operators. Most
other hotel REITs cannot operate their hotels, since income from hotel
operations does not qualify as rent for REIT tax qualification purposes, 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 and 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 shares of beneficial interest of the Trust (the
"Trust Shares") and the shares of common stock of the Corporation (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
("Paired Common Shares").
THE OFFERING
<TABLE>
<S> <C>
Paired Common Shares Offered Hereby................... 2,482,700 shares
Paired Common Shares Outstanding After the Offering... 61,014,170 shares*
Use of Proceeds....................................... The net proceeds of the Offering,
which are expected to be
approximately $131.48 million, will
be used to fund current and future
acquisitions and for general
corporate purposes.
New York Stock Exchange Symbol........................ HOT
</TABLE>
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* Includes 12,839,170 Paired Common Shares issuable upon the exchange of Units.
Excludes 2,757,097 Paired Common Shares issuable pursuant to outstanding
options and 236,934 Paired Common Shares subject to restricted stock awards.
S-3
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RISK FACTORS
An investment in the Paired Common Shares offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
factors, in addition to other information contained in this Prospectus
Supplement, in connection with an investment in the Paired Common Shares offered
hereby.
This Prospectus Supplement and accompanying Prospectus contain statements
which constitute forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Those statements appear in a number of places in this Prospectus
Supplement and accompanying Prospectus and include statements regarding the
intent, belief or current expectations of the Company, its Trustees, Directors
or its officers with respect to (i) the declaration or payment of distributions,
(ii) the finalization of the terms of, or the consummation of, acquisitions,
(iii) the management or operation of hotels to be acquired, (iv) the Company's
financing plans, (v) the policies of the Company regarding investments,
dispositions, financings, conflicts of interest or other matters, (vi) the
Trust's continued qualification as a REIT or (vii) trends affecting the
Company's or any hotel's financial condition or results of operations.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those in the forward-looking
statements as a result of various uncertainties and other factors. The
accompanying information contained in this Prospectus Supplement and
accompanying Prospectus, including without limitation the information set forth
below, identify important factors that could cause such differences.
POSSIBLE FAILURE OF THE COMPANY TO CONSUMMATE THE ACQUISITION OF THE WESTIN
COMPANIES. The consummation of the Company's acquisition of the Westin
Companies is subject to numerous conditions that must be either satisfied or
waived by the party entitled to the benefit thereof. See "Proposed Acquisition
of the Westin Companies." While the Company believes that it is likely that such
conditions will be either satisfied or waived, there can be no assurance that
this acquisition will be consummated.
FAILURE TO MANAGE RAPID GROWTH. The full benefits of the acquisition of
the Westin Companies will require the integration of each company's
administrative, finance, sales and marketing organizations, the coordination of
each company's sales efforts and the implementation of appropriate operations,
financial and management systems and controls in order to realize the
efficiencies, revenue enhancements and cost reductions that are expected to
result from the acquisition of the Westin Companies by the Company. This will
require substantial attention from the Company's management. Although the
Company's management team has experience integrating acquisitions, none of the
prior acquisitions have been of comparable magnitude to, or included the breadth
of operations involved in the acquisition of the Westin Companies. The diversion
of management attention, as well as any other difficulties which may be
encountered in the transition and integration process, could have an adverse
impact on the revenue and operating results of the Company. There can be no
assurance that the Company will be able to integrate the operations of the
Westin Companies and the Company successfully or that anticipated synergies
between the companies will be realized or, if realized, the timing thereof.
In addition, to successfully implement its acquisition strategy, the
Company must integrate the hotels acquired since the June 1995 offering of
Paired Common Shares (the "1995 Offering") and any other subsequently acquired
hotels into its existing operations. Since the closing of the 1995 Offering, the
Company's portfolio of hotel properties has increased dramatically. During such
period, the Company also entered geographic markets (including Mexico) where it
previously did not have any properties. As a result, the consolidation of
functions and integration of departments, systems and procedures of acquired
properties with the Company's existing operations presents a significant
management challenge, and the failure to integrate such properties into the
Company's management and operating structures could have a material adverse
effect on the results of operations and financial condition of the Company.
The Company's future success and its ability to manage future growth
depends in large part upon the efforts of its senior management and its ability
to attract and retain key executive officers and other highly qualified
personnel. Competition for such personnel is intense. Since January 1996, the
Company has experienced significant changes in its senior management, including
the hiring of a new Chief Executive Officer and Chief Operating Officer of the
Corporation and a new President of the Trust. Upon the acquisition
S-4
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of the Westin Companies by the Company, Mr. Juergen Bartels will be appointed
the Chief Executive Officer of the Corporation. There can be no assurance that
the Company will continue to be successful in attracting and retaining qualified
personnel. Accordingly, there can be no assurance that the Company's senior
management will be able to successfully execute or implement the Company's
growth and operating strategies.
TAX RISKS
Failure to Qualify as a REIT. The Trust believes that it has operated so as
to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with its taxable year ended December 31, 1995 and intends to
continue to so operate. No assurance, however, can be given that the Trust has
remained or will remain qualified as a REIT. Qualification as a REIT involves
the application of highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations. The complexity of
these provisions is greater in the case of a REIT that owns hotels and leases
them to a corporation with which its stock is paired. The determination of
various factual matters and circumstances not entirely within the Trust's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. Furthermore, the qualification of the Trust as a REIT will depend
on the Trust's continuing ability to meet various requirements concerning, among
other things, the ownership of Paired Common Shares, the nature of its assets,
the source of its income and the amount of its distributions to its
shareholders. The acquisition of the Westin Companies would result in the Trust
acquiring new assets and operations which could make it more difficult for the
Trust to qualify as a REIT.
The Trust's ability to qualify as a REIT is also dependent on its continued
exemption from the anti-pairing rules of Section 269B of the Code. Section 269B
would ordinarily prevent a company from qualifying as a REIT if its stock is
paired with the stock of another company whose activities are inconsistent with
REIT status, such as the Corporation. The "grandfathering rules" governing
Section 269B generally provide, however, that Section 269B does not apply to a
paired REIT if the shares of the REIT and its paired operating company were
paired on or before June 30, 1983 and the REIT was taxable as a REIT on or
before June 30, 1983. There are, however, no judicial or administrative
authorities interpreting the grandfathering rules governing Section 269B and no
assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
paired REITs.
If in any taxable year the Trust were to fail to qualify as a REIT, the
Trust would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain Code provisions, the Trust would also be disqualified from treatment as
a REIT for the four taxable years following the year during which qualification
was lost. As a result, the funds available for distribution to the Trust's
shareholders would be reduced for each of the years involved.
Required Distributions to Shareholders. In order to obtain and retain REIT
status, the Trust must distribute to its shareholders at least 95% of its REIT
taxable income (excluding any net capital gain). In addition, the Trust will be
subject to tax on its undistributed net taxable income and net capital gain, and
a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed income from prior years. The
Trust intends to make distributions to its shareholders to comply with the
distribution requirements of the Code and to avoid federal income taxes and the
nondeductible federal excise tax. The Trust (or the Realty Partnership) could be
required to borrow funds on a short-term basis to meet the REIT distribution
requirements, which borrowing may not otherwise be advisable for the Company.
LIMITS ON CHANGE OF CONTROL AND OWNERSHIP LIMITATION
Limits on Change of Control. Certain provisions of the Trust's Declaration
of Trust (the "Declaration of Trust") and the Corporation's Articles of
Incorporation (the "Articles of Incorporation") including, without limitation,
the ability to issue preferred shares and the maintenance of staggered terms for
trustees and
S-5
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directors, may have the effect of discouraging a third party from making an
acquisition proposal for the Trust and the Corporation and may thereby inhibit a
change in control under circumstances that could give the holders of Paired
Common Shares the opportunity to realize a premium over the then-prevailing
market prices.
Ownership Limitation. In order for the Trust to maintain its qualification
as a REIT, not more than 50% in value of its outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities). Furthermore, actual or constructive ownership of a
sufficient number of the Paired Common Shares could cause the Operating
Partnership or the Corporation to become a related party tenant of the Trust
which would result in the loss of the Trust's REIT status. In order to help
preserve the Trust's REIT status, the Declaration of Trust and the Articles of
Incorporation prohibit actual or constructive ownership by any one person or
group of related persons of more than 8.0% of the Paired Common Shares (the
"Ownership Limitation"). Generally, the Paired Common Shares owned by related or
affiliated persons will be aggregated and certain options and warrants will be
treated as exercised for purposes of the Ownership Limitation.
The constructive ownership rules of the Code are extensive and complex and
may cause Paired Common Shares owned, directly or indirectly, by certain direct
or indirect partners in any partnership, including the direct and indirect
owners of interests in the Realty Partnership and the Operating Partnership, and
other classes of related individuals and/or entities to be deemed to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 8.0% of the Paired Common Shares (or the acquisition of an interest
in an entity which owns Paired Common Shares) by an individual or entity could
cause that individual or entity (or another individual or entity) to own
constructively in excess of 8.0% of the Paired Common Shares, and thus subject
such Paired Common Shares to the Ownership Limitation. Direct or constructive
ownership in excess of the Ownership Limitation would cause the violative
transfer or ownership to be void, or cause such shares to be converted into
"Excess Shares," which have limited economic rights, to the extent necessary to
ensure that the purported transfer or other event does not result in a violation
of the Ownership Limitation. Notwithstanding the Ownership Limitation, given the
breadth of the Code's constructive ownership rules and that it is not possible
for the Trust and the Corporation to continuously monitor direct and
constructive ownership of Paired Common Shares, it is possible that an
individual or entity could at some time constructively own sufficient Paired
Common Shares to cause termination of the Trust's REIT status.
RISK OF INFLUENCE BY STARWOOD CAPITAL. Individuals employed by or
otherwise affiliated with Starwood Capital hold two positions on the Board of
Trustees and two positions on the Board of Directors. Accordingly, although the
Company has a policy requiring a majority of its trustees and directors to be
"independent," Starwood Capital may have the ability to exercise certain
influence over the affairs of the Company. Due to its different tax situation,
prior to the exchange of its Units, Starwood Capital's objectives regarding the
pricing, structure and timing of any sale of certain properties or the
restructuring or sale of certain mortgage loans may differ from the objectives
of the shareholders of the Company or current management of the Company. Barry
S. Sternlicht is the President and Chief Executive Officer of, and controls,
Starwood Capital. Mr. Sternlicht is a trustee of the Trust and the Chairman and
Chief Executive Officer of the Trust. In addition, Mr. Sternlicht is a director
of the Corporation and the Corporation expects that Mr. Sternlicht will be
appointed the Chairman of the Board of the Corporation. As a consequence, Mr.
Sternlicht has the ability to exercise certain influence over the affairs of the
Company.
RISK OF DEBT FINANCING. As a result of incurring debt, the Company is
subject to the risks normally associated with debt financing, including the risk
(i) that cash flow from operations will be insufficient to meet required
payments of principal and interest, and (ii) of fluctuations in interest rates.
Although the Company anticipates that it will be able to repay or refinance its
existing indebtedness and any other indebtedness, there can be no assurance that
it will be able to do so or that the terms of such refinancings will be
favorable to the Company.
In addition, in connection with its proposed acquisition of the Westin
Companies, the Company will incur a substantial amount of additional debt,
thereby increasing its exposure to the risks associated with debt financing. The
Company's increased leverage may have important consequences including the
following:
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(i) the ability of the Company to obtain additional financing for acquisitions,
working capital, capital expenditures or other purposes, if necessary, may be
impaired or such financing may not be on terms favorable to the Company; (ii) a
substantial decrease in operating cash flow or an increase in expenses of the
Company could make it difficult for the Company to meet its debt service
requirements and force it to modify its operations; (iii) the Company's higher
level of debt and resulting interest expense may place it at a competitive
disadvantage with respect to certain competitors with lower amounts of
indebtedness; and (iv) the Company's greater leverage may make it more
vulnerable to a downturn in its business or the economy generally.
LIMITATION ON STARWOOD CAPITAL AND WESTIN NONCOMPETE OBLIGATIONS. Starwood
Capital has agreed that, subject to certain exceptions and limitations, until
the later of June 1998 or the time at which no officer, director, general
partner or employee of Starwood Capital is on either the Board of Trustees or
the Board of Directors, Starwood Capital will not compete with the Realty
Partnership or the Operating Partnership and will present to the Partnerships
certain investment opportunities in hotel properties in the United States (the
"Starwood Noncompete"). Mr. Sternlicht is also bound by a similar noncompete
agreement. The termination of either of those noncompete agreements and the
exceptions to and limitations thereon could have a material adverse effect on
the Company.
In addition, Starwood Capital owns an interest in W&S Hotel, L.L.C., which
owns a controlling interest in the Westin Companies. The Company has entered
into an agreement (the "Westin Non-Compete Agreement") with Westin Hotel Company
and certain of its affiliates pursuant to which such companies have agreed that,
subject to certain exceptions and limitations, such companies will not acquire
or seek to acquire United States hotel equity interests. The termination of the
Westin Non-Compete Agreement and the exceptions to and limitations on the Westin
Non-Compete Agreement other than upon the acquisition of the Westin Companies by
the Company could have a material adverse effect on the Company. See "Proposed
Acquisition of the Westin Companies."
POSSIBLE LIABILITY OF TRUST SHAREHOLDERS. Both the Maryland statute
governing real estate investment trusts formed under the laws of that state (the
"Maryland REIT Law") and the Declaration of Trust provide that no shareholder of
the Trust will be personally liable for any obligation of the Trust solely as a
result of his status as a shareholder of the Trust. The Declaration of Trust
further provides that the Trust shall indemnify each shareholder against any
claim or liability to which the shareholder may become subject by reason of his
being or having been a shareholder. In addition, it is the Trust's policy to
include a clause in its contracts which provides that shareholders assume no
personal liability for obligations entered into on behalf of the Trust. However,
with respect to tort claims, contractual claims where shareholder liability is
not so negated, claims for taxes and certain statutory liability, the
shareholders may, in some jurisdictions, be personally liable to the extent that
such claims are not satisfied by the Trust. Inasmuch as the Trust does and will
carry public liability insurance which it considers adequate, any risk of
personal liability to shareholders is limited to situations in which the Trust's
assets plus its insurance coverage would be insufficient to satisfy the claims
against the Trust and its shareholders.
HOTEL INDUSTRY RISKS
Operating Risks. The properties of the Company are subject to all operating
risks common to the hotel industry. These risks include: changes in general
economic conditions; the level of demand for rooms and related services;
cyclical over-building in the hotel industry; restrictive changes in zoning and
similar land use laws and regulations or in health, safety and environmental
laws, rules and regulations; the inability to secure property and liability
insurance to fully protect against all losses or to obtain such insurance at
reasonable rates; and changes in travel patterns. In addition, the hotel
industry is highly competitive. The properties of the Company compete with other
hotel properties in their geographic markets. However, some of the Company's
competitors may have substantially greater marketing and financial resources
than the Company.
Franchise Agreement Risks. The majority of the Hotel Assets are operated
pursuant to existing franchise or license agreements with national hotel
organizations (the "Franchise Agreements"). Franchise agreements generally
contain specific standards for, and restrictions and limitations on, the
operation and maintenance of a hotel property in order to maintain uniformity in
the system created by the franchisor. In addition, compliance with such
standards could require a franchisee to incur significant expenses or capital
expenditures. Certain of
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the Franchise Agreements require the Company to obtain the consent of the
franchisor to certain matters, including certain securities offerings. Although
the Company has been able to obtain similar consents under such agreements in
the past, the failure to obtain any such consent could be grounds for
termination of such Franchise Agreements.
Seasonality of Hotel Business. The hotel industry is seasonal in nature.
Generally, hotel revenues are greater in the second and third quarters than in
the first and fourth quarters. As a result, the Trust may be required from time
to time to borrow to provide funds necessary to make quarterly distributions.
Regulation of Gaming Operations. In 1996, the Company sold its gaming
properties; however, the Corporation continues to operate the gaming assets at
the King 8 Hotel, Gambling Hall and Truck Plaza pursuant to a lease pending the
buyer's receipt of the necessary gaming approvals. This facility is subject to
extensive licensing and regulatory control by the Nevada Gaming Commission (the
"Nevada Commission") and other Nevada authorities. These regulatory authorities
have broad powers with respect to the licensing of gaming operations, and may
revoke, suspend, condition or limit the gaming approvals and licenses of the
Corporation and its gaming subsidiary, impose substantial fines and take other
actions, any of which could have a material adverse affect on the Corporation's
business. Directors, officers and certain key employees of the Corporation and
its gaming subsidiary are subject to licensing or suitability determinations by
the Nevada Commission and local gaming authorities. If the Nevada Commission
were to find a person occupying any such position unsuitable, the Corporation
would be required to sever its relationship with that person. Any beneficial
holder of the Corporation's voting securities may be required to file an
application, be investigated, and have his suitability as a holder of such
securities determined if the Nevada Commission has reason to believe that such
ownership would be inconsistent with the policies of the State of Nevada. Any
person who acquires more than 5% of the Corporation Shares must report such
acquisition to the Nevada Commission. Beneficial owners of more than 10% of the
Corporation Shares must apply to be found suitable by the Nevada Commission.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The investment returns available from equity investments in real estate
depend in large part on the amount of income earned and capital appreciation
generated by the related properties as well as the expenses incurred. If the
properties of the Company do not generate revenue sufficient to meet operating
expenses, including debt service and capital expenditures, the income of the
Company and its ability to make distributions to its shareholders will be
adversely affected. In addition, income from properties and real estate values
are also affected by a variety of other factors, such as governmental
regulations and applicable laws (including real estate, zoning, tax and eminent
domain laws), interest rate levels and the availability of financing. In
addition, equity real estate investments, such as the investments held by the
Company and any additional properties that may be acquired by the Company, are
relatively illiquid.
Possible Liability Relating to Environmental Matters. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may become liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of hazardous or toxic substances, or
the failure properly to remediate such substances when present, may adversely
affect the owner's ability to sell or rent such real property or to borrow using
such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic wastes may be liable for the costs of removal or
remediation of such wastes at the disposal or treatment facility, regardless of
whether such facility is owned or operated by such person. Other federal, state
and local laws, ordinances and regulations require abatement or removal of
certain asbestos-containing materials in the event of demolition or certain
renovations or remodeling and govern emissions of and exposure to asbestos
fibers in the air. The operation and subsequent removal of certain underground
storage tanks also are regulated by federal and state laws.
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PROPOSED ACQUISITION OF
THE WESTIN COMPANIES
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 Companies"), 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,
the "Westin Companies") and W&S Hotel L.L.C. Westin owns, manages, franchises or
represents 108 hotels and resorts, with approximately 47,800 rooms in 23
countries worldwide.
The Transaction Agreement provides that Westin Worldwide will be merged
into the Trust (the "Merger"). In connection with the Merger, all of the issued
and outstanding shares of capital stock of Westin Worldwide (other than
dissenting shares and shares held by the Westin Companies and its subsidiaries
or shares held by the Starwood Companies 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, liquidation value $38.50 per share (the "Class B
EPS"), of the Trust and cash in the amount of $177.926 million. The Transaction
Agreement provides for an adjustment to the cash consideration paid in
connection with the Merger under certain circumstances, including adjustments
based on the aggregate indebtedness and working capital of the Westin Companies
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. 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
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 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.
S-9
<PAGE> 10
The Class A EPS, Class B EPS and partnership units to be issued in
connection with the Merger and the contribution of Seattle, Lauderdale, Denver,
St. John and Atlanta to the Realty Partnership and the Operating Partnership
will provide the holders thereof with substantially the same economics as, and
will be exchangeable on a one-for-one basis (subject to certain adjustments)
for, the paired shares of the Trust and the Corporation. In addition, the shares
of Class B EPS and the partnership units to be issued in the transactions
contemplated by the Transaction Agreement will provide a liquidation preference
of $38.50 and provide the holders with a right from and after the fifth
anniversary of the Closing Date to require the Trust to redeem such shares of
Class B EPS and such partnership units at a price of $38.50.
The closing is subject to numerous conditions, including, among other
things, that the Transaction Agreement shall have been duly approved by holders
of the outstanding Paired Common Shares, 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
Companies 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 Companies 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 Companies will be required
to pay the Westin Companies a termination fee of $5 million and all costs and
expenses incurred by the Westin Companies 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 the Westin Companies, 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 the Westin Companies. 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 these 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.
S-10
<PAGE> 11
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.
OTHER RECENT DEVELOPMENTS
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
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)
</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, and (ii) in September 1997, the Company acquired a
portfolio of 15 hotels owned by Flatley Co./Tara Hotels for approximately $470
million (the "Flately 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 30-story, 423-room hotel in San Francisco. 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. This
hotel is also estimated to cost approximately $73 million and is scheduled to
open in early 1999.
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 with BankBoston and
Bank of Montreal (the "Credit Facility"). The Credit Facility is unsecured and
consists
S-11
<PAGE> 12
of a $600 million revolving credit facility and a $600 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 26, 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 September 26, 1997, the Company had borrowed $1.118
billion and had available $82 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 the Westin Companies. There
can be no assurance that, if sought, such an increase will be granted by the
lenders under the Credit Facility or that, if the facility is so increased,
borrowings thereunder will be used for such purpose.
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deducting expenses
of the Offering estimated to be approximately $100,000) are estimated to be
approximately $131.48 million. The Company will contribute the entire net
proceeds from the Offering to the Realty Partnership and the Operating
Partnership in return for a number of Units in each Partnership equal to the
number of Paired Common Shares sold in the Offering. The Realty Partnership will
receive 95% and the Operating Partnership will receive 5% of the net proceeds of
the Offering.
The Company will use the proceeds to fund current and future acquisitions
and for general corporate purposes. Pending the use of the proceeds for such
purposes, the proceeds will be used to repay amounts outstanding under the
Credit Facility. See "Other Recent Developments -- New Credit Facility." The
Company does not expect to use any of the net proceeds of the Offering for or in
connection with its gaming assets.
S-12
<PAGE> 13
PRICE RANGE OF PAIRED COMMON SHARES AND DISTRIBUTIONS
The Paired Common Shares are listed on the New York Stock Exchange (the
"NYSE") under the symbol "HOT." The following table sets forth, for the fiscal
periods indicated, the high and low sales prices per Paired Common Share on the
NYSE and distributions to shareholders for the fiscal periods indicated (after
giving effect to the one-for-six reverse stock split effected in June 1995 and
the three-for-two stock split effected in January 1997).
<TABLE>
<CAPTION>
PRICE
---------------------
PERIOD HIGH LOW DISTRIBUTIONS
-------------------------------------- ------ ------ -------------
<S> <C> <C> <C>
1997
Third Quarter (through September
26)................................. $55.13 $41.56 $0.48*
Second Quarter........................ $42.81 $34.25 $0.39
First Quarter......................... $45.88 $34.50 $0.39
1996
Fourth Quarter........................ $36.75 $27.42 $0.39
Third Quarter......................... $27.92 $22.08 $0.33
Second Quarter........................ $25.75 $21.17 $0.33
First Quarter......................... $23.25 $19.67 $0.31
1995
Fourth Quarter........................ $20.00 $17.92 $0.31
Third Quarter......................... $19.42 $15.75 $0.31
Second Quarter........................ $16.50 $14.00 None
First Quarter......................... $16.00 $10.50 None
</TABLE>
- ---------------
* On September 26, 1997, the Trust declared a dividend of $0.48 per share
payable on October 24, 1997 to shareholders of record on October 10, 1997.
On September 26, 1997, the last reported sales price for the Paired Common
Shares on the NYSE was $55.13 per Paired Common Share. As of September 26, 1997,
there were approximately 1,800 holders of record of Paired Common Shares.
In order to maintain its qualification as a REIT, the Trust must make
annual distributions to its shareholders of at least 95% of its taxable income
(which does not include net capital gains). Thus, the Trust intends to continue
to pay regular quarterly dividends. Under certain circumstances, the Trust may
be required to make distributions in excess of cash available for distribution
in order to meet such distribution requirements. In such event, the Trust (or
the Realty Partnership) would seek to borrow the amount of the deficiency or
sell assets to obtain the cash necessary to make the distributions necessary to
retain the Trust's qualification as a REIT for federal income tax purposes.
Distributions made by the Trust will be determined by its Board of Trustees
and will depend on a number of factors, including the amount of cash flow from
operations, the Realty Partnership's financial condition, capital expenditure
requirements for the Company's properties, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board of
Trustees deems relevant.
Under the terms of the Company's lines of credit, the Trust is generally
permitted to distribute to its shareholders on an annual basis an amount equal
to the greater of (1) 85% of combined funds from operations for any four
consecutive calendar quarters, and (2) an amount sufficient to maintain the
Trust's tax status as a REIT.
The Corporation has not paid any dividends in the periods set forth in the
table above and does not anticipate that it will make any such distributions in
the foreseeable future.
S-13
<PAGE> 14
PLAN OF DISTRIBUTION
The Company has agreed to issue and sell to certain institutional
investment firms, and such firms have agreed to purchase, all of the Paired
Common Shares offered hereby for $53.00 per share. The Paired Common Shares are
being purchased for the accounts of certain mutual funds sponsored and/or
advised by such firms and other institutional investment advisory clients of
such firms. Each of such firms has represented to the Company that it has
discretionary authority to purchase Paired Common Shares on behalf of such
accounts.
No underwriting discount or commission will be payable by the Company in
connection with such sales.
Each of the such firms has represented and warranted that it is acquiring
the Company Paired Shares in the ordinary course of its business and has not
entered into any arrangement or understanding with any person to participate in
the distribution thereof.
S-14
<PAGE> 15
STARWOOD LODGING
<TABLE>
<S> <C>
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
$500,000,000 $100,000,000
</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
$600,000,000 (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
$600,000,000 aggregate public offering price of Securities, up to $500,000,000
will be offered by the Trust and up to $100,000,000 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 SEPTEMBER 29, 1997.
<PAGE> 16
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 Securities Act and 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 the Form 10-K/A dated April 25, 1997;
2. The Company's Joint Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997;
3. The Company's Joint Current Reports on Form 8-K, dated February 10, 1997,
February 14, 1997, March 14, 1997, March 21, 1997, September 9, 1997 and
September 10, 1997; and
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.
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> 17
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 September 26, 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 118 hotel properties, comprising approximately 32,100
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). 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.
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, which have not endorsed or approved the offering of any Securities or
any of the financial results of the hotels set forth in this Prospectus or any
Prospectus Supplement. A grant of any licensing, membership, franchise or
management agreement for any of the 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 any Securities offered pursuant to this Prospectus or any Prospectus
Supplement.
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.
The Trust conducts substantially all of its business and operations through
SLT Realty Limited Partnership (the "Realty Partnership"), and the Corporation,
upon receipt of certain regulatory gaming approvals or the sale of its gaming
assets, will conduct 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 78.4% in the Realty Partnership and 77.4% in the
Operating Partnership as of August 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
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<PAGE> 18
("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.
USE OF PROCEEDS
The Company will use the net proceeds of any sale of Securities 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 Prospectus Supplement relating to the sale
of such Securities.
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 Realty Partnership and the
Operating Partnership 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>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
- ------ ------ ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
2.41x 2.31x .74x(1) .54x(1) (.39x)(1) (.34x)(1) (.68x)(1)
</TABLE>
- ---------------
(1) Earnings were inadequate to cover fixed charges by $27,586,000 in 1990,
$22,084,000 in 1991, $19,743,000 in 1992, $7,032,000 in 1993 and $4,663,000
in 1994. These deficiencies occurred prior to the Reorganization in January
1995 and the public offering of Paired Common Shares in July 1995.
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
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<PAGE> 19
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 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.
It is anticipated that any Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. 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;
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<PAGE> 20
(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, 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, in respect of such Debt Securities, any
applicable Guarantees and the applicable Indenture may be served;
(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 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 any 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
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<PAGE> 21
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.
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 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 any series of 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 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, provided 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
7
<PAGE> 22
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 as registered
securities, 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 mailing
of the relevant notice of redemption, or (ii) to register the transfer of or
exchange any registered security so selected for redemption in whole or in part,
except, in the case of any registered security to be redeemed in part, the
portion thereof not to be redeemed, or (iii) to exchange any bearer security so
selected for redemption except that such a bearer security may be exchanged for
a registered security of that series and like tenor, provided that such
registered security shall be simultaneously surrendered for redemption, or (iv)
to issue, register the transfer of or exchange any 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
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<PAGE> 23
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.
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.
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<PAGE> 24
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 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.
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<PAGE> 25
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 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
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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 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
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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 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
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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 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
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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 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.
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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.
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 June 30,
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) 10 million shares of preferred stock, with a
par value of $0.01 per share ("Corporation Preferred Shares"), (ii) 100 million
Corporation Shares, (iii) 20 million shares of excess common stock, with a par
value of $0.01 per share ("Excess Corporation Common Stock"), 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 June 30, 1997, no such class or series of Corporation Preferred
Shares had been established and no Excess Corporation Stock was outstanding.
As of September 26, 1997 there were 58,531,470 Paired Common Shares
outstanding (including 12,839,170 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 any 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
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provisions of the Declaration of Trust and the Articles of Incorporation and any
applicable 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 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 such an amount
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
jeopardize the Trust's ability to qualify as a REIT. 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 the Board of Trustees and the Board of Directors. 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 a sinking fund, if any, for such Preferred
Shares;
(7) The provision for redemption, if applicable, of 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;
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(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.
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 all 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
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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 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
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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 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
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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
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
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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 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
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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.
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.
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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.
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,
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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 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.
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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 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.
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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.
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.
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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 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
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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 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
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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.
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
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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 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
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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
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
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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.
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
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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.
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
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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 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
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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.
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
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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 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.
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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. 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.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, could affect the United States
federal income taxation of distributions by the Trust or Corporation to Non-U.S.
Shareholders. The Proposed Regulations are generally proposed to be effective
with respect to distributions made after December 31, 1997, subject to certain
transition rules. It cannot be predicted at this time whether the Proposed
Regulations will become effective as proposed or what modifications, if any, may
be made to them. The discussion below does not include a description of the
Proposed Regulations. Accordingly, Prospective Non-U.S. Shareholders are also
urged to consult their tax advisors with respect to the effect the Proposed
Regulations may have if adopted.
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
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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 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
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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.
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.
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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.
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 NYSE. 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.
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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.
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 Securities 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 19,875 Paired Common
Shares. Rogers & Wells, New York, New York will act as counsel to any
underwriters, dealers or agents. Rogers & Wells acted as counsel to Starwood
Capital in connection with the Reorganization. Sidley & Austin and Rogers &
Wells have 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 as of
December 31, 1996 and for each of the two years then ended, appearing in the
Company's Annual Report on Form 10-K for the year December 31, 1996, and the
financial statements of The Flatley Hotels for the year ended December 31, 1996,
appearing in the Company's Current Report on Form S-K, dated September 10, 1997,
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 report 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 as of
December 31, 1994 and for each of the two years in the period 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 financial statements of The Flatley Hotels incorporated by reference to
the Company's Joint Current Report on Form 8-K dated September 10, 1997, have
been so incorporated in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The combined financial statements of Westin incorporated by reference to
the Trust's Current Report on Form 8-K dated September 9, 1997, have been so
incorporated in reliance on the report of Arthur Andersen LLP , independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company.................................... S-3
The Offering................................... S-3
Risk Factors................................... S-4
Proposed Acquisition of the Westin Companies... S-9
Other Recent Developments...................... S-11
Use of Proceeds................................ S-12
Price Range of Paired Common Shares and
Distributions................................ S-13
Plan of Distribution........................... S-14
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company.................................... 3
Use of Proceeds................................ 4
Ratios of Earnings to Fixed Charges............ 4
Description of Debt Securities................. 4
Description of Capital Stock................... 16
Description of Preferred Shares................ 16
Description of Paired Common Shares............ 22
Description of Warrants........................ 27
Federal Income Tax Considerations.............. 27
Federal Income Taxation of the Trust........... 28
Plan of Distribution........................... 41
Legal Matters.................................. 42
Experts........................................ 42
</TABLE>
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2,482,700 Paired
Common Shares
STARWOOD LODGING TRUST
STARWOOD LODGING CORPORATION
-------------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------------
September 29, 1997
============================================================
