<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997
REGISTRATION NOS. 333-39409 AND 333-39409-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS GOVERNING INSTRUMENTS) IN ITS GOVERNING INSTRUMENTS)
2231 E. CAMELBACK ROAD, SUITE 410 2231 E. CAMELBACK ROAD, SUITE 400
PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85016
(602) 852-3900 (602) 852-3900
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARYLAND MARYLAND
(STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION)
6798 6500
(PRIMARY STANDARD (PRIMARY STANDARD
INDUSTRIAL CODE NUMBER) INDUSTRIAL CODE NUMBER)
52-0901263 52-1193298
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
RONALD C. BROWN ALAN M. SCHNAID
SENIOR VICE PRESIDENT AND VICE PRESIDENT AND CORPORATE CONTROLLER
CHIEF FINANCIAL OFFICER 2231 E. CAMELBACK ROAD, SUITE 400
2231 E. CAMELBACK ROAD, SUITE 410 PHOENIX, ARIZONA 85016
PHOENIX, ARIZONA 85016 (602) 852-3900
(602) 852-3900 (NAME AND ADDRESS OF AGENT FOR SERVICE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
SHERWIN L. SAMUELS, ESQ. STEVEN SUTHERLAND, ESQ.
SIDLEY & AUSTIN SIDLEY & AUSTIN
555 WEST FIFTH STREET ONE FIRST NATIONAL PLAZA
LOS ANGELES, CALIFORNIA 90013 CHICAGO, ILLINOIS 60603
(213) 896-6000 (312) 853-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after the effective date of this registration statement and the
effective time of the merger (the "Merger") of Chess Acquisition Corp., a
subsidiary of Starwood Lodging Corporation, with and into ITT Corporation
pursuant to the Merger Agreement (as defined herein).
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED UNIT OFFERING PRICE REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of beneficial interest,
$0.01 par value, of Starwood
Lodging Trust paired with shares
of common stock, $0.01 par
value, of Starwood Lodging
Corporation..................... 166,595,024(1) N.A. $7,675,814,961(2) $160,404(3)
==============================================================================================================================
</TABLE>
(1) Based upon the maximum number of shares to be issued pursuant to the Merger
Agreement, assuming the exercise of all currently outstanding options to
purchase shares of common stock, no par value, of ITT Corporation ("ITT
Common Stock").
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f) under the Securities
Act by multiplying $75.75, the average of the high and low prices of ITT
Common Stock on November , 1997, as reported on the New York Stock
Exchange, Inc. Consolidated Transactions Tape, by 126,977,915, the number of
shares of ITT Common Stock outstanding at the close of business on October
17, 1997, assuming the exercise of all then outstanding options and warrants
to purchase ITT Common Stock, and subtracting $1,942,762,100, the minimum
amount of cash to be paid by Starwood Lodging Trust and Starwood Lodging
Corporation pursuant to the Merger.
(3) The registrants paid $2,165,601 of the registration fee upon the initial
filing of this Registration Statement on Form S-4 and, accordingly, pursuant
to Rule 457(o) under the Securities Act, $160,404 is being paid with the
filing of this Amendment No. 1.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
[ITT LOGO]
ITT CORPORATION
Richard S. Ward
Executive Vice President,
General Counsel and
Corporate Secretary
December , 1997
ITT CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
A Special Meeting of Stockholders (the "ITT Meeting") of ITT Corporation
("ITT") will be held starting at a.m., local time, on January , 1998, at
. Attendance at the ITT Meeting will be limited to
stockholders of record on December , 1997, or their proxies, beneficial owners
having evidence of ownership on that date and invited guests of ITT.
The purposes of the ITT Meeting are:
1. To consider and vote upon a proposal (the "ITT Proposal") to approve
and adopt an Amended and Restated Agreement and Plan of Merger dated as of
November 12, 1997 (the "Merger Agreement"), among ITT, Starwood Lodging
Corporation, a Maryland corporation (the "Corporation"), Starwood Lodging
Trust, a Maryland real estate investment trust (the "Trust"), and Chess
Acquisition Corp., a Nevada corporation and a subsidiary of the Corporation
("Merger Sub"); and
2. To transact such other business as may properly come before the ITT
Meeting or any adjournment or postponement thereof.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into ITT (the "Merger"), with the result that (a) ITT will
become a subsidiary of the Corporation and (b) each outstanding share of Common
Stock, no par value, of ITT ("ITT Common Stock"), together with the associated
preferred share purchase right of ITT, other than shares held by ITT, the
Corporation, the Trust or any of their respective wholly owned subsidiaries,
will be converted into the right to receive, at the holder's election, $85 in
cash or shares of common stock, par value $.01 per share, of the Corporation
("Corporation Shares") and shares of beneficial interest, par value $.01 per
share, of the Trust ("Trust Shares" and, when paired with the Corporation
Shares, the "Paired Shares") with a value of $85, subject to certain collar
provisions; provided that the aggregate number of shares of ITT Common Stock to
be converted into the right to receive cash shall not exceed 30% nor be less
than 18% of the total number of shares of ITT Common Stock outstanding
immediately prior to the effective time of the Merger. If the Merger closes
after January 31, 1998, each holder of ITT Common Stock will also be entitled to
receive for each share of ITT Common Stock converted in the Merger additional
cash consideration in an amount equal to the interest that would accrue (without
compounding) on $85 at an annual rate of 7% during the period from and including
January 31, 1998 to but excluding the date of closing of the Merger.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in the accompanying Joint Proxy
Statement/Prospectus.
To ensure that your vote will be counted, please complete, sign and date the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the ITT Meeting. You may revoke your
proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus at any time before it is voted at the ITT Meeting.
All stockholders of record of ITT at the close of business on December ,
1997, the record date for the ITT Meeting, are entitled to notice of, and to
vote at, the ITT Meeting. Approval of the ITT Proposal requires the affirmative
vote of the holders of a majority in voting power of all outstanding shares of
ITT Common Stock.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. A FORM OF
ELECTION AND TRANSMITTAL LETTER ARE INCLUDED WITH THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS WITH INSTRUCTIONS FOR THE ELECTION OF CONSIDERATION AND
SURRENDER AND EXCHANGE OF YOUR SHARES.
By Order of the Board of Directors,
RICHARD S. WARD
Executive Vice President,
General Counsel and
Corporate Secretary
New York, New York
<PAGE> 3
[STARWOOD LODGING LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF STARWOOD LODGING TRUST:
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Starwood Lodging Trust, a Maryland real estate investment trust
(the "Trust"), will be held at , , on
January , 1998 at : .m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of beneficial interest, par value $.01 per share, of the Trust
("Trust Shares"), pursuant to the Amended and Restated Agreement and Plan
of Merger, dated as of November 12, 1997 (the "Merger Agreement"), among
the Trust, Starwood Lodging Corporation, a Maryland corporation (the
"Corporation"), Chess Acquisition Corp., a Nevada corporation and a
subsidiary of the Corporation ("Merger Sub"), and ITT Corporation, a Nevada
corporation ("ITT");
2. To consider and vote upon a proposal to permit the payment by the
Trust of a special distribution and the issuance of shares of common stock
of the Corporation in connection therewith;
3. To consider and vote upon a proposed amendment to the Declaration
of Trust of the Trust described in the accompanying Joint Proxy
Statement/Prospectus; and
4. To transact such other business as may properly come before the
Special Meeting.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into ITT (the "Merger"), with the result that (a) ITT will
become a subsidiary of the Corporation and (b) each outstanding share of common
stock, no par value, of ITT ("ITT Common Stock"), together with the associated
preferred share purchase right of ITT, other than shares held by ITT, the
Corporation, the Trust or any of their respective wholly owned subsidiaries,
will be converted into the right to receive, at the holder's election, $85 in
cash or shares of common stock, par value $.01 per share, of the Corporation
(the "Corporation Shares") and Trust Shares (the Trust Shares when paired with
the Corporation Shares are referred to as the "Paired Shares") with a value of
$85, subject to certain collar provisions; provided that the aggregate number of
shares of ITT Common Stock to be converted into the right to receive cash shall
not exceed 30% nor be less than 18% of the total number of shares of ITT Common
Stock outstanding immediately prior to the effective time of the Merger. If the
Merger closes after January 31, 1998, each holder of ITT Common Stock will also
be entitled to receive for each share of ITT Common Stock converted in the
Merger additional cash consideration in an amount equal to the interest that
would accrue (without compounding) on $85 at an annual rate of 7% during the
period from and including January 31, 1998 to but excluding the date of closing
of the Merger.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in the accompanying Joint Proxy
Statement/Prospectus.
Only holders of record of Trust Shares at the close of business on December
, 1997 are entitled to receive notice of, and to vote at, the Special Meeting
or any adjournment or postponement thereof.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THEN COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, AND YOUR PROMPTNESS WILL ASSIST US IN AVOIDING ADDITIONAL SOLICITATION
COSTS. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED
IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD BE SIGNED AND
RETURNED.
By Order of the Board of Trustees
SHERWIN L. SAMUELS
Secretary
December , 1997
Phoenix, Arizona
<PAGE> 4
[STARWOOD LODGING LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF STARWOOD LODGING CORPORATION:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Starwood Lodging Corporation, a Maryland corporation (the
"Corporation"), will be held at the , , on January ,
1998 at : .m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of common stock, par value $.01 per share, of the Corporation (the
"Corporation Shares"), pursuant to the Amended and Restated Agreement and
Plan of Merger, dated as of November 12, 1997 (the "Merger Agreement"),
among the Corporation, Chess Acquisition Corp., a Nevada corporation and a
subsidiary of the Corporation ("Merger Sub"), Starwood Lodging Trust, a
Maryland real estate investment trust (the "Trust"), and ITT Corporation, a
Nevada corporation ("ITT");
2. To consider and vote upon a proposal to permit the payment by the
Trust of a special distribution and the issuance of Corporation Shares in
connection therewith;
3. To consider and vote upon a proposed amendment to the charter of
the Corporation described in the accompanying Joint Proxy
Statement/Prospectus; and
4. To transact such other business as may properly come before the
meeting.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into ITT (the "Merger"), with the result that (a) ITT will
become a subsidiary of the Corporation and (b) each outstanding share of common
stock, no par value, of ITT ("ITT Common Stock"), together with the associated
preferred share purchase right of ITT, other than shares held by ITT, the
Corporation, the Trust or any of their respective wholly owned subsidiaries,
will be converted into the right to receive, at the holder's election, $85 in
cash or Corporation Shares and shares of beneficial interest, par value $.01 per
share, of the Trust ("Trust Shares" and, when paired with the Corporation
Shares, the "Paired Shares") with a value of $85, subject to certain collar
provisions; provided that the aggregate number of shares of ITT Common Stock to
be converted into the right to receive cash shall not exceed 30% nor be less
than 18% of the total number of shares of ITT Common Stock outstanding
immediately prior to the effective time of the Merger. If the Merger closes
after January 31, 1998, each holder of ITT Common Stock will also be entitled to
receive for each share of ITT Common Stock converted in the Merger additional
cash consideration in an amount equal to the interest that would accrue (without
compounding) on $85 at an annual rate of 7% during the period from and including
January 31, 1998 to but excluding the date of closing of the Merger.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in the accompanying Joint Proxy
Statement/Prospectus.
Only holders of record of Corporation Shares at the close of business on
December , 1997 are entitled to receive notice of, and to vote at, the Special
Meeting or any adjournment or postponement thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THEN COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, AND YOUR PROMPTNESS WILL ASSIST US IN AVOIDING ADDITIONAL SOLICITATION
COSTS. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED
IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD BE SIGNED AND
RETURNED.
By Order of the Board of Directors
NIR E. MARGALIT
Secretary
December , 1997
Phoenix, Arizona
<PAGE> 5
[STARWOOD LODGING LOGO]
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1997 [ITT LOGO]
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION ITT CORPORATION
JOINT PROXY STATEMENT
FOR
SPECIAL MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS
TO BE HELD ON JANUARY , 1998
------------------------
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus is being furnished to shareholders
of Starwood Lodging Trust, a Maryland real estate investment trust (the
"Trust"), and stockholders of Starwood Lodging Corporation, a Maryland
corporation (the "Corporation" and, together with the Trust, "Starwood
Lodging"), in connection with the solicitation of proxies by the Trust's Board
of Trustees (the "Trust Board") and the Corporation's Board of Directors (the
"Corporation Board" and, together with the Trust Board, the "Starwood Lodging
Boards") for use at the Trust's Special Meeting of Shareholders and at any and
all adjournments or postponements thereof (the "Trust Meeting") and the
Corporation's Special Meeting of Stockholders and at any and all adjournments or
postponements thereof (the "Corporation Meeting" and, together with the Trust
Meeting, the "Starwood Lodging Meetings"), respectively, to be held on January
, 1998, at the times and place, and for the purposes, specified in the
accompanying Notices of Special Meetings.
The shares of beneficial interest, par value $.01 per share, of the Trust
("Trust Shares") and the shares of common stock, par value $.01 per share, of
the Corporation ("Corporation Shares") are "paired" pursuant to a Pairing
Agreement dated as of June 25, 1980, as amended (the "Pairing Agreement"),
between the Trust and the Corporation and may be held and transferred only in
combined units consisting of one Trust Share and one Corporation Share (a
"Paired Share").
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of ITT Corporation, a Nevada corporation ("ITT"), in connection
with the solicitation of proxies by ITT's Board of Directors (the "ITT Board")
for use at ITT's Special Meeting of Stockholders and at any adjournments or
postponements thereof (the "ITT Meeting" and, together with the Starwood Lodging
Meetings, the "Special Meetings"), at the time and place, and for the purposes,
specified in the accompanying Notice of Special Meeting.
The Trust Meeting and the Corporation Meeting have been called to consider
and vote upon (a) a proposal to approve the issuance of Trust Shares and
Corporation Shares, respectively (the "Shares Issuance Proposal"), pursuant to
the Amended and Restated Agreement and Plan of Merger dated as of November 12,
1997 (the "Merger Agreement"), among the Corporation, Chess Acquisition Corp., a
Nevada corporation and a subsidiary of the Corporation ("Merger Sub" and,
together with Starwood Lodging, the "Starwood Companies"), the Trust and ITT,
(b) a proposal to permit the payment by the Trust of a special distribution and
the issuance of Corporation Shares in connection therewith (the "Special
Distribution Proposal") and (c) proposals to amend the Amended and Restated
Declaration of Trust of the Trust (the "Trust Declaration") as described herein
(the "Trust Amendment") and to amend the charter of the Corporation (the
"Corporation Articles") as described herein (the "Corporation Amendment").
The ITT Meeting has been called to consider and vote upon a proposal to
approve and adopt the Merger Agreement (the "ITT Proposal").
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE NEW
JERSEY CASINO CONTROL COMMISSION OR THE MISSISSIPPI GAMING COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, THE
NEVADA STATE GAMING CONTROL BOARD, THE NEW JERSEY CASINO CONTROL COMMISSION OR
THE MISSISSIPPI GAMING COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged into ITT (the "Merger"), with the result that (a) ITT will become a
subsidiary of the Corporation and (b) each outstanding share of Common Stock, no
par value ("ITT Common Stock"), together with the associated preferred share
purchase right, other than shares held by ITT, the Corporation, the Trust or any
of their respective wholly owned subsidiaries, will be converted into the right
to receive, at the holder's election, $85 in cash or Paired Shares with a value
of $85, subject to certain collar provisions; provided that the aggregate number
of shares of ITT Common Stock to be converted into the right to receive cash
shall not exceed 30% nor be less than 18% of the total number of shares of ITT
Common Stock outstanding immediately prior to the effective time of the Merger.
If the Merger closes after January 31, 1998, each holder of ITT Common Stock
will also be entitled to receive for each share of ITT Common Stock converted in
the Merger additional cash consideration in an amount equal to the interest that
would accrue (without compounding) on $85 at an annual rate of 7% during the
period from and including January 31, 1998 to but excluding the date of closing
of the Merger.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus and the related forms of proxy and
Form of Election and Transmittal Letter (the "Form of Election") are first being
mailed to shareholders of the Trust and stockholders of the Corporation and ITT
on or about December , 1997.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DECEMBER , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 6
SUMMARY............................................................................... 7
The Companies....................................................................... 7
The Starwood Lodging Meetings....................................................... 8
The ITT Meeting..................................................................... 10
The Merger.......................................................................... 11
Starwood Recent Developments........................................................ 18
ITT Summary Selected Financial Data................................................. 20
Starwood Lodging Summary Selected Financial Data.................................... 21
Comparative Per Share Data.......................................................... 23
THE MEETINGS.......................................................................... 26
Date, Place and Time................................................................ 26
Matters to be Considered............................................................ 26
Voting Rights....................................................................... 26
Proxies............................................................................. 27
Solicitation of Proxies............................................................. 28
THE MERGER............................................................................ 29
General............................................................................. 29
Background of the Merger............................................................ 29
Recommendation of the Starwood Lodging Boards; Reasons for the Merger............... 32
Recommendation of the ITT Board; Reasons for the Merger............................. 33
Opinion of Financial Advisor to Starwood Lodging.................................... 34
Opinion of Financial Advisor to ITT................................................. 37
Opinion of Financial Advisor to the ITT Special Committee........................... 41
Interests of Certain Persons in the Merger.......................................... 45
ITT Affiliates...................................................................... 45
Starwood Lodging Affiliates......................................................... 45
Accounting Treatment................................................................ 46
Regulatory Approvals................................................................ 46
Votes Required for Approval......................................................... 51
No Dissenter's Rights............................................................... 52
Federal Securities Laws Consequences................................................ 52
THE MERGER AGREEMENT.................................................................. 53
General............................................................................. 53
Effective Time...................................................................... 53
Conversion of Shares................................................................ 53
Election of Stock or Cash........................................................... 54
Proration........................................................................... 55
Exchange of Certificates............................................................ 56
Dividends........................................................................... 57
No Fractional Securities............................................................ 57
ITT Stock Options................................................................... 57
Representations and Warranties...................................................... 58
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business of ITT Pending the Merger.................................................. 59
Business of Starwood Lodging Pending the Merger..................................... 60
Acquisition Proposals............................................................... 61
Certain Transactions................................................................ 62
Indemnification; Directors and Officers Insurance................................... 62
Certain Employee Matters............................................................ 63
Certain Gaming Regulatory Matters................................................... 63
Conditions to the Consummation of the Merger........................................ 64
Termination......................................................................... 67
Certain Fees and Expenses........................................................... 67
Waivers............................................................................. 68
SPECIAL DISTRIBUTION PROPOSAL......................................................... 68
General............................................................................. 68
Certain Effects of Special Distribution Proposal.................................... 69
Votes Required for Approval......................................................... 69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 69
Federal Income Tax Consequences of the Merger....................................... 70
Federal Income Tax Consequences of the Special Distribution......................... 70
Federal Income Taxation of the Trust................................................ 71
Federal Income Taxation of the Corporation.......................................... 79
Federal Income Taxation of Holders of Paired Shares................................. 80
Information Reporting Requirements and Backup Withholding........................... 83
Federal Income Tax Aspects of the Partnerships and the Subsidiary Entities.......... 83
Tax Allocations with Respect to Contributed Properties.............................. 83
Partnership Anti-Abuse Rule......................................................... 84
Other Tax Consequences.............................................................. 85
AMENDMENTS TO THE DECLARATION OF TRUST OF THE TRUST AND THE ARTICLES OF INCORPORATION
OF THE CORPORATION.................................................................. 85
Authorized Shares................................................................... 85
Gaming Provisions................................................................... 88
Votes Required for Approval......................................................... 89
OWNERSHIP OF PAIRED SHARES............................................................ 90
OWNERSHIP OF ITT COMMON STOCK......................................................... 93
Certain Beneficial Owners........................................................... 93
Directors and Officers.............................................................. 94
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ITT AND STOCKHOLDERS AND SHAREHOLDERS OF
STARWOOD LODGING.................................................................... 95
General............................................................................. 95
Special Meetings of Stockholders.................................................... 95
Stockholder Action by Written Consent............................................... 95
Stockholder Nominations and Proposals for Business.................................. 96
Certain Extraordinary Corporate Transactions........................................ 97
Limitation on Ownership of Capital Stock............................................ 97
Business Combinations Involving Interested Stockholders............................. 98
Control Share Acquisitions.......................................................... 99
Removal of Directors or Trustees.................................................... 100
</TABLE>
3
<PAGE> 8
<TABLE>
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PAGE
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<S> <C>
Consideration of Other Constituencies............................................... 100
Personal Liability of Directors, Officers and Trustees.............................. 101
Indemnification of Directors, Trustees and Officers................................. 101
Amendments to Governing Documents................................................... 102
Rights and Warrant Plan............................................................. 103
Appraisal and Dissenters' Rights.................................................... 103
DESCRIPTION OF STARWOOD SECURITIES.................................................... 104
General............................................................................. 104
Preemptive Rights................................................................... 104
Preferred Shares.................................................................... 104
Paired Shares....................................................................... 105
The Pairing Agreement............................................................... 106
Trust Preferred Shares.............................................................. 106
Ownership Limits; Restrictions on Transfer; Repurchase and Redemption of Shares..... 111
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 113
LEGAL MATTERS......................................................................... 113
EXPERTS............................................................................... 113
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETINGS........................................ 114
Annexes:
Annex A -- The Merger Agreement
Annex B -- Opinion of Bear, Stearns & Co. Inc.
Annex C-1 -- Opinion of Lazard Freres & Co. LLC dated as of October 19, 1997
Annex C-2 -- Opinion of Lazard Freres & Co. LLC dated as of November 12, 1997
Annex C-3 -- Opinion of Gleacher NatWest Inc. dated as of November 12, 1997
Annex D -- Proposed Amendment to the Corporation Articles
</TABLE>
4
<PAGE> 9
This Joint Proxy Statement/Prospectus contains statements which constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements appear in a number of places in
this Joint Proxy Statement/Prospectus, including, without limitation, under
"Summary" and "The Merger." Such forward-looking statements include statements
regarding the intent, belief or current expectations with respect to the matters
discussed in this Joint Proxy Statement/Prospectus. Shareholders and
stockholders are cautioned that any such forward-looking statements 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, including, without limitation, completion of the transactions
described herein and future acquisitions, the availability of capital for
acquisitions and for renovations, the ability to maintain existing management,
franchise, or representation agreements and to obtain new agreements on current
terms, competition within the lodging industry and the gaming industry, the
cyclicality of the real estate business, the hotel business and the gaming
business, real estate and economic conditions, the continuing ability of the
Trust to qualify as a REIT and other risks described in this Joint Proxy
Statement/Prospectus and in the annual, quarterly and current reports and proxy
statements of the Trust, the Corporation and ITT incorporated by reference
herein, including those identified in the Starwood Lodging Form 10-K (as defined
herein).
AVAILABLE INFORMATION
The Corporation, the Trust and ITT are each 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 filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
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 statements
and information statements and other information regarding registrants that file
electronically with the Commission. Starwood Lodging and ITT file electronically
with the Commission. The ITT Common Stock and the Paired Shares are listed on
the New York Stock Exchange, Inc. (the "NYSE"), and such material may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
After consummation of the Merger, ITT may no longer file reports, proxy
statements or other information with the Commission. Instead, such information
would be provided, to the extent required, in filings made by Starwood Lodging.
Starwood Lodging has filed with the Commission a registration statement on
Form S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Paired Shares that will be issued to holders
of ITT Common Stock in connection with the Merger. See "The Merger
Agreement -- Conversion of Shares." This Joint Proxy Statement/Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement filed by Starwood Lodging
with the Commission, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Such additional information is
available for inspection and copying at the offices of the Commission.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated into this Joint Proxy Statement/Prospectus by reference as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
5
<PAGE> 10
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
The following documents previously filed by the Trust and the Corporation
(Commission File Nos. 1-6828 and 1-7959, respectively) with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. The Joint Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended by the Form 10-K/A dated April 25, 1997
(collectively, the "Starwood Lodging Form 10-K").
2. The Joint Quarterly Reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997 (as amended by the
Form 10-Q/A dated November 10, 1997).
3. The Joint Current Reports on Form 8-K dated February 10, 1997,
February 14, 1997, March 20, 1997, March 21, 1997, September 9, 1997 (and
Exhibit 2 thereto), September 10, 1997, October 21, 1997 (as amended by the
Form 8-K/A dated October 29, 1997), November 12, 1997 and November 13,
1997.
The following documents previously filed by ITT (Commission File No.
1-13960) with the Commission pursuant to the Exchange Act are incorporated
herein by reference:
1. The Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as amended by the Form 10-K/A dated April 30, 1997 (collectively,
the "ITT Form 10-K").
2. The Quarterly Reports on Form 10-Q filed by ITT for the periods
ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. The Current Reports on Form 8-K dated October 21, 1997 and November
13, 1997.
All documents filed by the Trust, the Corporation and ITT pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Special Meetings shall be deemed to be
incorporated by reference herein and to be part hereof from the date any such
document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded. All information appearing in this Joint Proxy
Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
RELATING TO STARWOOD LODGING AND ITT, RESPECTIVELY, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN, ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST,
IN THE CASE OF STARWOOD LODGING, TO SHAREHOLDER RELATIONS, STARWOOD LODGING
TRUST, 2231 E. CAMELBACK ROAD, SUITE 410, PHOENIX, ARIZONA 85016 (TELEPHONE
NUMBER: (602) 852-3900) OR SHAREHOLDER RELATIONS, STARWOOD LODGING CORPORATION,
2231 E. CAMELBACK ROAD, SUITE 400, PHOENIX, ARIZONA 85016 (TELEPHONE NUMBER:
(602) 852-3900) AND, IN THE CASE OF ITT, TO DIRECTOR OF INVESTOR RELATIONS, ITT
CORPORATION, 1330 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE
DECEMBER , 1997.
6
<PAGE> 11
SUMMARY
Certain significant matters discussed or incorporated by reference in this
Joint Proxy Statement/ Prospectus are summarized below. This summary is not
intended to be complete and is qualified in all respects by reference to the
more detailed information appearing or incorporated by reference in this Joint
Proxy Statement/Prospectus, including Annexes hereto. Shareholders of the Trust
and stockholders of the Corporation and ITT are urged to review carefully the
entire Joint Proxy Statement/Prospectus, including the Annexes hereto.
THE COMPANIES
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
2231 E. CAMELBACK ROAD
PHOENIX, ARIZONA 85016
(602) 852-3900
Starwood Lodging is a fully integrated
owner/operator of primarily full service
hotels. Starwood Lodging is comprised of the
Trust, which has owned hotel assets since 1969,
and the Corporation, which has managed hotel
assets since 1980. As of December , 1997, the
company owned, operated or managed a
geographically diversified portfolio of hotel
assets, including fee, ground lease and first
mortgage interests in hotel properties,
containing over rooms located in
. Ninety-eight of such
hotels are operated under licensing, membership
or franchise or management agreements with
national hotel organizations, including Ritz
Carlton, Westin, Marriott, Hilton, Sheraton,
Omni, Doubletree, Embassy Suites, Harvey,
Radisson, Clarion, Holiday Inn, Residence Inn,
Days Inn, Ramada, Quality Inn and Vagabond Inn.
In furtherance of Starwood Lodging's strategy
to enhance, expand and diversify its hotel
portfolio and to develop or acquire a global
brand, Starwood Lodging has entered into an
agreement to acquire Westin Hotels & Resorts
Worldwide, Inc. ("Westin Worldwide") and
certain affiliated entities. As of December ,
1997, Westin Worldwide and such affiliated
entities owned, operated, managed or franchised
hotel properties containing over
rooms located in states, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands
and foreign countries. See "-- Starwood
Recent Developments."
ITT CORPORATION
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-1000
ITT is engaged in the hotels and gaming
business, the telephone directories publishing
business and the post-secondary technical
education business. ITT conducts its hotels and
gaming business through its subsidiaries ITT
Sheraton Corporation ("Sheraton"), Ciga, S.p.A.
("Ciga") and Caesars World, Inc. ("Caesars").
Through the Sheraton, The Luxury Collection,
Ciga, Four Points Hotels and Caesars brand
names, ITT is represented in most major markets
of the world. In 1996, ITT hosted over 50
million customer nights at its hotel properties
in 62 countries. Gaming operations are marketed
under either the Caesars or Sheraton brand name
and service mark and are currently represented
in Las Vegas (Nevada), Atlantic City (New
Jersey), Halifax (Nova Scotia), Sydney (Nova
Scotia), Lake Tahoe (Nevada), Tunica County
(Mississippi), Lima (Peru), Cairo (Egypt),
Windsor (Ontario) and Townsville (Australia).
ITT conducts its telephone directories
publishing business through its subsidiary ITT
World Directories, Inc. and its post-secondary
technical education business through its 83.3%
owned subsidiary ITT Educational Services, Inc.
7
<PAGE> 12
CHESS ACQUISITION CORP.
C/O STARWOOD LODGING
CORPORATION
2231 E. CAMELBACK ROAD
PHOENIX, ARIZONA 85016
(602) 852-3900
Merger Sub is a subsidiary of the Corporation
that does not conduct any substantial business
activities. All the outstanding shares of
capital stock of Merger Sub are owned by the
Corporation and the Trust. Pursuant to the
Merger Agreement, Merger Sub will be merged
with and into ITT with ITT as the surviving
corporation. As a result of the Merger and
certain post-Merger transactions, ITT will
become a subsidiary of the Corporation.
THE STARWOOD LODGING MEETINGS
DATE, TIME AND PLACE The Trust Meeting and the Corporation Meeting
are to be held on January , 1998 at
.m. and .m. (local time),
respectively, at .
PURPOSES OF THE STARWOOD
LODGING
MEETINGS The purposes of the Starwood Lodging Meetings
are to consider and vote upon:
1. A proposal to approve the issuance of Trust
Shares and Corporation Shares pursuant to
the Merger Agreement;
2. A proposal to permit the payment by the
Trust of a special distribution and the
issuance of Corporation Shares in connection
therewith;
3. Proposals to amend the Trust Declaration to
(i) increase the number of authorized shares
of beneficial interest of the Trust, and
(ii) provide that in certain circumstances
when the Corporation redeems certain of its
securities, the Trust shall simultaneously
redeem any of its securities that are paired
with such securities of the Corporation and
to amend the Corporation Articles to (i)
increase the number of authorized shares of
capital stock of the Corporation and (ii)
include a provision in the Corporation
Articles to allow the Corporation to secure
and maintain certain regulatory approvals
issued by certain gaming authorities; and
4. Such other business as may properly come
before the Starwood Meetings.
Each of the proposals set forth in items 1, 2
and 3 above is necessary in order to consummate
the Merger. If any of such proposals are not
approved by the shareholders of the Trust and
the stockholders of the Corporation, the Trust
and the Corporation do not expect to consummate
the Merger.
RECORD DATES Only holders of record of Trust Shares at the
close of business on December , 1997 (the
"Trust Record Date") are entitled to notice of
and to vote at the Trust Meeting and only
holders of record of Corporation Shares at the
close of business on December , 1997 (the
"Corporation Record Date") are entitled to
notice of and to vote at the Corporation
Meeting.
RECOMMENDATION OF THE STARWOOD
LODGING BOARDS; REASONS FOR
THE
MERGER THE TRUST BOARD AND THE CORPORATION BOARD HAVE
APPROVED THE SHARES ISSUANCE PROPOSAL AND
RECOMMEND THAT SHAREHOLDERS OF THE TRUST AND
STOCKHOLDERS OF THE CORPORATION VOTE FOR
APPROVAL OF THE SHARES ISSUANCE PROPOSAL. Such
recommendation is based on a number of factors
described herein. See "The Merger --
8
<PAGE> 13
Recommendation of the Starwood Boards; Reasons
for the Merger."
THE TRUST BOARD AND THE CORPORATION BOARD HAVE
APPROVED THE SPECIAL DISTRIBUTION PROPOSAL AND
RECOMMEND THAT SHAREHOLDERS OF THE TRUST AND
STOCKHOLDERS OF THE CORPORATION VOTE FOR
APPROVAL OF THE SPECIAL DISTRIBUTION PROPOSAL.
See "Special Distribution Proposal."
THE TRUST BOARD HAS APPROVED THE TRUST
AMENDMENT AND RECOMMENDS THAT SHAREHOLDERS OF
THE TRUST VOTE FOR APPROVAL OF THE TRUST
AMENDMENT. THE CORPORATION BOARD HAS APPROVED
THE CORPORATION AMENDMENT AND RECOMMENDS THAT
STOCKHOLDERS OF THE CORPORATION VOTE FOR THE
CORPORATION AMENDMENT. See "Amendments to the
Declaration of Trust of the Trust and the
Articles of Incorporation of the Corporation."
OPINION OF FINANCIAL ADVISOR
TO STARWOOD LODGING Bear Stearns & Co. Inc. ("Bear Stearns") has
delivered its written opinion to the Starwood
Lodging Boards to the effect that, based upon
and subject to the various considerations set
forth in such opinion, as of November 12, 1997,
the Merger Consideration was fair, from a
financial point of view, to Starwood Lodging
(the "Bear Stearns Opinion"). The summary of
the Bear Stearns Opinion set forth in this
Joint Proxy Statement/Prospectus is qualified
in its entirety by reference to the full text
of such opinion, which is attached as Annex B
to this Joint Proxy Statement/Prospectus.
Starwood Lodging shareholders and stockholders
are urged to, and should read such opinion
carefully in its entirety in connection with
this Joint Proxy Statement/Prospectus for
assumptions made, matters considered and limits
of the review by Bear Stearns. See "The
Merger -- Opinion of Financial Advisor to
Starwood Lodging."
VOTE REQUIRED FOR APPROVAL
OF THE STARWOOD PROPOSALS Approval of the Shares Issuance Proposal
requires the affirmative vote of a majority of
the votes cast by Trust shareholders and
Corporation stockholders, respectively,
provided that the total votes cast by Trust
shareholders and Corporation stockholders on
the Shares Issuance Proposal represent over 50%
of all securities of each of the Trust and the
Corporation, respectively, entitled to vote on
the Shares Issuance Proposal.
Approval of the Special Distribution Proposal
requires the affirmative vote of the holders of
a majority of the outstanding Trust Shares
entitled to vote at the Trust Meeting and a
majority of the outstanding Corporation Shares
entitled to vote at the Corporation Meeting.
Approval of the Trust Amendment and the
Corporation Amendment requires the affirmative
vote of the holders of a majority of the
outstanding Trust Shares and Corporation
Shares, respectively, entitled to vote at the
Trust Meeting and the Corporation Meeting.
At the close of business on the Trust Record
Date, Trustees and executive officers of the
Trust and their affiliates were the beneficial
owners of an aggregate of Paired Shares
(approximately % of the Paired Shares then
outstanding). At the close of business on
9
<PAGE> 14
the Corporation Record Date, Directors and
executive officers of the Corporation and their
affiliates were the beneficial owners of an
aggregate of Paired Shares
(approximately % of the Paired Shares then
outstanding). See "The Meetings -- Voting
Rights."
THE ITT MEETING
DATE, TIME AND PLACE The ITT Meeting is to be held on January ,
1998 at .m., local time, at .
PURPOSES OF THE ITT MEETING The purposes of the ITT Meeting are to consider
and vote upon:
1. A proposal to approve the Merger Agreement
(the "ITT Proposal"); and
2. Such other business as may properly come
before the ITT Meeting.
RECORD DATE Only holders of record of ITT Common Stock at
the close of business on December , 1997 (the
"ITT Record Date") are entitled to notice of
and to vote at the ITT Meeting.
RECOMMENDATION OF THE
ITT BOARD;
REASONS FOR THE MERGER
THE ITT BOARD HAS UNANIMOUSLY APPROVED THE ITT
PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF ITT VOTE FOR APPROVAL OF THE
ITT PROPOSAL. Such recommendation is based on a
number of factors described herein. See "The
Merger -- Recommendation of the ITT Board;
Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
TO ITT Lazard Freres & Co. LLC ("Lazard Freres") has
delivered its written opinion to the ITT Board,
a copy of which is attached hereto as Annex
C-1, that, as of October 19, 1997 and based on
and subject to certain matters stated therein,
the aggregate consideration to be received by
stockholders of ITT pursuant to the Original
Merger Agreement (as defined herein) is fair to
such stockholders from a financial point of
view. Additionally, Lazard Freres has delivered
its written opinion to the ITT Board, a copy of
which is attached hereto as Annex C-2, to the
effect that, as of November 12, 1997, based on
and subject to certain matters stated therein,
the consideration to be received by
stockholders of ITT pursuant to the Merger
Agreement is superior to the consideration
proposed to be paid to stockholders of ITT in
the Amended Hilton Transaction (as defined
herein) from a financial point of view. See
"The Merger -- Opinion of Financial Advisor to
ITT."
OPINION OF FINANCIAL ADVISOR
TO THE
ITT SPECIAL COMMITTEE Gleacher NatWest Inc. ("Gleacher NatWest") has
delivered its written opinion to the ITT
Special Committee (as defined herein), a copy
of which is attached hereto as Annex C-3, that,
as of November 12, 1997 and based on and
subject to certain matters stated therein, the
aggregate consideration to be received by
stockholders of ITT pursuant to the Merger
Agreement is fair to such stockholders from a
financial point of view and is superior to the
consideration proposed to be paid to
stockholders of ITT in the Amended Hilton
Transaction from a financial point of view. See
"The Merger -- Opinion of Financial Advisor to
the ITT Special Committee."
10
<PAGE> 15
VOTE REQUIRED FOR APPROVAL
OF THE ITT PROPOSAL Approval of the ITT Proposal requires the
affirmative vote of the holders of a majority
of the outstanding shares of ITT Common Stock.
At the close of business on the ITT Record
Date, directors and executive officers of ITT
and their affiliates were the beneficial owners
of an aggregate of shares of ITT
Common Stock (approximately % of the ITT
Common Stock then out standing). See "The
Meetings -- Voting Rights."
THE MERGER
GENERAL The Merger Agreement provides for the merger of
Merger Sub with and into ITT at the Effective
Time (as defined herein), whereupon the
separate corporate existence of Merger Sub will
cease and ITT will continue as the surviving
corporation. As a result of the Merger, ITT
will become a subsidiary of the Corporation and
shall succeed to and assume all the rights and
obligations of Merger Sub in accordance with
the Nevada General Corporation Law (the
"NGCL"). See "The Merger."
MERGER CONSIDERATION All shares of ITT Common Stock (including
restricted shares of ITT Common Stock issued
under ITT benefit plans) issued and outstanding
immediately prior to the Effective Time (other
than shares ("Nonparticipating Shares") held by
Starwood Lodging, Merger Sub, ITT or any of
their respective wholly owned subsidiaries)
together with the associated preferred share
purchase right (a "Right") issued pursuant to
the Rights Agreement dated as of November 1,
1995 (the "Rights Agreement"), between ITT and
The Bank of New York, as Rights Agent, shall as
of the Effective Time be converted into the
right to receive cash, Paired Shares or a
combination of cash and Paired Shares with an
aggregate value of $85, subject to certain
collar provisions in the case of stock
consideration. The aggregate number of shares
of ITT Common Stock to be converted into the
right to receive cash shall not exceed 30% nor
be less than 18% of the total number of shares
of ITT Common Stock outstanding immediately
prior to the Effective Time. The aggregate
amount of cash and Paired Shares to be received
by the holders of ITT Common Stock (other than
Nonparticipating Shares) will depend on (i) the
stated preferences of the ITT stockholders on
the Forms of Election and (ii) the proration
procedures described under "The
Merger -- Proration" below. If the Merger
closes after January 31, 1998, each holder of
ITT Common Stock will also be entitled to
receive for each share of ITT Common Stock
converted in the Merger additional cash
consideration in an amount equal to the
interest that would accrue (without
compounding) on $85 at an annual rate of 7%
during the period from and including January
31, 1998 to but excluding the date of closing
of the Merger (the "Interest Payment").
Each share of ITT Common Stock to be converted
in the Merger into Paired Shares shall be
converted as of the Effective Time into a
number of validly issued, fully paid and
nonassessable Paired Shares equal to the
quotient, rounded to the nearest thousandth, or
11
<PAGE> 16
if there shall not be a nearest thousandth, the
next higher thousandth, of (x) $85 divided by
(y) the Market Price (as defined below) of
Paired Shares on the fifth NYSE trading day
prior to the date of the ITT Meeting (the
"Exchange Ratio"); provided, however, that in
no event shall the Exchange Ratio be (A)
greater than an amount equal to $85 divided by
$53.263 or (B) less than an amount equal to $85
divided by $61.263. The "Market Price" of a
Paired Share on any date means the average of
the Average Prices (as defined below) for the
20 NYSE trading days randomly selected by a
neutral independent accounting firm appointed
by mutual agreement of the Trust and ITT from
the 30 consecutive NYSE trading days
immediately preceding such date. The "Average
Price" for any date means the average of the
daily high and low prices per Paired Share as
reported on the NYSE Composite Transactions
reporting system (as published in The Wall
Street Journal or, if not published therein, in
another authoritative source mutually selected
by ITT and the Corporation). See "The Merger
Agreement -- Conversion of Shares."
For a more detailed explanation of the method
by which the Exchange Ratio will be determined,
including a toll-free telephone number that
stockholders of ITT or shareholders and
stockholders of Starwood Lodging may call to
receive information regarding the Exchange
Ratio, see "The Merger Agreement -- Exchange of
Certificates."
ELECTIONS BY ITT
STOCKHOLDERS Each ITT stockholder is requested to submit a
Form of Election to make an election (an
"Election") specifying the number of shares of
ITT Common Stock which such stockholder desires
to have converted into Paired Shares in the
Merger (a "Stock Election") and the number of
shares of ITT Common Stock which such
stockholder desires to have converted into cash
in the Merger (a "Cash Election"). A Form of
Election has been included with the proxy
materials mailed to ITT stockholders. A Stock
Election or Cash Election will be valid only if
the Form of Election and the certificates
representing the shares covered thereby (or an
appropriate guarantee of delivery of such
certificate or certificates as set forth in
such Form of Election) are received by
(the "Exchange Agent") by
5:00 p.m., New York City time, on ,
1998 (the "Election Date"). See "The Merger
Agreement -- Election of Stock or Cash."
STOCKHOLDERS OF ITT SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXIES. ITT COMMON
STOCK CERTIFICATES WILL BE EXCHANGED FOR THE
CONSIDERATION PAYABLE IN THE MERGER FOLLOWING
CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
THE TERMS OF THE MERGER AGREEMENT AND THE FORM
OF ELECTION.
A FORM OF ELECTION IS BEING MAILED HEREWITH TO
EACH PERSON WHO IS A HOLDER OF OUTSTANDING
SHARES OF ITT COMMON STOCK ON THE ITT RECORD
DATE AND, UPON REQUEST TO THE EXCHANGE AGENT,
WILL BE MAILED TO EACH PERSON WHO BECOMES A
HOLDER OR BENEFICIAL OWNER OF ITT COMMON STOCK
PRIOR TO THE ELECTION DATE.
CONDITIONS TO THE MERGER The obligations of the Starwood Companies and
ITT to consummate the Merger are subject to the
satisfaction or waiver of various
12
<PAGE> 17
conditions, including, without limitation,
approval by stockholders of ITT and the
stockholders and shareholders of Starwood
Lodging and receipt of certain regulatory
approvals and consents. See "The Merger
Agreement -- Conditions to Consummation of the
Merger."
NO DISSENTERS' RIGHTS Under Nevada law, holders of ITT Common Stock
are not entitled to dissent from the Merger and
obtain a valuation of their shares of ITT
Common Stock in connection with the Merger
because ITT Common Stock was listed on the NYSE
on the ITT Record Date and the Paired Shares
that such holders will be entitled to receive
in the Merger will be listed on the NYSE at the
Effective Time. Holders of Paired Shares are
not entitled to dissenters' rights under
Maryland law in connection with the Merger
because neither the Corporation nor the Trust
is a constituent corporation in the Merger. See
"The Merger -- No Dissenters' Rights."
ACQUISITION PROPOSALS The Merger Agreement provides that ITT will
not, nor will it permit any of its subsidiaries
to, nor will it authorize or permit any
officer, director or employee of or any
investment banker, attorney, accountant, agent
or other advisor or representative of ITT or
any of its subsidiaries to, (i) solicit,
initiate or encourage the submission of, any
takeover proposal (as defined herein), (ii)
except to the extent permitted by the Merger
Agreement, enter into any agreement with
respect to any takeover proposal or (iii)
participate in any discussions or negotiations
regarding, or furnish to any person any
information with respect to, or take any other
action to facilitate any inquiries or the
making of any proposal that constitutes, or may
reasonably be expected to lead to, any takeover
proposal; provided, however, that prior to the
ITT Meeting, to the extent required by the
fiduciary obligations of the ITT Board, as
determined in good faith by a majority of the
disinterested members based on the advice of
outside counsel, ITT may, in response to
unsolicited requests therefor, participate in
discussions or negotiations with, or furnish
information pursuant to an appropriate
confidentiality agreement to, any person. See
"The Merger Agreement -- Acquisition
Proposals."
RIGHT OF ITT BOARD TO
WITHDRAW RECOMMENDATION The Merger Agreement also provides that neither
the ITT Board nor any committee thereof will
(i) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to the
Corporation, the Trust or Merger Sub, the
approval or recommendation by the ITT Board or
any such committee of the Merger Agreement or
the Merger or (ii) approve or recommend, or
propose to approve or recommend, any takeover
proposal. Notwithstanding the foregoing, the
ITT Board, to the extent required by its
fiduciary obligations, as determined in good
faith by a majority of the disinterested board
members based on the advice of outside counsel,
may approve or recommend (and, in connection
therewith, withdraw or modify its approval or
recommendation of the Merger Agreement or the
Merger) a superior proposal (as defined
herein). See "The Merger Agreement --
Acquisition Proposals."
TERMINATION The Merger Agreement may be terminated at any
time prior to the Effective Time whether before
or after the approval by the stock-
13
<PAGE> 18
holders of ITT or the shareholders or
stockholders of Starwood Lodging (a) by mutual
written consent of Starwood Lodging and ITT;
(b) by either Starwood Lodging or ITT if there
has been a material breach of the
representations, warranties, covenants and
agreements on the part of the other set forth
in the Merger Agreement, which breach has not
been cured within ten business days following
receipt by the breaching party of notice of
such breach from the nonbreaching party; (c) by
either Starwood Lodging or ITT if any permanent
order, decree, ruling or other action of a
court or other competent authority restraining,
enjoining or otherwise preventing the
consummation of the Merger shall have become
final and non-appealable; (d) subject to
certain limitations, by either Starwood Lodging
or ITT if the Merger shall not have been
consummated before December 31, 1998; (e) by
either Starwood Lodging or (if ITT has paid to
the Corporation an amount in cash equal to the
sum of the Termination Fee (as defined herein)
plus all Expenses (as defined herein) if
required by the Merger Agreement) the ITT Board
if any required approval of the Merger by the
stockholders of ITT shall not have been
obtained by reason of the failure to obtain the
required vote at a duly held meeting of such
stockholders or at any adjournment thereof; (f)
by the Starwood Companies if the ITT Board
shall or shall resolve to (i) not recommend, or
withdraw its approval or recommendation of, the
Merger, the Merger Agreement or any of the
transactions contemplated by the Merger
Agreement, (ii) modify such approval or
recommendation in a manner adverse to the
Corporation, Merger Sub or the Trust or (iii)
approve or recommend a superior proposal; (g)
by the ITT Board if (i) the ITT Board approves
or recommends a superior proposal; and (ii) ITT
has paid to the Corporation an amount in cash
equal to the sum of the Termination Fee plus
all Expenses; or (h) by either Starwood Lodging
or the ITT Board if the approval of the Shares
Issuance Proposal, the Trust Amendment and the
Corporation Amendment by the shareholders of
the Trust or the stockholders of the
Corporation shall not have been obtained by
reason of the failure to obtain the required
vote at a duly held meeting of such
shareholders or stockholders. See "The Merger
Agreement -- Termination."
CERTAIN FEES AND EXPENSES The Merger Agreement provides that, except as
described below, whether or not the Merger is
consummated, all costs and expenses incurred in
connection with the Merger Agreement and the
transactions contemplated thereby, including
the fees and disbursements of counsel,
financial advisors and accountants, will be
paid by the party incurring such costs and
expenses, except that expenses incurred in
connection with printing and mailing this Joint
Proxy Statement/Prospectus and the Registration
Statement will be borne equally by the
Corporation and ITT.
Provided that none of the Corporation, Merger
Sub or the Trust is in material breach of their
representations, warranties and agreements
under the Merger Agreement, (i) if the Merger
Agreement is terminated by the ITT Board
pursuant to clause (g) under "-- Termination"
above, (ii) if the Merger Agreement is termi-
14
<PAGE> 19
nated by Starwood Lodging pursuant to clause
(b) under "-- Termination" above, (iii) if the
Merger Agreement is terminated by Starwood
Lodging pursuant to clause (f) under
"-- Termination" above, or (iv) if (A) after
the date of the Original Merger Agreement (as
hereafter defined), (x) any person or group
shall have made or indicated an intention to
make or amend or modify (whether or not subject
to conditions) a takeover proposal or (y) it
shall have been publicly disclosed or the
Corporation shall have otherwise learned that
any person or group has beneficial ownership of
more than 15% of the outstanding shares of ITT
Common Stock or (z) the Corporation has the
right to terminate the Merger Agreement
pursuant to clause (f) under "-- Termination"
above because the ITT Board shall or shall
resolve to take an action referred to therein
and (B) the stockholders of ITT do not approve
the Merger at the ITT Meeting or the Merger
Agreement is terminated prior to the ITT
Meeting, then ITT shall pay to the Corporation
$225 million (the "Termination Fee") plus all
Expenses on the date of such termination.
If the Merger Agreement is terminated for any
reason (other than by ITT in the event of
breach by Starwood Lodging), then ITT shall, on
the date of such termination, pay to the
Corporation the cash amount necessary to permit
the Corporation fully to reimburse itself,
Merger Sub and the Trust and their affiliates
for all Expenses. "Expenses" means all fees and
expenses payable to banks, investment banking
firms and other financial institutions and
their respective counsel, accountants and
agents in connection with arranging or
providing financing and all fees and expenses
of counsel in connection with any litigation
and up to $25 million of additional
out-of-pocket fees and expenses incurred at any
time prior to such termination by the Starwood
Companies or on their behalf in connection with
the Merger, the preparation of the Merger
Agreement and the transactions contemplated by
the Merger Agreement (including any currency or
interest rate hedging activities in connection
with the transactions contemplated by the
Merger Agreement), including all fees and
expenses of counsel, investment banking firms,
financial advisors, accountants, experts and
consultants to the Corporation, Merger Sub and
the Trust or any of their affiliates. See "The
Merger Agreement -- Certain Fees and Expenses."
INTERESTS OF CERTAIN PERSONS
IN THE MERGER In considering the recommendation of the ITT
Board, ITT stockholders should be aware that
certain members of ITT's management and the ITT
Board may have interests in the Merger that are
different from, or in addition to, the
interests of ITT stockholders generally, and
that may create potential conflicts of
interest. Two executive officers of ITT, Mr.
Araskog and Mr. Bowman, are members of the ITT
Board that approved the Merger. Directors,
officers and employees of ITT have certain
rights with respect to stock options and stock
appreciation rights, severance provisions under
existing employment contracts and
indemnification, exculpation and insurance in
connection with the Merger. See "The
Merger -- Interests of Certain Persons in the
Merger -- ITT Affiliates."
15
<PAGE> 20
In considering the recommendations of the
Starwood Lodging Boards, shareholders and
stockholders of Starwood Lodging should be
aware that, as described below, certain members
of Starwood Lodging's management and the
Starwood Boards may have interests in the
Merger that are different from, or in addition
to, the interests of Starwood Lodging
shareholders and stockholders generally, and
that may create potential conflicts of
interest. Starwood Lodging engaged Starwood
Capital Group, L.L.C. ("Starwood Capital") as
its financial advisor in connection with the
transactions contemplated by the Merger
Agreement. Directors, Trustees, officers and
employees of Starwood Lodging also have certain
rights with respect to stock options and
restricted stock awards. See "The
Merger -- Interests of Certain Persons in the
Merger -- Starwood Lodging Affiliates."
REGULATORY APPROVALS The consummation of the Merger is subject to
the expiration or termination of the relevant
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), approval of gaming regulators
in various jurisdictions in which ITT operates,
the Federal Communications Commission and the
U.S. Department of Education, certain state
educational regulators and certain
non-governmental educational accrediting
commissions. See "The Merger -- Regulatory
Approvals."
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES ITT Stockholders. A stockholder of ITT
generally will recognize gain in the Merger in
an amount equal to the excess, if any, of (a)
the amount of cash and the fair market value of
the Paired Shares received over (b) such
stockholder's adjusted basis in ITT Common
Stock exchanged therefor. A stockholder of ITT
generally will recognize loss in the Merger in
an amount equal to the excess, if any, of (a)
such stockholder's adjusted basis in his or her
ITT Common Stock over (b) the amount of cash
and the fair market value of the Paired Shares
received in exchange therefor. See "Certain
Federal Income Tax Consequences -- Federal
Income Tax Consequences of the Merger."
Starwood Lodging. No gain or loss should be
recognized by the Trust, the Corporation, the
shareholders of the Trust or the stockholders
of the Corporation as a result of the Merger.
The Special Distribution should be taxed to a
shareholder of the Trust as follows: first, as
a dividend to the extent of the allocable
portion of the Trust's earnings and profits;
second, as a return of capital to the extent of
such shareholder's adjusted basis in his or her
Trust Shares; and thereafter, as gain from the
sale or exchange of Trust Shares. Starwood
Lodging expects that the portion of the Special
Distribution that is taxable as a dividend will
be between $ and $ per Trust Share. See
"Certain Federal Income Tax Consequences --
Federal Income Tax Consequences of the
Special Distribution."
REIT Status of the Trust. The Trust has
elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code
of 1986, as amended (the "Code"), commencing
with its taxable year ended December 31, 1995.
The Trust expects to continue to operate in a
manner so as to qualify for taxation as a
16
<PAGE> 21
REIT after the Merger. The Trust's ability to
qualify for taxation as a REIT depends on the
Trust's ability to meet certain distribution
levels, specified diversity of stock ownership
and various other qualification tests imposed
under the Code. See "Certain Federal Income Tax
Consequences -- Federal Income Taxation of the
Trust."
ACCOUNTING TREATMENT The Merger is expected to be accounted for
using purchase accounting, with ITT being
deemed to have acquired Starwood Lodging.
17
<PAGE> 22
STARWOOD RECENT DEVELOPMENTS
On September 8, 1997, a Transaction Agreement (the "Transaction Agreement")
was entered into among the Trust, SLT Realty Limited Partnership (the "Realty
Partnership"), the Corporation and SLC Operating Limited Partnership (the
"Operating Partnership" and, together with the Trust, the Realty Partnership and
the Corporation, the "Starwood Entities"), WHWE L.L.C. ("WHWE"), Woodstar
Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation ("Nomura"),
Juergen Bartels ("Bartels" and, together with WHWE, Woodstar and Nomura, the
"Members"), Westin Worldwide, W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle
Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver
Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta" and, together with Westin
Worldwide, Lauderdale, Seattle, St. John and Denver, "Westin") and W&S Hotel
L.L.C., pursuant to which the Starwood Entities will acquire Westin (the "Westin
Acquisition"). At the annual meeting of shareholders of the Trust and the annual
meeting of the stockholders of the Corporation held on December 12, 1997, the
shareholders and stockholders of the Trust and Corporation, respectively,
approved the Westin Acquisition. Starwood Lodging currently contemplates closing
the Westin Acquisition in early January 1998.
WESTIN
As of December , 1997, Westin owns, manages, franchises or represents 108
first class hotel and resort properties worldwide. Westin's primary business
strategy is to provide, for its own hotels and to the other owners of Westin's
hotel and resort properties, focused, responsive, high quality marketing,
reservations, management and, as appropriate, franchise services that are
designed to increase the operating revenues and profitability of the properties
and to increase hotel and resort customer satisfaction.
Westin was rated the highest among 11 U.S. upscale hotel chains in the 1997
Frequent Flier Magazine/JD Power and Associates Domestic Hotel Guest
Satisfaction Study, which surveyed over 6,000 business travelers in 1996 as to
certain aspects of a guest's stay.
Of the 108 Westin properties worldwide, 56 are owned or managed, 36 are
franchised and 16 are represented. Of the owned or managed hotels, Westin is the
100% owner of, or has a controlling or significant interest in, 11 properties
(six of which are fee simple real property ownership, two of which are the
ownership of the hotel subject to a ground lease and three of which are
leaseholds) and is a minority owner of five properties. In addition, Westin owns
and operates the unbranded Cherry Creek Inn in Denver, Colorado, and owns a 25%
interest in an office building in Seattle, Washington, which serves as the
corporate headquarters of Westin.
Westin Hotel Company, originally founded as Western Hotels in 1930, became
Western International Hotels in 1963 and adopted the Westin name and logo in the
late 1970's. It grew from its initial 17 hotels located in the Pacific Northwest
to 82 properties when it was acquired by its current ownership in May 1995, and
has since grown to its current 108 first class hotel and resort properties
throughout the world through a combination of its own hotel development efforts
and working with other hotel owners to enable Westin to serve as manager,
franchisor or representative. Today, Westin's hotel and resort properties are
located throughout the United States and in Argentina, Brazil, Canada, China,
England, France, Germany, Guatemala, Indonesia, Japan, Korea, Malaysia, Mexico,
the Netherlands, Panama, the Philippines, Portugal, Singapore, Switzerland and
Thailand.
THE TRANSACTION AGREEMENT
The Transaction Agreement provides that Westin Worldwide will be merged
into the Trust (the "Westin Merger"). In connection with the Westin Merger, all
of the issued and outstanding shares of capital stock of Westin Worldwide (other
than dissenting shares and shares held by Westin and its subsidiaries or shares
held by the Starwood Entities and their subsidiaries) will be converted into an
aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $.01 per
share (the "Class A EPS"), of the Trust and 5,294,783 Class B Exchangeable
Preferred Shares, stated value $38.50 per share (the "Class B EPS" and, together
with the Class A EPS, the "Exchangeable Preferred Shares"), of the Trust and
cash in the amount of $177.9 million. The Transaction Agreement provides for an
adjustment to the cash consideration paid in connection
18
<PAGE> 23
with the Westin Merger under certain circumstances, including adjustments based
on the aggregate indebtedness and working capital of Westin on the closing date
and the capital expenditures made by Westin between the date the Transaction
Agreement was signed and the closing date. The Transaction Agreement also
permits Westin Worldwide to make a cash dividend in an amount up to $160 million
to its stockholders in 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 the outstanding shares of
such companies to the Realty Partnership and 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 expected to
be incurred by the Members prior to such contributions. The Transaction
Agreement also permits Lauderdale and Seattle to make cash dividends in an
aggregate amount up to $6.0 million to their stockholders in 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 1997 in an amount equal to
Denver's earnings and profits for 1997, which dividend Denver had determined
that it expected to make prior to the execution of the Transaction Agreement and
irrespective of the closing under the Transaction Agreement. In the event that
Denver makes any such cash dividend, the cash portion of the consideration to be
paid in connection with the Westin Merger will be decreased by an amount equal
to the amount of such dividend.
The Transaction Agreement also contemplates that the stockholders of
Atlanta and St. John will contribute all the outstanding shares of such
companies to the Operating Partnership and 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 the indebtedness of Atlanta and St.
John and assume up to $6.0 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 permits Atlanta to pay a dividend of
such amount to its stockholders, which dividend Atlanta had determined that it
expected to make prior to the execution of the Transaction Agreement and
irrespective of the closing under the Transaction Agreement.
The Class A EPS, Class B EPS and partnership units to be issued in
connection with the Westin Merger and the contribution of Seattle, Lauderdale,
Denver, St. John and Atlanta to the Realty Partnership and the Operating
Partnership will directly or indirectly be exchangeable on a one-for-one basis
(subject to certain adjustments) for Paired Shares. The partnership units will
also be exchangeable for shares of Class B EPS on a one-for-one basis. In
addition, shares of Class B EPS will have a liquidation preference of $38.50 and
provide the holders with certain rights to require the Trust to redeem such
shares of at a price of $38.50 after the fifth anniversary of the closing date.
See "Description of Starwood Securities -- Preferred Shares."
The foregoing summary of the Transaction Agreement is qualified in its
entirety by reference to the text of the Transaction Agreement, a copy of which
is filed as an Exhibit to the Joint Current Report on Form 8-K of Starwood
Lodging dated September 9, 1997 and which is incorporated herein by reference.
19
<PAGE> 24
ITT SUMMARY SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
which have been derived from ITT's audited consolidated financial statements as
of and for the three years ended December 31, 1996 and ITT's unaudited
consolidated financial statements as of and for the two years ended December 31,
1993 and for the nine months ended September 30, 1997 and 1996 and as of
September 30, 1997. The following information is qualified in its entirety by
the historical financial information and related notes of ITT and Management's
Discussion and Analysis of Financial Condition and Results of Operations set
forth in ITT's Annual Report on Form 10-K for the year ended December 31, 1996
and ITT's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997, which are incorporated by reference
herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................................... $4,897 $4,805 $6,597 $6,252 $4,709 $4,169 $4,253
Income from continuing operations before
accounting changes(1).......................... 340 183 249 147 74 39 2
Earnings per share from continuing operations
before accounting changes(1)................... 2.87 1.54 2.11 1.24 .63 .33 .02
OPERATING DATA:
Operating income................................. 452 527 728 568 292 142 34
EBITDA(2):....................................... 672 724 1,004 821 424 251 114
Cash from continuing operating activities........ 199 300 525 504 230 186 143
Number of employees (in thousands)............... 38 38 38 38 25 18 18
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $9,187 $9,275 $8,692 $5,012 $3,791 $3,375
Long-term debt, including capital leases......... 3,699 3,894 3,575 600 169 186
</TABLE>
- ---------------
(1) Excluding several one-time items and the results of certain assets held for
sale, income from continuing operations and earnings per share from
continuing operations for the first nine months of 1997 were $201 and $1.70,
respectively, compared with $176 and $1.49, respectively, for the first nine
months of 1996. These comparable year-over-year results represent increases
of 14% and 14% in income from continuing operations and earnings per share
from continuing operations, respectively. The one-time items reflected in
the 1997 results include (i) a $183 pre-tax gain on the sale of 7.5 million
shares of Alcatel Alsthom, (ii) a $200 pre-tax gain on the sale of ITT's
39.8% ownership interest in Madison Square Garden, (iii) a $58 pre-tax
charge in connection with the restructuring of ITT's World Headquarters
operations and (iv) a $46 pre-tax charge of costs associated with the
unsolicited tender offer by Hilton Hotels Corporation ("Hilton") for shares
of ITT Common Stock.
(2) EBITDA, as defined in the following sentence, is presented here as an
alternative measure of ITT's ability to generate cash flow and should not be
construed as an alternative to operating income or to cash flows from
operating activities (which have been determined in accordance with
generally accepted accounting principles). EBITDA was computed above as
earnings before interest, taxes, depreciation, amortization, gains on asset
sales, assets held for sale, restructuring charges, service fee income and
miscellaneous income (expense), net. Management of ITT believes the EBITDA
information presented supplementally is a useful measure of operating
performance because it is industry practice to evaluate hotel and gaming
properties based on operating income before interest, income taxes,
depreciation and amortization, which is generally equivalent to EBITDA, and
because it is customarily used by certain investors and analysts, together
with net income and cash flow from operations as defined by generally
accepted accounting principles, in evaluating a company's ability to service
its debt. The calculation of EBITDA does not include the commitments of ITT
for capital expenditures and payment of debt. Because of the significance of
items excluded in determining EBITDA, this information should not be
considered as an alternative to any measure of performance or liquidity nor
should it be considered as an indicator of the overall financial performance
of ITT. ITT's definition of EBITDA as presented herein may not be comparable
to similarly titled measures of other companies due to the inclusion or
exclusion of certain financial measures.
20
<PAGE> 25
STARWOOD LODGING SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected combined consolidated and separate
consolidated historical and pro forma financial information for Starwood
Lodging. The following information should be read in conjunction with (i) the
historical financial statements and notes thereto for Starwood Lodging, (ii)
Management's Discussion and Analysis of Combined Financial Condition and Results
of Operations, which are included in Starwood Lodging's Joint Annual Report on
Form 10-K for the year ended December 31, 1996 and Starwood Lodging's Joint
Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, June 30,
1997 and September 30, 1997, and (iii) Starwood Lodging's Current Reports on
Form 8-K dated February 10, 1997, February 14, 1997, March 20, 1997, March 21,
1997, September 9, 1997, September 10, 1997, October 21, 1997, November 12, 1997
and November 13, 1997. Pro forma financial information relating to Starwood
Lodging's acquisitions of ITT and Westin is contained in Starwood Lodging's
Current Report on Form 8-K dated November 12, 1997. The historical operating
information of Starwood Lodging as of December 31, 1996, 1995, 1994, 1993 and
1992 and for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 have
been derived from financial statements that are not required to be included in
this Joint Proxy Statement/Prospectus. In the opinion of management of Starwood
Lodging, the financial data as of September 30, 1997 and 1996 and for the nine
months ended September 30, 1997 and 1996 include all adjustments necessary to
present fairly the information set forth therein.
The pro forma operations and other data for the nine months ended September
30, 1997 and for the year ended December 31, 1996 have been prepared as if the
acquisitions of Westin and ITT had been consummated on January 1, 1996. The pro
forma financial information is not necessarily indicative of what the actual
financial position and results of operations of Starwood Lodging would have been
as of and for the periods indicated, nor does it purport to represent Starwood
Lodging's future financial position and results of operations.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------- -------------------------------------------------------------------
PRO PRO
PRO FORMA PRO FORMA
FORMA WESTIN FORMA WESTIN
WESTIN AND ITT WESTIN AND ITT
1997 1997 1997 1996(5) 1996 1996 1996 1995 1994 1993 1992
------ ------- ------ ------- ------ ------- ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue:
Trust.......... $ 245 $ 373 $ 181 $ 63 $ 185 $ 356 $ 115 $ 44 $ 22 $ 20 $ 27
Corporation.... 893 5,790 619 225 754 7,351 410 149 111 115 116
Combined(1).... $ 911 $5,808 $ 633 $ 235 $ 776 $7,373 $ 429 $ 162 $ 114 $ 117 $ 118
Net income
(Loss):
Trust(2)....... $ 12 $ 134 $ 31 $ 21 $ (10) $ 152 $ 34 $ 11 $ (4) $ (4) $ (10)
Corporation(2).. 14 (20) (6) (1) 12 (12) (7) (2) (1) (3) (10)
----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Combined....... $ 26 $ 114 $ 25 $ 20 $ 2 $ 140 $ 27 $ 9 $ (5) $ (7) $ (20)
Net Income (Loss)
Per
Share/Paired
Share(3):
Trust.......... $0.17 $ 0.70 $ 0.66 $ 0.78 $(0.19) $ 0.87 $ 1.12 $ 0.92 $(1.14) $(1.28) $(3.24)
Corporation.... 0.20 (0.10) (0.13) (0.02) 0.22 (0.07) (0.22) (0.15) (0.39) (1.04) (3.27)
----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Combined....... $0.37 $ 0.60 $ 0.53 $ 0.76 $ 0.03 $ 0.80 $ 0.90 $ 0.77 $(1.53) $(2.32) $(6.51)
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------------
PRO
PRO FORMA
FORMA WESTIN AS OF DECEMBER 31,
WESTIN AND ITT ----------------------------------
1997 1997 1997 1996(5) 1996 1995 1994 1993 1992
--------- --------- ------ ------- ------ ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets:
Trust............................ $ 4,264 $ 6,277 $2,491 $1,140 $1,233 $426 $162 $233 $246
Corporation...................... 877 12,547 372 174 185 121 49 50 54
Combined(1)...................... $ 4,605 $16,275 $2,596 $1,214 $1,313 $460 $184 $195 $211
Total Debt:
Trust............................ $ 2,144 $ 2,144 $1,435 $ 424 $ 478 $119 $147 $157 $158
Corporation...................... 537 9,506 268 101 108 91 41 102 100
Combined(1)...................... $ 2,145 $ 9,101 $1,436 $ 425 $ 480 $123 $160 $171 $170
Shareholder's Equity (Deficit):
Trust............................ $ 1,554 $ 3,582 $ 760 $ 566 $ 569 $205 $ 11 $ 72 $ 76
Corporation...................... 82 633 32 30 23 11 (2) (59) (56)
------- ------- ------- ------- ------- ---- ---- ---- ----
Combined......................... $ 1,636 $ 4,215 $ 792 $ 596 $ 592 $216 $ 9 $ 13 $ 20
Paired Shares outstanding at end of
period(3)........................ 68 189 46 40 40 21 3 3 3
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
--------------- ----------------------------------
1997 1996(5) 1996 1995 1994 1993 1992
----- ------- ----- ----- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW AND DIVIDEND DATA
Net cash provided by operating activities:
Trust................................................... $ 111 $ 40 $ 62 $ 11 $ 5 $ 3 $ 3
Corporation............................................. (13) 8 12 5 4 2 2
Combined................................................ $ 98 $ 48 $ 74 $ 16 $ 9 $ 5 $ 5
Net cash provided by (used in) investing activities:
Trust................................................... $(932) $(715) $(726) $(176) $ 8 $ 2 $
Corporation............................................. (12) (33) (34) (44) (4) (1)
Combined(1)............................................. $(919) $(732) $(747) $(182) $ 4 $(4) $(1)
Net cash provided by (used in) financing activities:
Trust................................................... $ 820 $ 686 $ 668 $ 165 $(13) $(7) $(1)
Corporation............................................. 29 35 34 43 (5) (1) (1)
Combined(1)............................................. $ 823 $ 705 $ 689 $ 170 $(14) $(7) $(1)
Cash distributions to shareholders -- Trust(4).......... $ 66 $ 30 $ 46 $ 9 $ 0 $ 0 $ 0
Cash distributions per share -- Trust(3)(4)............. $1.26 $0.95 $1.36 $0.62 $ 0 $ 0 $ 0
</TABLE>
- ---------------
(1) The individual amounts with respect to the Trust and the Corporation do not
add to Combined amounts due to accounting elimination entries.
(2) For the Trust, includes gains (losses) on sales in the amount of $4,290,000,
($125,000), $432,000, ($53,000) and ($791,000) for the years ended December
31, 1996, 1995, 1994, 1993 and 1992, respectively, and $283,000 and
($1,384,000) for the nine months ended September 30, 1997 and 1996,
respectively, and provisions for investment losses of $759,000, $2,369,000
and $3,419,000 in the years ended December 31, 1994, 1993 and 1992,
respectively. For the Corporation, includes gains (losses) on sales of
$24,000, $74,000 and $4,000 for the years ended December 31, 1994, 1993 and
1992, respectively, and ($504,000) for the nine months ended September 30,
1997.
(3) As adjusted for a one-for-six reverse stock split in June 1995 and a
three-for-two stock split in January 1997.
(4) Presented only for the Trust, as the Corporation did not pay cash dividends
for the periods presented.
(5) Reflects the Company's interest in the Boston Park Plaza on an equity basis.
22
<PAGE> 27
COMPARATIVE PER SHARE DATA
Set forth below are historical and pro forma earnings per share, cash
dividends per share and book value per share data of Starwood Lodging and ITT
and equivalent pro forma per common share data of ITT. The data set forth below
should be read in conjunction with the Starwood Lodging and ITT audited
consolidated financial statements and unaudited interim consolidated financial
statements, including the notes thereto, which are incorporated by reference in
this Joint Proxy Statement/Prospectus. The data should also be read in
conjunction with the unaudited pro forma consolidated condensed financial
information incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
STARWOOD LODGING COMBINED - HISTORICAL
Net income per Paired Share................................. $ .53 $ .90
Cash dividends per Paired Share............................. $ 1.17 $ 1.36
Book value per Paired Share................................. $ 17.32 $14.79
ITT - HISTORICAL
Net income per share........................................ $ 2.87 $ 2.11
Cash dividends per share.................................... -- --
Book value per share........................................ $ 28.79 $26.50
STARWOOD LODGING COMBINED - PRO FORMA (WESTIN)
Income from operations per Paired Share..................... $ .37 $ .03
Cash dividends per Paired Share............................. $ 1.26 $ 1.36
Book value per Paired Share................................. $ 28.99 --
STARWOOD LODGING COMBINED - PRO FORMA (WESTIN AND ITT)
Net Income per Paired Share................................. $ .60 $ .80
Cash Dividends per Paired Share............................. $ 1.26 $ 1.36
Book value per Paired Share................................. $ 23.68 --
ITT - PRO FORMA
Net Income per share........................................ $ 1.75 $ 2.55
Cash dividends per share.................................... -- --
Book value per share........................................ $ 28.79 --
</TABLE>
23
<PAGE> 28
COMPARATIVE MARKET PRICES
The Paired Shares are traded principally on the NYSE under the symbol
"HOT." ITT Common Stock is listed and principally traded on the NYSE under the
symbol "ITT." The following table sets forth for the periods indicated, the high
and low sales price, as reported on the NYSE Composite Transactions Tape, and
distributions made per Paired Share (as adjusted for the one-for-six reverse
stock split in June 1995 and the three-for-two stock split in January 1997) and
per share of ITT Common Stock.
<TABLE>
<CAPTION>
PAIRED SHARES
------------------------------------------------- ITT COMMON STOCK
RETURN OF
DISTRIBUTIONS CAPITAL GAAP ----------------
HIGH LOW MADE BASIS(a) HIGH LOW
------ ------ ------------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1997
First quarter....................... $45.88 $34.50 $0.39 $ 0.21 $60.50 $41.13
Second quarter...................... $42.81 $34.25 $0.39 $ 0.01 $61.75 $57.33
Third quarter....................... $58.13 $41.38 $0.48 $ 0.48 $68.63 $60.83
Fourth quarter
(through December ,1997) $ $ $ $ $ $
1996
First quarter....................... $23.25 $19.67 $0.31 $ 0.11 $62.23 $47.38
Second quarter...................... $25.75 $21.17 $0.33 -- $68.25 $56.88
Third quarter....................... $27.92 $22.08 $0.33 $ 0.14 $66.63 $43.00
Fourth quarter...................... $36.75 $27.42 $0.39(b)(c) $ 0.22 $46.50 $40.88
1995
First quarter....................... $16.00 $10.50 None N/A N/A N/A
Second quarter...................... $16.50 $14.00 None N/A N/A N/A
Third quarter....................... $19.42 $15.75 $0.31 $ 0.14 N/A N/A
Fourth quarter...................... $20.00 $17.92 $0.31(d) $ 0.11 $53.13 $47.50
</TABLE>
- -------------------------
(a) Represents distributions per Paired Share in excess of net income per Paired
Share on a generally accepted accounting principles basis, and is not the
same as return of capital on a tax basis.
(b) The Trust declared a distribution for the fourth quarter of 1996 to
shareholders of record on December 30, 1996. The distribution was paid in
January 1997.
(c) During the fourth quarter of 1996 the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend
payable to shareholders of record on December 30, 1996. The stock dividend
was paid in January 1997.
(d) The Trust declared a distribution for the fourth quarter of 1995 to
shareholders of record on December 29, 1995. The distribution was paid in
January 1996.
On October 17, 1997, the last trading day prior to the first public
announcement of the Merger, the last sales price per Paired Share as reported on
the NYSE Composite Transactions Tape was $56.50 and the last sales price per
share of ITT Common Stock as reported on the NYSE Composite Transactions Tape
was $70.375. On December , 1997, the most recent practicable date prior to the
printing of this Joint Proxy Statement/Prospectus, the last sales price per
Paired Share as reported on the NYSE Composite Transactions Tape was $
and the last sales price per share of ITT Common Stock as reported on the NYSE
Composite Transactions Tape was $ .
ITT has not declared or paid any cash dividends on the shares of ITT Common
Stock to date and presently has no plans to declare or pay any cash dividends.
As of December , 1997, there were approximately 56,000 holders of record of
ITT Common Stock.
During the fourth quarter of 1996 the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend payable
to shareholders and stockholders of record on December 30, 1996. The stock
dividend was paid in January 1997. The Trust declared and paid dividends of
$0.48 per share for the third quarter of 1997 and $0.39 per share for each of
the first and second quarters of 1997 and $0.31, $0.33,
24
<PAGE> 29
$0.33 and $0.39 per share (as adjusted for the three-for-two stock split in
January 1997) for the first, second, third and fourth quarters of 1996,
respectively. The Trust declared and paid a dividend of $0.31 per share (as
adjusted for the three-for-two stock split in January 1997) for the third and
fourth quarters of 1995. The fourth quarter dividend was paid in January 1996.
No distributions were made by the Trust during 1994.
The Corporation has not paid any cash dividends since its organization and
does not anticipate that it will make any such distributions in the near future.
Under the terms of its lines of credit, Starwood Lodging is generally permitted
to distribute to its shareholders on an annual basis an amount equal to the
greatest of (i) 95% of combined funds from operations for any four consecutive
calendar quarters, (ii) an amount sufficient to maintain the Trust's tax status
as a real estate investment trust and (iii) the amount necessary for the Trust
to avoid the payment of federal income or excise tax.
25
<PAGE> 30
THE MEETINGS
DATE, PLACE AND TIME
STARWOOD MEETINGS. The Trust Meeting and the Corporation Meeting are to be
held on January , 1998 at .m. and .m. (local time), respectively, at
.
THE ITT MEETING. The ITT Meeting is to be held on January , 1998 at
, local time, at .
MATTERS TO BE CONSIDERED
THE TRUST MEETING. At the Trust Meeting, the shareholders of the Trust
will consider and vote upon (i) the Shares Issuance Proposal, (ii) the Special
Distribution Proposal, (iii) the Trust Amendment and (iv) such other business as
may properly come before the Trust Meeting.
The Trust Board is not aware of any other matter that will be presented at
the Trust Meeting. If any other matter is presented at the Trust Meeting, the
persons named as proxies on the enclosed proxy card will, in the absence of
shareholder instructions to the contrary, vote the Trust Shares for which such
persons have voting authority in accordance with their best judgment on such
matter.
THE CORPORATION MEETING. At the Corporation Meeting, the stockholders of
the Corporation will consider and vote upon (i) the Shares Issuance Proposal,
(ii) the Special Distribution Proposal, (iii) the Corporation Amendment and (iv)
such other business as may properly come before the Corporation Meeting.
The Corporation Board is not aware of any other matter that will be
presented at the Corporation Meeting. If any other matter is presented at the
Corporation Meeting, the persons named as proxies on the enclosed proxy card
will, in the absence of stockholder instructions to the contrary, vote the
Corporation Shares for which such persons have voting authority in accordance
with their best judgment on such matter.
THE ITT MEETING. At the ITT Meeting, the stockholders of ITT will consider
and vote upon (i) the ITT Proposal and (ii) such other business as may properly
come before the ITT Meeting.
The ITT Board is not aware of any other matter that will be presented at
the ITT Meeting. If any other matter is presented at the ITT Meeting, the
persons named as proxies on the enclosed proxy card will, in the absence of
stockholder instructions to the contrary, vote the shares of ITT Common Stock
for which such persons have voting authority in accordance with their best
judgment on such matter.
VOTING RIGHTS
THE TRUST. The Trust Board has fixed the close of business on December ,
1997 as the record date (the "Trust Record Date") for determining the
shareholders entitled to notice of, and to vote at, the Trust Meeting. On the
Trust Record Date there were outstanding and entitled to vote Trust
Shares held of record by approximately persons. The Trust Shares are the
only outstanding class of voting securities of the Trust on the Trust Record
Date and each shareholder of the Trust will be entitled to one vote for each
Trust Share held of record by such shareholder on the Trust Record Date on each
matter that may be properly submitted to a vote at the Trust Meeting.
A majority of the outstanding Trust Shares entitled to vote must be
present, either in person or by duly executed proxy, at the Trust Meeting in
order to constitute a quorum for the transaction of business. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum at the Trust Meeting.
As of the Trust Record Date, trustees and officers of the Trust as a group
had the right to vote an aggregate of Trust Shares, representing
approximately % of the Trust Shares outstanding on such date. All such
trustees and officers have indicated that they intend to vote all such shares
held by them in favor of approval of the Shares Issuance Proposal, the Special
Distribution Proposal and the Trust Amendment.
26
<PAGE> 31
THE CORPORATION. The Corporation Board has fixed the close of business on
December , 1997 as the record date (the "Corporation Record Date") for
determining the stockholders entitled to notice of, and to vote at, the
Corporation Meeting. On the Corporation Record Date there were outstanding and
entitled to vote Corporation Shares held of record by approximately
persons. The Corporation Shares are the only outstanding class of voting
securities of the Corporation on the Corporation Record Date and each
stockholder of the Corporation will be entitled to one vote for each Corporation
Share held of record by such stockholder on the Corporation Record Date on each
matter that may be properly submitted to a vote at the Corporation Meeting.
A majority of the outstanding Corporation Shares entitled to vote must be
present, either in person or by duly executed proxy, at the Corporation Meeting
in order to constitute a quorum for the transaction of business. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum at the Corporation Meeting.
As of the Corporation Record Date, directors and officers of the
Corporation as a group had the right to vote an aggregate of Corporation
Shares, representing approximately % of the Corporation Shares outstanding on
such date. All such directors and officers have indicated that they intend to
vote all such shares held by them in favor of approval of the Shares Issuance
Proposal, the Special Distribution Proposal and the Corporation Amendment.
ITT. The ITT Board has fixed the close of business on December , 1997 as
the record date (the "ITT Record Date") for determining the stockholders
entitled to notice of, and to vote at, the ITT Meeting. On the ITT Record Date
there were outstanding and entitled to vote shares of ITT Common Stock
held of record by approximately persons. The ITT Common Stock is the only
outstanding class of voting securities of ITT and each stockholder of ITT will
be entitled to one vote for each share of ITT Common Stock held of record by
such stockholder on the ITT Record Date on each matter that may be properly
submitted to a vote at the ITT Meeting.
A majority of the outstanding shares of ITT Common Stock entitled to vote
must be present, either in person or by duly executed proxy, at the ITT Meeting
in order to constitute a quorum for the transaction of business. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum at the ITT Meeting.
As of the ITT Record Date, directors and officers of ITT as a group had the
right to vote an aggregate of shares of ITT Common Stock, representing
approximately % of the shares of ITT Common Stock outstanding on such date.
All such directors and officers have indicated that they intend to vote all such
shares held by them in favor of approval of the ITT Proposal.
PROXIES
THE TRUST. Each Trust Share represented at the Trust Meeting by a duly
executed proxy solicited by the Trust Board will, unless such proxy previously
has been revoked, be voted at the Trust Meeting in accordance with the
shareholder instructions specified thereon. If no instructions are specified,
such Trust Shares will be voted FOR the approval of the Shares Issuance
Proposal, the Special Distribution Proposal and the Trust Amendment.
If a quorum is not present at the time the Trust Meeting is convened, or if
for any other reason the Trust Board believes that the Trust Meeting should be
adjourned or postponed, the Trust Meeting may be adjourned or postponed with or
without a vote of the shareholders. If the Trust Board proposes to adjourn or
postpone the Trust Meeting by a vote of the shareholders, the persons named as
proxies on the enclosed proxy card will vote all Trust Shares for which such
persons have voting authority in favor of such adjournment or postponement.
A shareholder of the Trust may revoke a proxy at any time prior to exercise
of such proxy by (i) filing with the Secretary of the Trust an instrument of
revocation bearing a date later than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same Trust Shares and delivering such proxy
to the Secretary of the Trust or (iii) attending the Trust Meeting and voting in
person, although attendance at the Trust Meeting will not in and of itself
constitute a revocation of a proxy. Any instrument of revocation should be sent
to Starwood Lodging Trust, 2231 E. Camelback Road, Suite 410, Phoenix, Arizona
85016, Attention: Ronald C. Brown.
27
<PAGE> 32
THE CORPORATION. Each Corporation Share represented by a duly executed
proxy solicited by the Corporation Board will, unless such proxy previously has
been revoked, be voted at the Corporation Meeting in accordance with the
stockholder instructions specified thereon. If no instructions are specified,
such Corporation Shares will be voted FOR the approval of the Shares Issuance
Proposal, the Special Distribution Proposal and the Corporation Amendment.
If a quorum is not present at the time the Corporation Meeting is convened,
or if for any other reason the Corporation Board believes that the Corporation
Meeting should be adjourned or postponed, the Corporation Meeting may be
adjourned or postponed with or without a vote of the stockholders. If the
Corporation Board proposes to adjourn or postpone the Corporation Meeting by a
vote of the stockholders, the persons named as proxies on the enclosed proxy
card will vote all Corporation Shares for which those persons have voting
authority in favor of such adjournment or postponement.
A stockholder of the Corporation may revoke a proxy at any time prior to
exercise of such proxy by (i) filing with the Secretary of the Corporation an
instrument of revocation bearing a date later than the date of the proxy, (ii)
duly executing a subsequent proxy relating to the same Corporation Shares and
delivering such proxy to the Secretary of the Corporation or (iii) attending the
Corporation Meeting and voting in person, although attendance at the Corporation
Meeting will not in and of itself constitute a revocation of a proxy. Any
instrument of revocation should be sent to: Starwood Lodging Corporation, 2231
E. Camelback Road, Suite 400, Phoenix, Arizona 85016, Attention: Nir E.
Margalit.
ITT. Each share of ITT Common Stock represented by a duly executed proxy
solicited by the ITT Board will, unless such proxy previously has been revoked,
be voted at the ITT Meeting in accordance with the stockholder instructions
specified thereon. If no instructions are specified, such shares of ITT Common
Stock will be voted FOR the approval of the ITT Proposal.
If a quorum is not present at the time the ITT Meeting is convened, or if
for any other reason the ITT Board believes that the ITT Meeting should be
adjourned or postponed, the ITT Meeting may be adjourned or postponed with or
without a vote of the stockholders. If the ITT Board proposes to adjourn or
postpone the ITT Meeting by a vote of the stockholders, the persons named as
proxies on the enclosed proxy card will vote all shares of ITT Common Stock for
which those persons have voting authority in favor of such adjournment or
postponement.
A stockholder of ITT may revoke a proxy at any time prior to exercise of
such proxy by (i) filing with the Secretary of ITT an instrument of revocation
bearing a date later than the date of the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of ITT Common Stock and delivering
such proxy to the Secretary of ITT or (iii) attending the ITT Meeting and voting
in person, although attendance at the ITT Meeting will not in and of itself
constitute a revocation of a proxy. Any instrument of revocation should be sent
to: ITT Corporation, 1330 Avenue of the Americas, New York, New York 10019,
Attention: Corporate Secretary.
SOLICITATION OF PROXIES
The expenses of the solicitation of proxies by the Trust Board and the
Corporation Board, including the costs of preparing this Joint Proxy
Statement/Prospectus, will be borne by the Trust and the Corporation, except
that expenses incurred in connection with printing and mailing this Joint Proxy
Statement/Prospectus will be borne equally by the Corporation and ITT. Except as
provided in the foregoing sentence, the expenses of the solicitation of proxies
by the ITT Board will be borne by ITT. In addition to solicitation by use of the
mails, proxies may be solicited in person or by telephone, facsimile or other
appropriate means of communication by trustees, directors, officers and
employees of the Trust, the Corporation or ITT. Such individuals will receive no
additional compensation for, but may be reimbursed for their out-of-pocket
expenses incurred in connection with, such solicitation. The Trust and the
Corporation have engaged the services of D.F. King & Co., Inc. to solicit
proxies and to assist in the distribution of proxy materials for a fee of
$ plus reimbursement of reasonable out-of-pocket expenses. ITT has
engaged the services of Georgeson & Company Inc. to solicit proxies and to
assist in the distribution of proxy materials for a fee of $ plus
reimbursement of reasonable out-of-pocket expenses. The Trust and the
Corporation will
28
<PAGE> 33
reimburse persons holding Paired Shares, and ITT will reimburse persons holding
shares of ITT Common Stock, in their names or the names of their nominees but
not owning such shares beneficially (such as brokerage houses, banks and other
fiduciaries) for out-of-pocket expenses incurred in forwarding soliciting
materials to the beneficial owners of such shares.
INDEPENDENT ACCOUNTANTS
It is expected that representatives of Coopers & Lybrand, L.L.P., Starwood
Lodging's independent accountants, will be present at the Starwood Lodging
Meetings. Such representatives will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions. It is expected that representatives of Arthur Andersen LLP, ITT's
independent accountants, will be present at the ITT Meeting. Such
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
THE MERGER
This section of the Joint Proxy Statement/Prospectus, as well as the
section entitled "The Merger Agreement," describe certain aspects of the Merger.
To the extent that it relates to the Merger Agreement, the following description
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached as Annex A and is incorporated
herein by reference. All shareholders and stockholders are urged to read the
Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
required approvals of the ITT stockholders and Starwood Lodging shareholders and
stockholders are obtained and all other conditions to the Merger are satisfied
or waived. Upon consummation of the Merger, Merger Sub will be merged with and
into ITT and ITT will become a subsidiary of the Corporation.
Upon consummation of the Merger, each outstanding share of ITT Common
Stock, together with the associated Right (other than shares owned by ITT, the
Starwood Companies or their respective wholly owned subsidiaries), will be
converted into the right to receive, at the holder's election, $85 in cash or
Paired Shares at the Exchange Ratio, subject to the collar provisions described
in "The Merger Agreement -- Conversion of Shares" (together with the Interest
Payment, if any, the "Merger Consideration"); provided that the aggregate number
of shares of ITT Common Stock to be converted into the right to receive cash
will neither exceed 30% nor be less than 18% of the total number of shares of
ITT Common Stock outstanding immediately prior to the Effective Time. If the
Merger closes after January 31, 1998, each holder of ITT Common Stock will also
be entitled to receive for each share of ITT Common Stock converted in the
Merger the Interest Payment in an amount equal to the interest that would accrue
(without compounding) on $85 at an annual rate of 7% during the period from and
including January 31, 1998 to but excluding the date of closing of the Merger.
For a more detailed explanation of the method by which the Exchange Ratio will
be determined, including a toll-free telephone number that stockholders of ITT
or shareholders and stockholders of Starwood Lodging may call to receive
information regarding the Exchange Ratio, see "The Merger Agreement -- Exchange
of Certificates." Cash will be delivered in lieu of fractional shares.
BACKGROUND OF THE MERGER
On January 27, 1997, Hilton Hotels Corporation ("Hilton") and its wholly
owned subsidiary, HLT Corporation ("HLT"), commenced a hostile tender offer (the
"Hilton Offer") for 61,145,475 shares of ITT Common Stock (including the
associated Rights), or such greater number of shares of ITT Common Stock as,
when added to the number of shares owned by HLT and its affiliates, would
constitute a majority of the total number of outstanding shares of ITT Common
Stock, at $55 per share in cash. Hilton announced that, if the Hilton Offer
succeeded, Hilton intended to consummate a merger (the "Proposed Squeeze Out
Merger" and, together with the Hilton Offer, the "Hilton Transaction") pursuant
to which all shares of ITT Common Stock not tendered and purchased pursuant to
the Hilton Offer (other than shares owned by Hilton and its
29
<PAGE> 34
affiliates or held in ITT's treasury) would be converted into the right to
receive a number of shares of Hilton common stock, par value $2.50 per share
("Hilton Common Stock"), having a nominal value of $55 per share, subject to
then unspecified collar provisions. The terms of the Hilton Transaction and all
revisions thereto are set forth in a Tender Offer Statement on Schedule 14D-1
and amendments and exhibits thereto (the "Hilton Schedule 14D-1") filed by
Hilton and HLT with the Commission.
On February 11, 1997, the ITT Board determined that the Hilton Offer was
inadequate and not in the best interests of ITT and recommended that ITT
stockholders reject the Hilton Transaction and not tender their shares of ITT
Common Stock in the Hilton Offer. The ITT Board also determined that ITT's and
its stockholders' interests would be best served if ITT were to remain an
independent entity.
During the spring of 1997, Hilton commenced efforts to replace the ITT
Board members with individuals committed to consummating the Hilton Transaction.
Hilton filed definitive proxy materials with the Commission on March 21, 1997,
soliciting proxies to, among other things, replace the eleven ITT directors
standing for re-election with up to 25 persons nominated by Hilton and HLT.
Hilton also filed a motion in the U.S. District Court for the District of Nevada
seeking to require ITT to hold its 1997 annual meeting of stockholders in May of
1997. The Nevada Federal court denied Hilton's motion on April 21, 1997 and the
ITT Board took no action to hold ITT's 1997 annual meeting of stockholders in
May 1997.
On July 15, 1997, the ITT Board approved a plan (the "Comprehensive Plan")
involving the separation of ITT into three distinct publicly owned companies
focused on (a) hotels and gaming, (b) post-secondary technical education and (c)
telephone directories publishing, through the distribution to ITT stockholders
of all the shares owned by ITT of a subsidiary formed to hold ITT's hotels and
gaming assets and ITT Educational Services, Inc., ITT's subsidiary that operates
its post-secondary technical education business. The Comprehensive Plan also
involved a cash tender offer by ITT for up to 30 million shares of ITT Common
Stock at a price per share of $70 and the allocation of ITT's indebtedness
between its hotels and gaming business and its telephone directories publishing
business.
Following the commencement of the Hilton Offer, officers of Starwood
Lodging initiated several discussions with officers of ITT to discuss the
possibility of combining the two companies. Although ITT's management and
financial advisors undertook preliminary reviews of Starwood Lodging, ITT did
not pursue the possibility of an acquisition by Starwood Lodging because the ITT
Board had determined to pursue a policy of independence for ITT. These
preliminary contacts did not proceed to more serious discussions.
On August 7, 1997, Hilton announced that it was raising the consideration
payable in the Hilton Offer and the Proposed Squeeze Out Merger to $70 per share
of ITT Common Stock. At a meeting held on August 14, 1997, the ITT Board
considered the amended terms of the Hilton Offer and determined that the Hilton
Offer, as amended at that time, was inadequate and not in the best interests of
ITT and ITT's stockholders. On August 25, 1997, Hilton filed a motion in the
Nevada Federal court for injunctive and preliminary relief seeking, among other
things, to enjoin ITT from proceeding with the Comprehensive Plan. On September
29, 1997, the Nevada Federal court ruled that ITT may not consummate the
Comprehensive Plan before holding an annual meeting of stockholders where Hilton
had an opportunity to nominate a slate of directors. The ITT Board set the date
of ITT's 1997 annual meeting of stockholders for November 12, 1997. Thereafter,
ITT filed proxy materials with the Commission soliciting proxies for the
re-election of the existing members of the ITT Board, which indicated that the
existing ITT Board, subject to its fiduciary duties, planned to pursue the
Comprehensive Plan. ITT also filed a notice of appeal with respect to the Nevada
Federal court's ruling.
On September 30, 1997, Barry S. Sternlicht, Chairman and Chief Executive
Officer of the Trust, sent a short letter to Robert A. Bowman, President and
Chief Operating Officer of ITT, and followed up such letter with a telephone
call, to express his interest in meeting to discuss a possible transaction
between ITT and Starwood Lodging. In addition, several other third parties
approached ITT regarding a possible transaction with ITT. Although the ITT Board
continued to believe the Comprehensive Plan was superior to the Hilton Offer, in
light of the restrictions of the court ruling and the ITT Board's strong belief
that if ITT were to be sold consideration substantially greater than $70 per
share should be available, the ITT Board concurred that management should
determine more precisely the feasibility and possible terms of alternative
transactions so the ITT Board could make an informed judgment about the wisdom
of maintaining its policy of independence.
30
<PAGE> 35
The ITT Board did not authorize negotiations with any party at this point,
although it understood ITT would need to cooperate in due diligence so
interested parties could provide meaningful and concrete proposals.
As part of this process, after execution of a confidentiality agreement,
senior management and financial advisors of each of ITT and Starwood Lodging met
at ITT's headquarters to discuss generally the two companies and to agree on a
process for Starwood Lodging to obtain additional information regarding ITT.
Simultaneously, Mr. Sternlicht met with Rand V. Araskog, Chairman and Chief
Executive of ITT, and Richard S. Ward, Executive Vice President, General Counsel
and Corporate Secretary of ITT, to discuss the status of the Hilton Offer and
other procedural matters relating to Starwood Lodging's due diligence
investigation of ITT.
During early October, management of ITT and ITT's financial and legal
advisors had a number of discussions with management of Starwood Lodging and its
financial and legal advisors concerning financial and other information with
respect to each company and possible structures for a transaction between ITT
and Starwood Lodging.
On Friday, October 17, 1997, after hearing presentations from Starwood
Lodging's senior management and financial and legal advisors, the Starwood
Lodging Boards at a telephonic meeting authorized Mr. Sternlicht to present and
negotiate a proposal to ITT. At approximately 7:00 p.m. on October 17, 1997, Mr.
Sternlicht, another Trustee of Starwood Lodging and representatives of its
financial advisors met with Mr. Bowman and other members of senior management of
ITT and representatives of its financial advisors. At this meeting, Starwood
Lodging orally presented a proposal to acquire ITT and presented a draft of the
Agreement and Plan of Merger dated as of October 19, 1997, among the
Corporation, Merger Sub, the Trust and ITT (the "Original Merger Agreement"),
that did not include a "collar" provision.
At that point negotiations between the parties commenced. On the morning of
Saturday, October 18, 1997, the ITT Board convened a telephonic meeting during
which Starwood Lodging and its proposal to acquire ITT were discussed. The ITT
Board was concerned with several aspects of Starwood Lodging's acquisition
proposal and authorized management of ITT to negotiate with Starwood Lodging
concerning Starwood Lodging's proposal. During the weekend, details concerning
the transaction and the terms of the Original Merger Agreement were negotiated
between representatives of ITT and Starwood Lodging. On the evening of Sunday,
October 19, 1997, the ITT Board met at the offices of Cravath, Swaine & Moore
and the Starwood Lodging Boards held a meeting at the offices of Bear Stearns to
discuss the transaction and the terms of the Original Merger Agreement. At these
meetings, each party's respective board approved the Original Merger Agreement,
and promptly thereafter the Original Merger Agreement was executed. The Original
Merger Agreement provided for a merger (the "Original Merger") of Merger Sub
with and into ITT pursuant to which each outstanding share of ITT Common Stock
(other than shares owned by ITT, the Starwood Companies or any of their
respective subsidiaries) would have been converted into the right to receive $15
in cash and Paired Shares with a value of $67, subject to the same collar
provisions as the Merger.
On November 3, 1997, Hilton announced that it was raising the consideration
payable in the Hilton Offer and the Proposed Squeeze Out Merger to $80 per share
of ITT Common Stock and simultaneously increased the number of shares it was
offering to purchase to 65 million (the "Amended Hilton Transaction"). Under the
terms of the Amended Hilton Transaction, the Proposed Squeeze Out Merger would
have been amended so that each share of ITT Common Stock not tendered and
purchased in the Hilton Offer would have been converted into two shares of
Hilton Common Stock and two shares of Contingent Value Preferred Stock of Hilton
(the "CVP Shares"). Each CVP Share would have entitled the holder to receive
from Hilton, in cash or shares of Hilton Common Stock, the amount by which $40
exceeds the weighted average per share price of Hilton Common Stock measured
during a valuation period ending on the one-year anniversary of the closing of
the Proposed Squeeze Out Merger, up to a maximum of $12 per CVP Share. The terms
of the Amended Hilton Transaction and the CVP Shares are described in more
detail in the Hilton Schedule 14D-1. Concurrently with announcing the Amended
Hilton Transaction, Hilton filed a lawsuit against ITT, the individual members
of the ITT Board and the Starwood Companies seeking to rescind the Original
Merger Agreement and to recover damages from the members of the ITT Board due to
alleged violations of their fiduciary duties. Neither Starwood Lodging nor ITT
believes there is any merit to these claims. If the Merger
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is consummated, ITT expects that Starwood Lodging, as the sole stockholder of
ITT, will not pursue these claims and will seek their dismissal.
On Thursday, November 6, 1997, the Starwood Lodging Boards met
telephonically and authorized Mr. Sternlicht to present a revised proposal to
the ITT Board. That evening, Mr. Sternlicht sent a letter to the ITT Board
proposing to amend the terms of the Original Merger Agreement to increase the
aggregate consideration to be paid in the Merger to $85 per share of ITT Common
Stock and allow holders of ITT Common Stock to elect between cash and Paired
Shares on the terms and subject to the limitations described herein. Starwood
Lodging also proposed that if the Merger were to close after January 31, 1998,
each holder of ITT Common Stock would also be entitled to receive for each share
of ITT Common Stock converted in the Merger additional cash consideration in an
amount equal to the interest that would accrue (without compounding) on $85 at
an annual rate of 7% during the period from January 31, 1998 to but excluding
the date of closing of the Merger.
ITT announced on November 7, 1997 that the ITT Board had established a
special committee of four independent directors (the "ITT Special Committee") to
oversee the auction process for ITT. The ITT Special Committee, which has
independent legal and financial advisors, was formed to evaluate all offers for
ITT in order to maximize stockholder value and ensure impartiality. The ITT
Special Committee consists of Paul G. Kirk, Jr., Nolan D. Archibald, Robert A.
Burnett and Edward C. Meyer.
ITT held its 1997 annual meeting of stockholders on November 12, 1997.
Although official results of the vote are not expected to be finalized until the
week of November 24, a preliminary count of the votes cast at ITT's annual
meeting indicated that all the incumbent members of the ITT Board had been
reelected and that the nominees proposed by Hilton had been defeated. Following
the annual meeting, the ITT Special Committee and the ITT Board reviewed the
amended terms of the Merger proposed by Starwood Lodging and the ITT Board,
based in part on the recommendation of the ITT Special Committee, approved the
amended terms of the Merger and the Merger Agreement. Shortly thereafter the
parties executed and delivered the Merger Agreement.
On November 13, 1997, Hilton terminated the Hilton Offer.
RECOMMENDATION OF THE STARWOOD LODGING BOARDS; REASONS FOR THE MERGER
THE TRUST BOARD AND THE CORPORATION BOARD HAVE UNANIMOUSLY APPROVED THE
SHARES ISSUANCE PROPOSAL AND UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF THE
TRUST AND STOCKHOLDERS OF THE CORPORATION VOTE FOR APPROVAL OF THE SHARES
ISSUANCE PROPOSAL.
The recommendations of the Trust Board and the Corporation Board are based
on a number of factors, including the following:
- The Starwood Lodging Boards' belief that the acquisition of ITT will
enhance Starwood Lodging's competitive position by creating a fully
integrated hotel and casino owner and operator with multiple global,
premier brand names, including such well known brand names as Westin,
Sheraton, CIGA, Four Points, The Luxury Collection and Caesars.
- ITT combined with Starwood Lodging will serve all segments of the upscale
global hotel market and have a major presence in resorts and gaming.
- The combined company, with its multiple premier brand names and
international scope, will be unique among real estate investment trusts.
- ITT will provide Starwood Lodging with hotel brand and pricing leadership
in major markets worldwide.
- The combined management team of Starwood Lodging and ITT will have
significant industry expertise and enhanced management depth.
- As the largest hotel company in the world, Starwood Lodging will be able
to achieve purchasing, marketing and reservation efficiencies.
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- ITT provides Starwood Lodging with enhanced entry to global investment
opportunities and provides Starwood Lodging with enhanced acquisition
opportunities.
- ITT provides Starwood Lodging with a new avenue of growth in franchising
and managing hotels for third parties.
- The transaction is expected to provide Starwood Lodging and ITT with the
ability to achieve franchise, management and operating synergies through
the elimination of franchise fees and other costs and the opportunity to
enhance revenues at Starwood Lodging's hotels which are converted to
brands owned by ITT.
- The transaction is expected to be accretive to Starwood Lodging's 1998
per share funds from operations.
- The terms and conditions of the Merger Agreement and the Merger and the
course of negotiations thereof.
- The written opinion of Bear Stearns (a copy of which is attached as Annex
B to this Joint Proxy Statement/Prospectus) that, based on and subject to
certain matters stated therein, the aggregate consideration to be paid by
Starwood Lodging to acquire ITT pursuant to the Merger Agreement is fair
from a financial point of view to Starwood Lodging.
The Starwood Lodging Boards did not assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the Starwood Lodging Boards view their recommendations as being based on
the totality of the information presented and considered by them.
RECOMMENDATION OF THE ITT BOARD; REASONS FOR THE MERGER
THE ITT BOARD HAS UNANIMOUSLY APPROVED THE ITT PROPOSAL AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS OF ITT VOTE FOR APPROVAL OF THE ITT PROPOSAL.
The recommendation of the ITT Board is based on a number of factors,
including the factors listed below.
- The ITT Board considered information and presentations by management of
ITT with respect to the financial condition, results of operations,
businesses and properties of ITT and Starwood Lodging, on both a
historical and prospective basis, and current industry conditions.
- The ITT Board considered presentations by, and the advice and views of
Goldman Sachs and Lazard Freres, financial advisors to ITT, concerning
ITT, Starwood Lodging and the financial aspects of the Merger. The ITT
Board also considered the opinion of Lazard Freres to the effect that, as
of October 19, 1997, and subject to the qualifications and limitations
set forth in such opinion (a copy of which is attached as Annex C-1 to
this Joint Proxy Statement/Prospectus), the consideration to be received
by stockholders of ITT pursuant to the Original Merger Agreement was fair
to such stockholders from a financial point of view and the opinion of
Lazard Freres, as of November 12, 1997, subject to the qualifications and
limitations set forth in such opinion (a copy of which is attached as
Annex C-2 to this Joint Proxy Statement/Prospectus), to the effect that
the consideration to be received by stockholders of ITT pursuant to the
Merger Agreement is superior to the consideration proposed to be paid to
stockholders of ITT in the Amended Hilton Transaction from a financial
point of view. See "-- Opinion of Financial Advisor to ITT."
- The ITT Board closely reviewed the terms and conditions of the Merger
Agreement, including the provisions protecting the value of the
transaction against fluctuation in the market price of the Paired Shares
and the likelihood that the conditions to the Merger will be satisfied.
The ITT Board also took into account the terms of the Merger Agreement
that permit ITT, to the extent required by the fiduciary duty of the ITT
Board, as determined in good faith by a majority of the disinterested
directors based on the advice of counsel, in response to unsolicited
requests, to participate in discussions or negotiations with or furnish
information, subject to an appropriate confidentiality agreement, to any
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person. To the extent required by its fiduciary obligations, as
determined in good faith by a majority of the disinterested directors
based on the advice of counsel, the ITT Board may, upon payment of the
Termination Fee and Expenses, withdraw its recommendation of the Merger,
terminate the Merger Agreement and approve or recommend an alternative
change-of-control transaction for ITT that the ITT Board determines in
its good faith judgment (based on the opinion of independent financial
advisors that the alternative transaction provides consideration in
excess of the consideration provided for in the Merger) is more favorable
to ITT and its stockholders than the Merger, and provided that such
alternative transaction, to the extent it requires financing, is fully
financed or, in the opinion of the ITT Board (based on the advice of
independent financial advisors), is reasonably capable of being financed.
The ITT Board believes that the provisions of the Merger Agreement should
not deter a more attractive offer for ITT if any party is prepared to
initiate one.
- The ITT Board considered the recommendation of the ITT Special Committee
in favor of the Merger and the Merger Agreement. In making its
recommendation, the ITT Special Committee considered the same
presentations by, and the advice and views of Goldman Sachs and Lazard
Freres and the opinion of Lazard Freres as were considered by the ITT
Board with respect to the Merger and the Merger Agreement. In addition,
the ITT Special Committee considered a presentation by, and the advice
and views of Gleacher NatWest, the financial advisor to the ITT Special
Committee. The ITT Special Committee also considered the opinion of
Gleacher NatWest, as of November 12, 1997, subject to the qualifications
and limitations set forth in such opinion (a copy of which opinion is
attached as Annex C-3 to this Joint Proxy Statement/Prospectus), to the
effect that the consideration to be received by stockholders of ITT
pursuant to the Merger Agreement is fair to such stockholders from a
financial point of view and is superior from a financial point of view to
the consideration proposed to be paid to the stockholders of ITT in the
Amended Hilton Transaction. See "-- Opinion of Financial Advisor to the
ITT Special Committee."
- The ITT Board also considered the interests of ITT's stockholders and all
other factors permitted by applicable law, including the interests of
ITT's employees, suppliers, creditors and customers; the economy of
Nevada and the nation; the interests of the communities in which ITT
operates and of society; and the long- and short-term interests of ITT
and its stockholders.
The ITT Board did not assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, the ITT Board
views its recommendation as being based on the totality of the information
presented and considered by it.
OPINION OF FINANCIAL ADVISOR TO STARWOOD LODGING
Bear Stearns was retained by Starwood Lodging to act as its financial
advisor in connection with the transactions contemplated by the Merger
Agreement, and to render its opinion as to whether the Merger Consideration is
fair, from a financial point of view, to Starwood Lodging. Bear Stearns is an
internationally recognized investment banking firm and is continually engaged in
the valuation of businesses and their securities and in rendering opinions in
connection with mergers, acquisitions, corporate transactions and other
purposes. Starwood Lodging retained Bear Stearns based on its qualifications,
expertise and reputation in providing advice to companies with respect to
transactions similar to the Merger.
Bear Stearns has delivered its written opinion dated as of November 12,
1997, to the Starwood Lodging Boards to the effect that, based upon and subject
to the various considerations set forth in such opinion, as of November 12,
1997, the Merger Consideration was fair, from a financial point of view, to
Starwood Lodging. The summary of the Bear Stearns Opinion set forth in this
Joint Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinion, which is attached as Annex B to this Joint Proxy
Statement/Prospectus. Starwood Lodging shareholders are urged to, and should,
read such opinion carefully in its entirety in connection with this Joint Proxy
Statement/Prospectus for assumptions made, matters considered and limits of the
review by Bear Stearns.
The Bear Stearns Opinion was directed to the Starwood Lodging Boards and
addresses solely the fairness, from a financial point of view, of the Merger
Consideration to Starwood Lodging. The Bear Stearns Opinion
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does not address Starwood Lodging's underlying business decision to effect the
Merger and was not a recommendation to the Starwood Lodging Boards, and is not a
recommendation to Starwood Lodging shareholders as to whether to approve or vote
for the Merger. Although Bear Stearns evaluated the fairness of the Merger
Consideration to Starwood Lodging, the Merger Consideration itself was
determined by Starwood Lodging and ITT through arm's-length negotiations.
Starwood Lodging did not provide specific instructions to, or place any
limitations upon, Bear Stearns with respect to the procedures to be followed or
factors to be considered by Bear Stearns in performing its analyses or rendering
the Bear Stearns Opinion. Bear Stearns has not been requested by Starwood
Lodging, and does not intend, to update such opinion based on information since
such date.
In arriving at its opinion, Bear Stearns: (i) reviewed the Merger
Agreement; (ii) reviewed Starwood Lodging's and ITT's Annual Reports to
Stockholders and Annual Reports on Form 10-K for the fiscal years ended December
31, 1994 through 1996, and their respective Quarterly Reports on Form 10-Q for
the periods ended March 31, 1997 and June 30, 1997; (iii) reviewed certain
operating and financial information, including projections and projected cost
savings and synergies provided to Bear Stearns by Starwood Lodging's and ITT's
respective managements, relating to their respective business and prospects;
(iv) met with certain members of Starwood Lodging's and ITT's senior management
to discuss the operations, historical financial statements and future prospects
of Starwood Lodging and ITT and their view of the business, operational and
strategic benefits, cost savings, potential synergies and other implications of
the Merger; (v) reviewed the historical prices and trading volumes of Paired
Shares and ITT Common Stock; (vi) reviewed publicly available financial data and
stock market performance data of companies that Bear Stearns deemed generally
comparable to Starwood Lodging and ITT or otherwise relevant to its inquiry;
(vii) reviewed the terms, to the extent publicly available, of recent
acquisitions of companies that Bear Stearns deemed generally comparable to the
Merger or otherwise relevant to its inquiry and (viii) considered such other
information and conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by Starwood Lodging and ITT. With respect to
projected financial results (including projected divestitures, cost savings and
synergies resulting from, and contemplated tax and accounting effects of, the
Merger and related transactions), Bear Stearns assumed with the consent of the
Starwood Lodging Boards that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the respective
managements of Starwood Lodging and ITT as to the expected future performance of
their respective companies. Bear Stearns does not assume any responsibility for
the information provided to it and Bear Stearns relied upon the assurances of
management of Starwood Lodging and ITT that they were unaware of any facts that
would make the information provided to Bear Stearns incomplete or misleading.
Bear Stearns assumed with the consent of the Starwood Lodging Boards that the
Merger would be consummated in accordance with the terms described in the Merger
Agreement. In arriving at the Bear Stearns Opinion, Bear Stearns did not perform
any independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Starwood Lodging or ITT and Bear Stearns was not furnished with
any such evaluation or appraisal.
The following is a summary of the principal financial and valuation
analyses that were performed by Bear Stearns to arrive at the Bear Stearns
Opinion. The analyses set forth below are based on the assumption that 30% of
the Merger Consideration would be paid in cash. Based on these financial and
valuation analyses and the other factors discussed herein, Bear Stearns
determined that, as of the date of its opinion, the Merger Consideration is
fair, from a financial point of view, to Starwood Lodging. In arriving at its
opinion, Bear Stearns did not attribute any particular weight to any analysis or
factor considered by it, but rather made a single judgment as to fairness based
on its experience and professional judgment and the analyses as a whole.
RELATIVE CONTRIBUTION ANALYSIS. Bear Stearns analyzed the contributions of
funds from operations ("FFO") by Starwood Lodging and ITT to the pro forma
combined entity relative to the ownership of Starwood Lodging and ITT
shareholders in the combined entity. FFO was based on Starwood Lodging
management estimates for such amounts before synergies and asset sales. In order
to take into account the $25.50 per share of ITT Common Stock to be paid in the
Merger, ITT's FFO was adjusted for the interest cost, after tax, of a
hypothetical pre-transaction cash dividend of $25.50 per share to ITT's
shareholders. Based
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on the foregoing, Bear Stearns noted that Starwood Lodging's contribution to FFO
was 37.8% and 37.9% based on the 1997 and 1998 estimates, respectively.
Depending on the Market Price of the Paired Shares during the Averaging Period,
the Starwood Lodging shareholders will hold from 39.4% to 42.8% of the combined
entity.
PRO FORMA MERGER ANALYSIS. Bear Stearns analyzed certain pro forma effects
resulting from the Merger, including among other things, the impact of the
Merger on Starwood Lodging's projected FFO for fiscal years 1998, 1999 and 2000,
based on the internal Starwood Lodging and ITT management estimates. The results
of the pro forma merger analysis suggested that the Merger would accretive on an
FFO basis in all such years.
BUILD-UP ANALYSIS. Bear Stearns estimated a range of values of ITT's
business segments on a trading basis (that is, how such business segments might
trade on stock markets) and a sales basis (that is, the price an acquiror might
pay for such segments) and the value of potential synergies and tax savings
resulting from the Merger, based on estimates and projections provided by the
managements of Starwood Lodging and ITT. Each of these values were in excess of
$85 per share of ITT Common Stock.
DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis to calculate a present value of the estimated cash flows of
Starwood Lodging and ITT based on Starwood Lodging management estimates of
projected free cash flows for each company for the years 1998 to 2003, a 12%
equity discount rate and a terminal value calculated assuming a 3% growth of
levered free cash flow into perpetuity. Depending on the Market Price of the
Paired Shares during the Averaging Period, Starwood Lodging shareholders will
hold from 39.4% to 42.8% of Starwood Lodging/ITT combined. Based on the
foregoing analysis, the value of such interest would exceed Starwood Lodging's
standalone value by 5.3% to 14.4%.
OTHER ANALYSES. Bear Stearns conducted such other analyses as it deemed
appropriate, including reviewing trading prices for the Paired Shares, reviewing
historical and projected financial and operating data for both Starwood Lodging
and ITT individually and on a combined basis and comparing certain financial
data and valuation parameters for each of Starwood Lodging and ITT.
The foregoing summary does not purport to be a complete description of the
analyses performed and factors considered by Bear Stearns in arriving at its
opinion, although it includes the material factors considered by Bear Stearns.
The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the analysis
as a whole, could create an incomplete view of the processes underlying the Bear
Stearns Opinion. In arriving at its opinion, Bear Stearns considered the results
of all such reviews, calculations and analyses. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading or private market values of the company or companies to which they are
being compared.
The analyses were prepared solely for purposes of providing the Bear
Stearns Opinion as to the fairness, from a financial point of view, of the
Merger Consideration to Starwood Lodging and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities might actually
be sold to other parties. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. Because such analyses
are inherently subject to uncertainty, being based on numerous factors or events
beyond the control of the parties or their respective advisors, none of Starwood
Lodging, ITT, Bear Stearns or any other person assumes responsibility if future
results are materially different from those forecast. The Bear Stearns Opinion
is necessarily based on economic, market and other conditions, and the
information made available to Bear Stearns, as they existed and could be
evaluated on the date of the opinion. The Bear Stearns Opinion does not imply
any conclusion as to the likely trading range of the Paired Shares either prior
to or subsequent to the consummation of the Merger, which may vary depending
upon, among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities.
In the ordinary course of business, Bear Stearns may actively trade the
securities of Starwood Lodging and ITT for its own account and for the account
of customers and, accordingly, may at any time hold a long or
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short position in such securities. Bear Stearns has previously rendered
investment banking and financial advisory services to Starwood Lodging and ITT
for which Bear Stearns received customary compensation.
Pursuant to a letter agreement dated October 19, 1997, entered into by
Starwood Lodging and Bear Stearns, Starwood Lodging has agreed to pay Bear
Stearns (i) a cash fee of $1,000,000 upon execution of the Bear Stearns
engagement letter, (ii) an additional cash fee of $5,000,000 upon the rendering
of the Bear Stearns Opinion and (iii) a success fee of $22,000,000 (less a
credit for fees previously paid) upon consummation of the Merger. Starwood
Lodging has agreed to reimburse Bear Stearns for its out-of-pocket expenses,
including the fees and disbursements of counsel. Starwood Lodging has agreed to
indemnify Bear Stearns and certain related persons against certain liabilities
in connection with the engagement of Bear Stearns, including certain liabilities
under the federal securities laws.
OPINION OF FINANCIAL ADVISOR TO ITT
Lazard Freres delivered its written opinion dated as of October 19, 1997
(the "Lazard Freres Opinion") to the ITT Board to the effect that, as of October
19, 1997, the consideration to be received by holders of ITT Common Stock
pursuant to the Original Merger Agreement was fair to such holders from a
financial point of view. Lazard Freres also delivered its written opinion dated
as of November 12, 1997 (the "Lazard Freres Superiority Opinion") to the effect
that, as of November 12, 1997, the consideration to be received by holders of
ITT Common Stock in the Merger is superior to the consideration proposed to be
paid to holders of ITT Common Stock in the Amended Hilton Transaction from a
financial point of view.
A COPY OF EACH OF THE FULL TEXT OF THE LAZARD FRERES OPINION AND THE LAZARD
FRERES SUPERIORITY OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C-1 AND C-2
TO THIS JOINT PROXY STATEMENT/PROSPECTUS, RESPECTIVELY, AND SUCH OPINIONS ARE
INCORPORATED HEREIN BY REFERENCE. THE SUMMARIES OF THE LAZARD FRERES OPINION AND
THE LAZARD FRERES SUPERIORITY OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINIONS. HOLDERS OF SHARES OF ITT COMMON STOCK ARE URGED TO READ
THE LAZARD FRERES OPINION AND THE LAZARD FRERES SUPERIORITY OPINION CAREFULLY
AND IN THEIR ENTIRETY. THE OPINIONS ARE NOT INTENDED TO AND DO NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF ITT AS TO WHETHER SUCH HOLDER SHOULD VOTE
FOR THE ITT PROPOSAL.
LAZARD FRERES OPINION
In the course of performing its review and analyses for rendering the
Lazard Freres Opinion, Lazard Freres: (i) reviewed the financial terms and
conditions of the Original Merger Agreement; (ii) analyzed certain historical
business and financial information relating to ITT and Starwood Lodging; (iii)
reviewed various financial forecasts and other data provided to Lazard Freres by
ITT and Starwood Lodging relating to their respective businesses and the
benefits projected by Starwood Lodging to be realized in connection with the
Original Merger; (iv) participated in discussions with members of the senior
management of ITT and Starwood Lodging with respect to the business and
prospects of ITT and Starwood Lodging, the strategic objectives of each and the
possible benefits which might be realized following the Original Merger; (v)
reviewed public information with respect to certain other companies in lines of
business Lazard Freres believes to be generally comparable to those of ITT and
Starwood Lodging; (vi) reviewed the financial terms of certain business
combinations involving companies in lines of business Lazard Freres believed to
be generally comparable to those of ITT and Starwood Lodging; (vii) reviewed the
historical stock prices and trading volumes of ITT Common Stock and the Paired
Shares; (viii) held discussions with ITT's legal advisors concerning legal,
structural and tax aspects of the Original Merger; and (ix) conducted such other
financial studies, analyses and investigations as Lazard Freres deemed
appropriate.
Lazard Freres did not assume any responsibility for independent
verification of the accuracy and completeness of any of the financial and other
information reviewed by it for the purposes of its opinion. Lazard Freres
assumed that the financial forecasts provided to it, including the potential
synergies and tax savings projected to be realized from the Original Merger,
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of ITT and Starwood Lodging as to the
future financial performance of ITT and Starwood Lodging, respectively, and that
the synergies and tax
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savings projected to be realized from the Original Merger would be realized
substantially in accordance with such projections, both as to the financial
effect and timing thereof. Lazard Freres expressed no view as to such forecasts
or the assumptions on which they were based, and there can not be any assurance
that the actual results of ITT and Starwood Lodging will not differ materially
from those reflected in the forecasts. Lazard Freres did not assume any
responsibility for or prepare any independent evaluation or appraisal of any of
the assets or liabilities of ITT or Starwood Lodging or their respective
subsidiaries or trusts, as the case may be, nor was Lazard Freres furnished with
any independent evaluations or appraisals.
In connection with rendering its opinion, Lazard Freres did not solicit,
and was not asked to solicit, any third party acquisition interest in ITT. In
addition, Lazard Freres does not express any opinion as to the price or range of
prices at which the Paired Shares may trade subsequent to the announcement of
the execution of the Original Merger Agreement or the consummation of the
Merger. The Lazard Freres Opinion is directed only to the fairness, from a
financial point of view, of the consideration that would have been received by
the holders of ITT Common Stock in the Original Merger and does not address the
business judgment of the ITT Board in entering into the Original Merger
Agreement. The Lazard Freres Opinion also was necessarily based on economic,
market, legislative and other conditions as in effect on, and information made
available to Lazard Freres as of, the date of the Lazard Freres Opinion.
In rendering its opinion, Lazard Freres assumed that the Original Merger
would be consummated on the terms described in the Original Merger Agreement,
without any waiver of any material terms or conditions by ITT and that obtaining
the necessary regulatory approvals for the Original Merger would not have a
material adverse effect on ITT, Starwood Lodging or the trading of Paired
Shares.
The following is a summary of the material financial analyses used by
Lazard Freres in connection with providing the Lazard Freres Opinion to the ITT
Board.
COMPARABLE COMPANIES ANALYSIS. Lazard Freres reviewed and compared certain
financial information relating to Starwood Lodging to corresponding financial
information, ratios and public market multiples for three other paired-share
real estate investment trusts that Lazard Freres deemed to be comparable to
Starwood Lodging. The paired-shared real estate investment trusts included in
the analysis were: Meditrust Corporation, Patriot American Hospitality, Inc.
("Patriot American") and First Union Real Estate Equity and Mortgage Investments
(collectively, the "Selected Paired-Shared REITs"). With respect to the Selected
Paired-Shared REITs, Lazard Freres considered the ratios of market price to
estimated calendar year 1998 FFO (based on Wall Street financial analysts'
estimates), which ratios for the Selected Paired-Shared REITs ranged from a low
of 11.8x to a high of 12.9x for 1998, compared to 13.9x for 1998 for Starwood
Lodging.
Lazard Freres also reviewed and compared certain financial information
relating to ITT to corresponding financial information, ratios and public market
multiples for 11 other companies in the hotel industry and four companies in the
gaming industry that Lazard Freres deemed to be comparable to ITT. The hotel
companies included in the analysis were: Hilton, Host Marriott Corporation
("Host Marriott"), Parent Holding Corp. ("Parent Holding") (whose constituent
companies are Promus Hotel Corporation and Doubletree Corporation) (pro forma
for the announced merger), La Quinta Inns, Inc. ("La Quinta"), Four Seasons
Hotels Corporation ("Four Seasons"), Marriott International, Inc. ("Marriott
International"), Bass PLC, Granada Group PLC, Accor S.A., Whitbread PLC and
Ladbroke Group PLC; the gaming companies included in the analysis were: Mirage
Resorts, Incorporated ("Mirage"), Circus Circus Enterprises, Inc. ("Circus
Circus"), Harrah's Entertainment, Inc. ("Harrah's") and MGM Grand, Inc. ("MGM
Grand") (such hotel and gaming companies are hereafter referred to as the
"Selected Comparable Companies"). Lazard Freres examined, among other things,
multiples of enterprise value to (i) 1997 and 1998 estimated earnings before
interest, taxes, depreciation and amortization ("EBITDA") (based on Wall Street
financial analysts' estimates) and (ii) 1997 and 1998 estimated price to
earnings ("P/E") ratios (based on Wall Street financial analysts' estimates).
The analysis indicated that the Selected Comparable Companies traded at ranges
of 7.6x to 23.6x and 6.7x to 20.3x to 1997 and 1998 estimated EBITDA,
respectively, compared to multiples for ITT of 10.1x to 1997 estimated EBITDA
and 8.7x to 1998 estimated EBITDA. The analysis also indicated that the Selected
Comparable Companies traded at ranges of 14.4x to 35.0x and 13.0x to 28.6x 1997
and 1998
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estimated P/E, respectively, compared to multiples for ITT of 31.8x 1997
estimated P/E and 24.5x 1998 estimated P/E.
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available
information, Lazard Freres reviewed and analyzed certain financial and operating
information relating to nine selected transactions in the hotel industry since
1994 (for purposes of this section, the "Selected Hotel Transactions") and five
selected transactions in the gaming industry since 1994 (for purposes of this
section, the "Selected Gaming Transactions").
The Selected Hotel Transactions and the dates the transactions were
announced are as follows: Starwood Lodging's pending acquisition of Westin
(September 1997); Promus Hotel Corporation's ("Promus") pending acquisition of
Doubletree Corporation ("Doubletree") (September 1997); Patriot American's
acquisition of Wyndham Hotel Corporation ("Wyndham") (February 1997); Marriott
International's acquisition of Renaissance Hotel Group N.V. ("Renaissance")
(February 1997); Doubletree's acquisition of Red Lion Hotels Inc. ("Red Lion")
(September 1996); Granada Group PLC's acquisition of Forte PLC (November 1995);
FelCor Suite Hotels Inc.'s acquisition of 18 Crown Sterling Suites Hotels
(November 1995); Forte PLC's acquisition of Meridian (Air France) (September
1994) and ITT's acquisition of Ciga (February 1994).
Lazard Freres compared, among other things, the "transaction value" (i.e.,
the price per share multiplied by the sum of the number of shares outstanding
and the number of options outstanding plus the liquidation values of any
preferred stock, short term debt, long term debt and the value of minority
interests less cash and equivalents and proceeds from exercisable options) of
the Selected Hotel Transactions as a multiple of last twelve months ("LTM")
sales, LTM EBITDA and LTM earnings before interest and taxes ("EBIT"). The
ranges of the transaction values as a multiple of LTM sales, LTM EBITDA and LTM
EBIT for such acquisitions were as follows: (i) transaction value to LTM sales
ranged from 1.6x to 7.3x (with a median of 3.3x and a mean of 4.0x); (ii)
transaction value to LTM EBITDA ranged from 12.0x to 22.9x (with a median of
13.2x and a mean of 15.3x); and (iii) transaction value to LTM EBIT ranged from
14.8x to 45.5x (with a median of 19.8x and a mean of 25.9x). Lazard Freres also
compared the premium paid to the closing market price one month prior to the
announcement of the acquisitions of Doubletree, Wyndham, Renaissance, Red Lion
and Forte PLC, which ranged from 3% to 76% (with a median of 32% and a mean of
34%). Lazard Freres compared their multiple to the 13.8x multiple of estimated
LTM economic EBITDA indicated by the Original Merger.
The Selected Gaming Transactions and the dates the transactions were
announced are as follows: Sun International Hotels Ltd.'s acquisition of Griffin
Gaming and Entertainment (August 1996); Trump Hotels & Casino Resorts Inc.'s
acquisition of Trump Castle Hotel & Casino (June 1996); Hilton's acquisition of
Bally Entertainment Corporation (June 1996); Circus Circus's acquisition of Gold
Strike Resorts (March 1995) and ITT's acquisition of Caesars World, Inc.
(December 1994).
Lazard Freres compared, among other things, the transaction value of the
Selected Gaming Transactions as a multiple of LTM sales, LTM EBITDA and LTM
EBIT. The ranges of the transaction values as a multiple of LTM sales, LTM
EBITDA and LTM EBIT for such acquisitions were as follows: (i) transaction value
to LTM sales ranged from 1.2x to 4.7x (with a median of 1.8x and a mean of
2.5x); (ii) transaction value to LTM EBITDA ranged from 7.2x to 15.2x (with a
median of 11.0x and a mean of 11.0x); and (iii) transaction value to LTM EBIT
ranged from 9.8x to 20.0x (with a median of 15.4x and a mean of 15.4x). Lazard
Freres compared their multiple to the 13.8x multiple of estimated LTM economic
EBITDA indicated by the Original Merger. Lazard Freres also compared the premium
paid to the closing market price one month prior to the announcement of the
acquisitions of Griffin Gaming and Entertainment, Bally Entertainment
Corporation and Caesars World, Inc., which ranged from 39% to 65% (with a median
of 54% and a mean of 53%).
DISCOUNTED CASH FLOW ANALYSIS. Lazard Freres performed a discounted cash
flow analysis for ITT after giving effect to ITT's Comprehensive Plan at June
30, 1997. The management of ITT informed Lazard Freres that the Comprehensive
Plan would have included, among other things, (i) a stock tender offer for up to
30 million shares of ITT Common Stock at a price of $70 per share, (ii) a debt
tender offer to repurchase in the aggregate approximately $2.0 billion of ITT's
publicly held debt securities and (iii) the separation of ITT into
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three publicly owned companies to be effected through the distribution of all
the shares owned by ITT of ITT Destinations, Inc., a new subsidiary that was
formed to hold ITT's hotel and gaming business ("ITT Destinations") and ITT
Educational Services, Inc. ("ITT Educational Services"). Pursuant to the
Comprehensive Plan, after the distributions described in (iii) above, ITT's
remaining business would have been its telephone directories publishing business
and it was expected that ITT would change its name to ITT Information Services,
Inc. ("ITT Information Services").
Based on forecasts provided by the management of ITT, Lazard Freres
calculated ranges of equity values for ITT based upon the present value of the
projected stream of unlevered free cash flow through 2001 and a projected
calendar year 2001 terminal value, based on multiples of estimated EBITDA for
ITT Destinations and ITT Information Services ranging from 8.0x to 12.0x and
7.0x to 11.0x, respectively, and a value of $6.17 per share of ITT Educational
Services to ITT stockholders. In performing its analyses, Lazard Freres utilized
a range of discount rates for ITT Destinations and ITT Information Services,
respectively.
PRO FORMA FFO ANALYSIS. Lazard Freres analyzed certain pro forma effects
resulting from the Original Merger, including the potential impact of the
Original Merger on projected FFO for the combined company assuming (on the basis
of projections provided by the management of ITT and Starwood Lodging) annual
operating synergies of $45 million and assuming (on the basis of projections
provided by the management of ITT and Starwood Lodging) no tax savings, as well
as a range of annual tax savings. In all scenarios, the analysis indicated that
the Original Merger would be accretive in the years 1998 and 1999 to FFO on a
per Paired Share basis.
LAZARD FRERES SUPERIORITY OPINION
[Description of Lazard Freres Superiority Opinion to come]
GENERAL
The preparation of a fairness opinion and a superiority opinion is a
complex process and involves various judgments and determinations as to the most
appropriate and relevant assumptions and financial analyses and the application
of these methods to the particular circumstances involved. Such an opinion is
therefore not readily susceptible to partial analysis or summary description and
taking portions of the analyses set out above, without considering each analysis
as a whole, would, in the view of Lazard Freres, create an incomplete and
misleading picture of the processes underlying the analyses considered in
rendering the Lazard Freres Opinion and the Lazard Freres Superiority Opinion.
The Lazard Freres Opinion and the Lazard Freres Superiority Opinion necessarily
involved making complex considerations and judgments concerning differences in
the potential financial and operating characteristics of the precedent
transactions. In arriving at its opinions, Lazard Freres considered the results
of its analyses and did not attribute particular weight to any one analysis or
factor considered by it. No transaction in the precedent transaction analysis
summarized above is identical to the Merger or the Original Merger. The analyses
performed by Lazard Freres, particularly those based on forecasts, are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Lazard Freres' analysis of the fairness
and/or superiority of the consideration to be paid in the Original Merger, the
Merger or the Amended Hilton Transaction, from a financial point of view, to the
stockholders of ITT. The foregoing summary does not purport to be a complete
description of the analyses prepared by Lazard Freres.
Lazard Freres is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts and valuations for estate, corporate and other purposes. Lazard Freres
was selected to act as financial advisor to the ITT Board because of its
expertise and its reputation in investment banking and mergers and acquisitions
and its familiarity with ITT.
Goldman Sachs, which is also acting as financial advisor to ITT in
connection with the Merger and the Original Merger, did not deliver an opinion
to the ITT Board with respect to the Merger or the Original Merger. Goldman
Sachs advised the ITT Board that it believed it to be inappropriate for Goldman
Sachs to
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deliver an opinion with respect to the Merger or the Original Merger in light of
Goldman Sachs' involvement and financial interest in the Westin Acquisition.
Goldman Sachs, through certain of its affiliates, has a significant equity
interest in Westin. Following the consummation of the Westin Acquisition, which
is expected to close in early January 1998, certain affiliates of Goldman Sachs
will have an equity interest in Starwood Lodging and will have one
representative on each of the Trust Board and the Corporation Board. In
addition, Goldman Sachs is serving as financial advisor to Westin in the Westin
Acquisition and will receive advisory fees in connection therewith and may
participate in arranging certain financing for Starwood Lodging in connection
with the Westin Acquisition.
Although Goldman Sachs did not render an opinion as to the fairness or
superiority of the consideration to be paid pursuant to the Original Merger or
the Merger to the holders of the ITT Common Stock, Goldman Sachs did provide the
ITT Board with advice and views, in conjunction with Lazard Freres and subject
to the assumptions and conditions described above, concerning the financial
aspects of the Merger and the Original Merger. In its capacity as financial
advisor, Goldman Sachs participated with Lazard Freres in the review and
analysis of the financial information presented to the ITT Board on the matters
described above.
Pursuant to an engagement letter with Goldman Sachs and Lazard Freres, ITT
has paid each of Goldman Sachs and Lazard Freres for their services 50% of (a)
an initial fee equal to $1,000,000 and (b) an additional advisory fee equal to
$19,000,000. ITT has also agreed to reimburse Goldman Sachs and Lazard Freres
for their reasonable out of pocket expenses, including fees of counsel and any
sales, use or similar taxes, and to indemnify Goldman Sachs and Lazard Freres
against certain liabilities in connection with their engagement, including
certain liabilities arising under Federal securities laws.
Goldman Sachs and Lazard Freres have provided financial advisory and
investment banking services to ITT from time to time for which they have
received customary compensation. Kendrick R. Wilson III is a Managing Director
of Lazard Freres. In the ordinary course of their businesses, each of Goldman
Sachs and Lazard Freres may actively trade the securities of ITT and/or Starwood
Lodging for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
OPINION OF FINANCIAL ADVISOR TO THE ITT SPECIAL COMMITTEE
The ITT Special Committee retained Gleacher NatWest to act as the ITT
Special Committee's financial advisor in connection with the Merger and related
matters. At the meeting of the ITT Special Committee on November 12, 1997,
Gleacher NatWest delivered an oral opinion (subsequently confirmed in writing on
November 16, 1997) (the "Gleacher NatWest Opinion") to the ITT Special Committee
to the effect that, as of November 12, 1997, (i) the Merger Consideration is
fair to holders of ITT Common Stock from a financial point of view and (ii) the
Merger Consideration is superior to the consideration proposed to be paid to ITT
stockholders in the Amended Hilton Transaction from a financial point of view.
THE FULL TEXT OF THE GLEACHER NATWEST OPINION, WHICH SETS FORTH, AMONG
OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C-3 TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. ITT STOCKHOLDERS ARE URGED TO READ THE GLEACHER
NATWEST OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE GLEACHER
NATWEST OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
THE GLEACHER NATWEST OPINION IS ADDRESSED ONLY TO THE ITT SPECIAL COMMITTEE
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF ITT COMMON STOCK AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE ITT MEETING OR AS TO ANY OTHER MATTER.
In connection with rendering its opinion, Gleacher NatWest, among other
things: (i) analyzed the historical publicly filed financial statements of ITT,
Starwood Lodging and Hilton; (ii) analyzed the Merger and the Amended Hilton
Transaction; (iii) reviewed the Merger Agreement, the draft agreement and plan
of merger filed by Hilton with the Commission and the Hilton Schedule 14D-1;
(iv) reviewed the historical market prices and reported trading activity of the
ITT Common Stock, the Paired Shares, and Hilton Common Stock; (v) compared the
financial performance of Starwood Lodging with, and reviewed the
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historical market prices and reported trading activity of the common shares of,
publicly traded real estate investment trusts whose operating characteristics
and ownership structure resemble those of Starwood Lodging; (vi) reviewed public
information with respect to the financial performance of certain other companies
in lines of business it believed to be comparable to the businesses of ITT,
Starwood Lodging and Hilton and reviewed the historical market prices and
reported trading activity of such companies; (vii) reviewed the financial terms
of certain business combinations involving companies in lines of business which
it believed to be comparable to the businesses of ITT, Starwood Lodging and
Hilton; (viii) reviewed selected financial analyses and other presentation
materials as prepared by ITT's financial advisors, Lazard Freres and Goldman
Sachs (including certain estimated financial results of ITT contained therein
for the fiscal years ending on December 31, 1997 and 1998); and (ix) performed
such other analyses as it deemed appropriate.
In rendering its opinion, Gleacher NatWest assumed and relied upon, without
assuming responsibility for independent verification, the accuracy and
completeness of the information reviewed by it. With respect to the estimated
financial results and other financial analyses and materials provided to it,
Gleacher NatWest assumed that they had been reasonably prepared and reflect the
best currently available estimates and judgments of the senior management of ITT
as to the future financial performance of ITT. Gleacher NatWest also assumed
based upon the information which has been provided to it and without assuming
responsibility for independent verification thereof that no material undisclosed
or contingent liability exists with respect to Starwood Lodging or ITT. Other
than the estimated financial results referred to in clause (viii) above,
Gleacher NatWest has reviewed no financial projections of ITT or Starwood
Lodging. Gleacher NatWest did not solicit, and was not asked to solicit, any
third party acquisition interests in ITT. In addition, the Gleacher NatWest
Opinion does not express any view as to the price or range of prices at which
the Paired Shares or the Hilton Common Stock or the CVP Shares would trade
subsequent to the consummation of the Merger or the Amended Hilton Transaction,
as the case may be. Gleacher NatWest was not requested to, and did not, address
the business judgment of the ITT Board or of the Special Committee in amending
the Original Merger Agreement or recommending the Merger. The Gleacher NatWest
Opinion is based necessarily on the economic, market, and other conditions as in
effect on, and the information made available to it as of, the date of its
opinion.
In rendering its opinion, Gleacher NatWest assumed that the Merger would be
consummated on the terms described in the Merger Agreement and that the Amended
Hilton Transaction would be consummated on the terms described in the Hilton
Schedule 14D-1, in each case without waiver or variation of any material terms
or conditions. Gleacher NatWest in rendering its opinion also assumed that
obtaining all necessary approvals and consents including, but not limited to,
regulatory approvals, would not have a material adverse effect, in the case of
the Merger, on ITT, the Starwood Companies or the value and trading price of the
Paired Shares and in the case of the Amended Hilton Transaction, on ITT, Hilton
or the value and trading price of the Hilton Common Stock or the CVP Shares.
Finally, Gleacher NatWest assumed the absence of any material change in the tax
laws of the United States, any state or any political subdivision thereof, or
any regulations promulgated thereunder, and the absence of any material change
in the laws and regulations affecting the gaming or lodging industries in the
United States, any state or any political subdivision thereof.
The following is a summary of the material analyses performed by Gleacher
NatWest in connection with rendering its opinion.
COMPARISON OF OFFERS. Gleacher NatWest performed a comparative valuation
analysis of the Amended Hilton Transaction and the Merger. In performing its
analysis, Gleacher NatWest assumed that, with respect to the Merger, (i) 30% of
the aggregate consideration would be paid in cash, (ii) 70% of the aggregate
consideration would be paid in Paired Shares and (iii) the Market Price of
Paired Shares used to calculate the Exchange Ratio would be between $53.263 and
$61.263. Gleacher NatWest also assumed that, with respect to the Amended Hilton
Transaction, (i) 65,000,000 shares of ITT Common Stock would be purchased for
$80.00 per share in cash, (ii) the per share value of Hilton Common Stock issued
to holders of ITT Common Stock in the Amended Hilton Transaction would be $31.00
(the closing price on November 11, 1997) and (iii) the hypothetical value of
each CVP Share issued to holders of ITT Common Stock was $6.44. Based on these
assumptions, Gleacher NatWest indicated that the nominal value of the Merger was
$85.00 per share of
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ITT Common Stock (consisting of $59.50 in Paired Shares and $25.50 in cash) and
the nominal value of the Amended Hilton Transaction was $77.72 per share of ITT
Common Stock (consisting of $44.37 in cash, $27.61 in Hilton Common Stock and
$5.73 in CVP Shares).
Gleacher NatWest also analyzed both proposals on a net present value basis,
to account for the difference in time at which the transaction consideration was
assumed to be received by ITT stockholders. This analysis indicated that using a
discount rate of 12%, the Merger was valued at $82.91 per share of ITT Common
Stock and the Amended Hilton Transaction was valued at $77.56 per share of ITT
Common Stock, and that using a discount rate of 15%, the Merger was valued at
$82.44 per share of ITT Common Stock and the Amended Hilton Transaction was
valued at $77.52 per share of ITT Common Stock.
BREAKEVEN ANALYSIS. Gleacher NatWest provided an analysis to the ITT
Special Committee which calculated the Paired Share price at which the Merger
and the Amended Hilton Transaction would have equal nominal values assuming the
price of Hilton Common Stock remained at $31.00 per share (the price at which it
closed on November 11, 1997). Gleacher NatWest indicated that if the Paired
Share price decreased to $46.74 per share, then the nominal value of the Merger
would decline to $77.72, which would make it of equivalent nominal value to the
Amended Hilton Transaction assuming the price of Hilton Common Stock remained at
$31.00 per share. Gleacher NatWest noted that a Paired Share price of $46.74
represented a 15.4% decline from the closing price of the Paired Shares of
$55.25 on November 11, 1997.
COMPARABLE COMPANIES ANALYSIS. Gleacher NatWest reviewed and compared
certain financial, operating and market trading information of ITT to (i)
selected hotel ownership and/or management companies and (ii) selected gaming
companies, whose operating characteristics and/or industry focus Gleacher
NatWest believed resemble those of ITT. The hotel ownership and management
companies analyzed by Gleacher NatWest included: Host Marriott, La Quinta,
Parent Holding (whose constituent companies are Promus Hotel Corporation and
Doubletree) (pro forma for the announced merger), Four Seasons and Marriott
International (collectively, the "Selected Hotel Companies"). With respect to
the Selected Hotel Companies, Gleacher NatWest considered, among other things,
multiples of Enterprise Value (defined as the price per share multiplied by the
sum of the number of shares outstanding and the number of options outstanding
plus the liquidation values of any preferred stock, short term debt, long term
debt and the value of minority interests less cash and equivalents and proceeds
from exercisable options) to estimated calendar year 1997 and 1998 EBITDA as
well as estimated calendar year 1997 and 1998 P/E ratios (based on Wall Street
financial analysts' estimates). This analysis indicated that the Selected Hotel
Companies traded in the following ranges for the following multiples: (i)
Enterprise Value to 1997 estimated EBITDA: 9.4x to 23.1x; (ii) Enterprise Value
to 1998 estimated EBITDA: 7.7x to 21.3x; (iii) 1997 estimated P/E: 18.3x to
29.7x; and (iv) 1998 estimated P/E: 15.0x to 22.5x. The gaming companies
analyzed by Gleacher NatWest included: Circus Circus, Harrah's, MGM Grand and
Mirage (collectively, the "Selected Gaming Companies"). With respect to the
Selected Gaming Companies, Gleacher NatWest considered, among other things,
multiples of Enterprise Value to estimated calendar year 1997 and 1998 EBITDA,
as well as estimated calendar year 1997 and 1998 P/E ratios (based on Wall
Street financial analysts' estimates). This analysis indicated that the Selected
Gaming Companies traded in the following ranges for the following multiples: (i)
Enterprise Value to 1997 estimated EBITDA: 7.9x to 12.2x; (ii) Enterprise Value
to 1998 estimated EBITDA: 6.4x to 10.5x; (iii) 1997 estimated P/E: 17.9x to
22.7x; and (iv) 1998 estimated P/E: 14.0x to 19.8x.
Gleacher NatWest noted that the $85.00 per share nominal value of the ITT
Common Stock implied by the Merger implied multiples for ITT as follows: (i)
Enterprise Value to 1997 and 1998 estimated EBITDA of 13.5x and 10.2x,
respectively, and (ii) 1997 and 1998 estimated P/E ratios of 30.8x and 22.2x,
respectively.
Gleacher NatWest also reviewed and compared certain financial, operating
and market trading information of Starwood Lodging to selected paired-share real
estate investment trusts. The paired-share real estate investment trusts
analyzed by Gleacher NatWest included: Meditrust Corporation, Patriot American
and First Union Real Estate Equity and Mortgage Investments (collectively, the
"Selected Paired-Share REITs"). With respect to the Selected Paired-Share REITs,
Gleacher NatWest considered the ratios of market price to estimated calendar
year 1997 and 1998 FFO per share (based on Wall Street financial analysts'
estimates). This analysis indicated that the Selected Paired-Share REITs traded
in the following ranges for the following
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multiples: (i) market price to 1997 estimated FFO per share: 12.0x to 16.8x and
(ii) market price to 1998 estimated FFO per share: 11.4x to 12.6x. Gleacher
NatWest noted that Starwood Lodging's multiples of market price to 1997 and 1998
estimated FFO per share were 18.7x and 14.1x, respectively.
COMPARABLE TRANSACTIONS ANALYSIS. Using publicly available information,
Gleacher NatWest reviewed and analyzed certain financial and operating
information relating to five selected transactions in the hotel industry
("Gleacher Selected Hotel Transactions") and the five Selected Gaming
Transactions.
The Gleacher Selected Hotel Transactions analyzed by Gleacher NatWest are
as follows: Starwood Lodging's pending acquisition of Westin; Promus's pending
acquisition of Doubletree; Patriot American's acquisition of Wyndham; Marriott
International's acquisition of Renaissance; and Doubletree's acquisition of Red
Lion.
With respect to the Gleacher Selected Hotel Transactions, Gleacher NatWest
considered, among other things, the Enterprise Value offered as a multiple of
LTM EBITDA and LTM EBIT, as well as the Equity Value (defined as the price per
share multiplied by the sum of the number of shares outstanding and the number
of options outstanding less the proceeds from exercisable options) offered as a
multiple of LTM net income. The analysis of the multiples offered in the
Gleacher Selected Hotel Transactions indicated that: (i) Enterprise Value to LTM
EBITDA ranged from 11.3x to 22.4x (with a median of 12.8x and a mean of 14.7x);
(ii) Enterprise Value to LTM EBIT ranged from 14.6x to 29.3x (with a median of
17.9x and a mean of 19.4x); and (iii) Equity Value to net income ranged from
24.3x to 31.3x (with a median of 25.6x and a mean of 26.7x).
With respect to the Selected Gaming Transactions, Gleacher NatWest
considered, among other things, the Enterprise Value offered as a multiple of
LTM EBITDA and LTM EBIT, as well as the Equity Value offered as a multiple of
net income. The analysis of the multiples offered in the Selected Gaming
Transactions indicated that: (i) Enterprise Value to LTM EBITDA ranged from 7.7x
to 15.2x (with a median of 10.7x and a mean of 11.0x); (ii) Enterprise Value to
LTM EBIT ranged from 10.4x to 18.7x (with a median of 15.3x and a mean of
15.0x); and (iii) Equity Value to net income ranged from 17.6x to 27.6x (with a
median of 23.9x and a mean of 23.2x).
Gleacher NatWest noted that the $85.00 per share nominal value of the ITT
Common Stock implied by the Merger implied multiples for ITT as follows: (i)
Enterprise Value to LTM EBITDA and LTM EBIT of 13.7x and 18.9x, respectively;
and (ii) Equity Value to LTM net income of 33.3x.
The preparation of a fairness and superiority opinion is a complex process
and is not necessarily susceptible to a partial analysis or summary description.
Gleacher NatWest believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion and the
presentation to the ITT Special Committee. Gleacher NatWest has not indicated
that any of the analyses which it performed had a greater significance from any
other. In addition, Gleacher NatWest may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to be Gleacher
NatWest's view of the actual value of ITT, Starwood Lodging or Hilton.
In performing its analyses, Gleacher NatWest made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ITT, Starwood Lodging or
Hilton. The analyses performed by Gleacher NatWest are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as a part of
Gleacher NatWest's analysis of the fairness and superiority of the Merger to the
ITT stockholders from a financial point of view and were provided to the ITT
Special Committee in connection with the delivery of the Gleacher NatWest
Opinion. The analyses do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities might actually be sold, which are
inherently subject to uncertainty. In addition, as described above, the Gleacher
NatWest Opinion and presentation to the ITT Special Committee was one of many
factors taken into consideration by the ITT Special Committee in making its
determination to approve the Merger. Consequently, the Gleacher NatWest
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analyses described above should not be viewed as determinative of the ITT
Special Committee's or ITT management's opinion with respect to the value of
ITT, Starwood Lodging and Hilton.
Gleacher NatWest is an internationally recognized investment banking and
advisory firm that regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions. INTERESTS OF CERTAIN
PERSONS IN THE MERGER
ITT AFFILIATES
In considering the recommendation of the ITT Board, ITT stockholders should
be aware that, as described below, certain members of ITT's management and the
ITT Board may have interests in the Merger that are different from, or in
addition to, the interests of ITT stockholders generally, and that may create
potential conflicts of interest. Two executive officers of ITT, Mr. Araskog and
Mr. Bowman, are members of the ITT Board that approved the Merger.
EQUITY-BASED AWARDS. In accordance with the terms of the equity-based
incentive award plan maintained by ITT and of the Merger Agreement, holders of
all awards of stock options and related stock appreciation rights outstanding at
the Effective Time under any such ITT plan will have the option to convert such
awards into similar awards with respect to the number of Paired Shares
determined by multiplying (i) the number of shares of ITT Common Stock subject
to such option or right by (ii) the Exchange Ratio, at an exercise price per
Paired Share equal to the difference between (A) the exercise price per share of
ITT Common Stock immediately prior to the Effective Time divided by the Exchange
Ratio and (B) the amount, if any, of the Interest Payment payable per share of
ITT Common Stock pursuant to the Merger Agreement divided by the Exchange Ratio.
The vesting of any such equity-based awards will be accelerated upon the Merger
in accordance with their terms as in effect prior to the negotiation of the
Merger Agreement. See "The Merger Agreement -- ITT Stock Options."
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that all
rights to indemnification and exculpation from liabilities existing in favor of
the current or former directors or officers of ITT and its subsidiaries as
provided in their respective certificates of incorporation and the by-laws and
existing indemnification agreements of ITT will be assumed by Starwood Lodging
and will continue in effect in accordance with their terms. The Merger Agreement
also provides that for six years after the Effective Time, Starwood Lodging will
provide liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who were covered by ITT's
directors' and officers' liability insurance policy on terms with respect to
such coverage and amounts no less favorable than those in effect on the date of
the Merger Agreement, provided that Starwood Lodging will not be required to pay
more than 150% of the current amount paid by ITT to maintain such insurance. In
connection with its obligation as described in the foregoing sentence. Starwood
Lodging is permitted under the Merger Agreement to substitute policies of
Starwood Lodging or its subsidiaries containing terms with respect to coverage
and amount no less favorable to the directors and officers in question.
STARWOOD LODGING AFFILIATES
In considering the recommendations of the Starwood Lodging Boards, Starwood
Lodging shareholders and stockholders should be aware that, as described below,
certain members of Starwood Lodging's management and the Starwood Lodging Boards
may have interests in the Merger that are different from, or in addition to, the
interests of Starwood Lodging shareholders and stockholders generally, and that
may create potential conflicts of interest.
STARWOOD CAPITAL. Starwood Lodging engaged Starwood Capital to act as its
financial advisor in connection with the transactions contemplated by the Merger
Agreement. As of the Trust Record Date and the Corporation Record Date, Starwood
Capital and its affiliates and Mr. Sternlicht beneficially owned % of the
Paired Shares on a fully diluted basis. See "Ownership of Paired Shares." In
addition, Madison F. Grose, a Trustee of the Trust, is Managing Director and
General Counsel of, and holds an indirect ownership interest in, Starwood
Capital. Jonathan D. Eilian, a Director of the Corporation, is Managing Director
of, and
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holds an indirect ownership interest in, Starwood Capital. Daniel H. Stern, a
Trustee of the Trust, is also an affiliate of a limited partner of Starwood
Capital.
In accordance with the terms of the Long-Term Incentive Plan of the Trust
and the Long-Term Incentive Plan of the Corporation, all options to purchase
Paired Shares ("Paired Options") granted under such plans will become
immediately exercisable for the full amount of Paired Shares subject thereto and
all restricted stock awards ("Restricted Stock Awards") granted thereunder will
immediately vest in full at the Closing.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using purchase accounting, with
ITT being deemed to have acquired Starwood Lodging.
REGULATORY APPROVALS
NEVADA GAMING REGULATIONS. The ownership and operation of casino gaming
facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the
regulations of the Nevada Gaming Commission and the Nevada State Gaming Control
Board (collectively, the "Nevada Act") and (ii) various local regulations.
Starwood Lodging's and ITT's respective gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), the
Clark County Liquor and Gaming Licensing Board (the "CCLGLB") and the Douglas
County Commission. The Nevada Commission, the Nevada Board, the CCLGLB and the
Douglas County Commission are collectively referred to as the "Nevada Gaming
Authorities."
Regulations of the Nevada Commission provide that control of a registered
publicly traded corporation such as ITT cannot be acquired through a tender
offer, merger, consolidation, acquisition of assets, management or consulting
agreements or any form of takeover whatsoever without the prior approval of the
Nevada Commission. Starwood Lodging has filed applications for the necessary
approvals with the Nevada Board and the Nevada Commission on behalf of Starwood
Lodging, ITT and Merger Sub. The Nevada Board reviews and investigates
applications for such approvals and makes recommendations on such applications
to the Nevada Commission for final action. Starwood Lodging is currently
registered as a publicly traded corporation and has been found suitable to own
the shares of a subsidiary that has licensed gaming facilities in Nevada.
Accordingly, Starwood Lodging does not expect significant delays in obtaining
necessary approvals and anticipate completing the Nevada regulatory process in
January 1998. However, there can be no assurances that such approvals will be
granted or will be granted within such time. Furthermore, any such approval, if
granted, does not constitute a finding, recommendation or approval by the Nevada
Board or the Nevada Commission as to the merits of the Merger. Any
representation to the contrary is unlawful.
In seeking approval to acquire control of ITT, Starwood Lodging must
satisfy the Nevada Commission as to a variety of stringent standards. The Nevada
Board and the Nevada Commission will consider all relevant material facts in
determining whether to grant such approval, and may consider not only the
effects of the Merger but also any other facts that are deemed relevant. Such
facts may include, among others, (i) the business history of the applicant,
including its record of financial stability, integrity and success of its
operations, as well as its current business activities, and (ii) whether the
Merger will create a significant risk that Starwood Lodging, ITT or their
subsidiaries will not satisfy their financial obligations as they become due or
satisfy all financial and regulatory requirements imposed by the Nevada Act.
The Nevada Commission must approve Starwood Lodging as a controlling
stockholder of ITT. Following receipt of the necessary approvals of the Nevada
Commission and consummation of the Merger, ITT will be registered by the Nevada
Commission as an intermediary company of Starwood Lodging.
Certain officers, directors and key employees of Starwood Lodging and ITT,
who will be actively and directly involved in ITT's gaming activities, may also
be required to be found suitable or licensed by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing or
registration for any cause that they deem reasonable. A finding of suitability
is comparable to licensing, and
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both require the submission of detailed personal and financial information
followed by a thorough investigation. All individuals required to file
applications for findings of suitability as such officers and directors of
Starwood Lodging expect to have applications filed with the Nevada Board and the
Nevada Commission by December 1, 1997, and, assuming favorable recommendations
from the Nevada Board, anticipate receiving the required approvals from the
Nevada Commission in January 1998. However, there can be no assurances that such
approvals will be granted or will be granted within such time. The foregoing
discussion is an abbreviated description of the various gaming regulatory
requirements applicable to Starwood Lodging, ITT and their subsidiaries and
affiliates engaged in gaming activities in Nevada. For a more detailed
description of such gaming regulatory requirements see the ITT Form 10-K.
NEW JERSEY GAMING REGULATIONS. The New Jersey Casino Control Act (the "New
Jersey Act") requires prior approval from the New Jersey Casino Control
Commission (the "New Jersey Commission") before control of a casino licensee can
be transferred. However, pursuant to an interim casino authorization, the New
Jersey Act permits an entity that obtains publicly traded securities relating to
a casino licensee to acquire and own securities conferring control of such
licensee prior to obtaining approval from the New Jersey Commission. During the
period of interim authorization the publicly traded securities of such licensee
must be held in a trust pursuant to the provisions of the New Jersey Act.
As a result of the acquisition of ITT by Starwood Lodging pursuant to the
Merger, Starwood Lodging will be required to timely file a completed application
with the New Jersey Commission for qualification as a holding and intermediary
company of a New Jersey casino licensee, which application must include a fully
executed and approved, but not operative, trust agreement. Such completed
application will require that the New Jersey Commission render decisions with
respect to the interim authorization (within 120 days of its submission) and
plenary qualification (within twelve months of its decision with respect to
interim authorization) of Starwood Lodging as a holding and intermediary company
of a New Jersey casino licensee. Accordingly, Starwood Lodging intends to
prepare a trust agreement that will provide for the deposit of the shares of the
surviving corporation in the Merger or a subsidiary of such surviving
corporation in trust pending plenary qualification by the New Jersey Commission.
The trustee may not exercise rights incident to the ownership of the property
unless the New Jersey Commission orders that the trust agreement become
operative, which order may not be made unless the New Jersey Commission denies
interim authorization, finds reasonable cause to believe that any person
required to be qualified may be found unqualified or denies plenary
qualification. The New Jersey Commission may grant interim authorization where
it finds by clear and convincing evidence that (1) statements of compliance have
been issued under the New Jersey Act, (2) the casino hotel is an approved hotel
in accordance with the New Jersey Act, (3) the trustee satisfies qualification
criteria applicable to casino key employees except for residency and casino
experience and (4) interim operation will best serve the interests of the
public. The New Jersey Commission may also permit, upon written petition of the
New Jersey casino licensee, a proposed but not yet qualified new director of
Starwood Lodging or its qualified New Jersey intermediary company to perform
duties and exercise powers relating to such position pending plenary
qualification, provided that such proposed director timely files a completed
application with the New Jersey Commission. Accordingly, the New Jersey
Commission is authorized to (i) approve the form of trust agreement in respect
of a trust arrangement for the shares of the surviving corporation or subsidiary
of the surviving corporation to be acquired pending plenary qualification of
Starwood Lodging, (ii) approve a trustee of such trust agreement as satisfying
the applicable qualification criteria and (iii) permit proposed new directors of
ITT or its qualified New Jersey intermediary company to perform duties and
exercise powers relating to such position pending their plenary qualifications.
The Merger Agreement provides that Starwood Lodging shall use its reasonable
efforts to cause the foregoing trust arrangements to be in full force and effect
as soon as practicable after the date of the Merger Agreement. Starwood Lodging
intends to cause appropriate applications to be made to the New Jersey
Commission as soon as practicable and anticipates a decision from the New Jersey
Commission with respect to the trust arrangements, Starwood Lodging's trustee
designate, interim authorization and proposed new directors of ITT and its
qualified New Jersey intermediary company during January 1998. There can be no
assurance that a favorable decision will be granted or will be granted within
such time.
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If a holder of publicly traded securities transfers such securities to a
trust in applying for interim casino authorization and the New Jersey Commission
thereafter, upon denial of interim authorization or finding reasonable cause to
believe that any person required to be qualified may be found unqualified,
orders that the trust become operative, the applicant, during the time the trust
is operative, may not participate in the earnings of the casino hotel or receive
any return on its investment or debt security holdings. If the New Jersey
Commission thereafter denies qualification, the trustee shall dispose of the
trust property. In such event, the proceeds distributed to the unqualified
applicant may not exceed the lower of the actual cost of the securities to the
unqualified applicant or their value calculated as if the investment has been
made on the date the trust became operative. Any excess remaining proceeds shall
be paid to the Casino Revenue Fund maintained in the New Jersey Department of
the Treasury provided by the New Jersey Act.
The qualification criteria with respect to the holder of a casino license
include its financial stability, integrity and responsibility; the integrity and
adequacy of its financial resources which bear any relation to the casino
project; its good character, honesty and integrity; and the sufficiency of its
business ability and casino experience to establish the likelihood of a
successful, efficient casino operation.
If the New Jersey Commission finds that a holder of such securities is not
qualified under the New Jersey Act, it has the right to take any remedial action
it may deem appropriate, including the right to force divestiture by such
qualified holder of such securities. In the event that certain disqualified
holders fail to divest themselves of such securities, the New Jersey Commission
has the power to revoke or suspend the casino license affiliated with the casino
licensee which issued the securities. If a holder is found unqualified, it is
unlawful for the holder (i) to exercise, directly or through any trustee or
nominee, any right conferred by such securities or (ii) to receive any dividends
or interest upon any such securities or any remuneration, in any form, from its
affiliated casino licensee or services rendered or otherwise.
MISSISSIPPI GAMING REGULATIONS. The ownership and operation of casino
gaming facilities in Mississippi are subject to: (i) the Mississippi Gaming
Control Act (the "Mississippi Act") and (ii) various local regulations. ITT's
gaming operations are subject to the licensing and regulatory control of the
Mississippi Gaming Commission (the "Mississippi Commission").
Regulations of the Mississippi Commission provide that control of a
registered publicly traded corporation such as ITT cannot be acquired through a
tender offer, merger, consolidation, acquisition of assets, management or
consulting agreements or any form of takeover whatsoever without the prior
approval of the Mississippi Commission. Starwood Lodging has filed applications
for the necessary approvals with the Mississippi Commission and anticipates
receiving the required approvals from the Mississippi Commission in January
1998. Accordingly, Starwood Lodging does not expect significant delays in
obtaining necessary approvals in January 1998. However, there can be no
assurances that such approvals will be granted or will be granted within such
time. Furthermore, any such approval, if granted, does not constitute a finding,
recommendation or approval by the Mississippi Commission as to the merits of the
Merger. Any representation to the contrary is unlawful.
In seeking approval to acquire control of ITT, Starwood Lodging must
satisfy the Mississippi Commission as to a variety of stringent standards. The
Mississippi Commission will consider all relevant material facts in determining
whether to grant such approval, and may consider not only the effects of the
Merger but also any other facts that are deemed relevant. Such facts may
include, among others, (i) the business history of the applicant, including its
record of financial stability, integrity and success of its operations, as well
as its current business activities; and (ii) whether the Merger will create a
significant risk that Starwood Lodging, ITT or their subsidiaries will not
satisfy their financial obligations as they become due or satisfy all financial
and regulatory requirements imposed by the Mississippi Act.
The Mississippi Commission must approve Starwood Lodging as a controlling
stockholder of ITT. Following receipt of the necessary approvals of the
Mississippi Commission and consummation of the Merger, ITT will be registered by
the Mississippi Commission as an intermediary company of Starwood Lodging.
Certain officers, directors and key employees of the Starwood Companies
prior to the Merger, or ITT after the Merger, who will be actively and directly
involved in ITT's gaming activities, may also be required to
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be found suitable or licensed by the Mississippi Commission. The Mississippi
Commission may deny an application for licensing or registration for any cause
that they deem reasonable. A finding of suitability is comparable to licensing,
and both require the submission of detailed personal and financial information
followed by a thorough investigation. All individuals required to file
applications for findings of suitability as such officers and directors of
Starwood Lodging expect to have applications filed on their behalf for the
necessary approvals with the Mississippi Board and the Mississippi Commission by
November , 1997, and anticipate receiving the required approvals from the
Mississippi Commission in January 1998. However, there can be no assurances that
such approvals will be granted.
ONTARIO GAMING REGULATIONS. Windsor Casino Limited, the Ontario
corporation which operates the Windsor, Ontario facility, of which ITT owns a
one-half interest, is licensed under the Gaming Control Act, 1992 (the "Ontario
Act"). Under the Ontario Act, the Registrar of the Gaming Control Commission
must approve any change in the directors or officers of Windsor Casino Limited.
No other prior approval or consent is required under the Ontario Act in respect
of the Merger. However, under the Ontario Act, the Registrar of the Gaming
Control Commission may require information and material from any person who has
an interest in Windsor Casino Limited. As a result, Starwood Lodging is
currently preparing and will submit to the Registrar the information required
with respect to them. Under the Ontario Act, no person may provide goods or
services for a casino or any other business operated by, on behalf of or under
contract with the Ontario Casino Corporation unless, among other things, the
person is registered as a supplier under that Act. Windsor Casino Limited is
registered as a supplier under the Ontario Act. The Registrar has the power,
subject to the Ontario Act, to grant or renew registrations, or suspend or
revoke registrations. The Registrar is entitled to make such inquiries and
conduct such investigations as are necessary to determine that applicants for
registration meet the requirements of the Ontario Act, and to require
information or material from any person who is interested in an applicant for
registration or a registrant. The criteria to be considered in connection with
registration under the Ontario Act include financial responsibility, integrity,
honesty and the public interest. The Registrar may, at any time, subject to the
provisions of the Ontario Act, revoke or suspend Windsor Casino Limited's
registration under the Ontario Act, or refuse to grant a renewal of its
registration. Although Starwood Lodging does not anticipate unfavorable action
by the Gaming Control Commission prior to the consummation of the Merger, in
part because it has been found suitable to own the shares of a subsidiary that
has licensed gaming facilities in Nevada, there can be no assurance that Windsor
Casino Limited will not have its registration revoked or suspended prior to the
Effective Time.
NOVA SCOTIA GAMING REGULATIONS. ITT, through a subsidiary (the "NS
Subsidiary"), operates casinos in Halifax and Sydney, Nova Scotia, and is
required to be registered and comply with licensing requirements and operational
regulations under the Gaming Control Act (the "Nova Scotia Act"). Under the Nova
Scotia Act, the Director of Registration of the Nova Scotia Gaming Control
Commission must be notified, within 15 days, of any change in the officers or
directors of the NS Subsidiary. The NS Subsidiary is also required to file a
disclosure form with the Director of Registration within 15 days of (i) a person
acquiring a beneficial interest in the business of the NS Subsidiary; (ii) a
person exercising control, either directly or indirectly, over the business of
the NS Subsidiary; or (iii) a person providing financing, either directly or
indirectly, to the business of the NS Subsidiary. Starwood Lodging intends to
file any required disclosure forms within the applicable time period. No prior
approval or consent is required under the Nova Scotia Act in respect of the
Merger. However, under the Nova Scotia Act, the Director of Registration may
require information or material from the NS Subsidiary or any person who has an
interest in the NS Subsidiary. Starwood Lodging will submit to the Director of
Registration any information required with respect to them.
OTHER GAMING REGULATIONS. ITT owns and operates gaming facilities in a
number of domestic and foreign jurisdictions in addition to those discussed
above. The relevant statutes and regulatory schemes governing such gaming
operations may require that prior to or following the consummation of the
Merger, Starwood Lodging must qualify or otherwise be approved to conduct such
gaming operations. It is the intention of Starwood Lodging to comply with any
such statutes and regulations and to seek any required approvals or to otherwise
become qualified as may be necessary to consummate the Merger. There can be no
assurance that Starwood Lodging will receive such approvals or become so
qualified or as to the timing of any such approvals or qualifications.
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FEDERAL COMMUNICATIONS COMMISSION APPROVALS. On July 1, 1996, in
partnership with Dow Jones & Company, Inc. ("Dow Jones"), ITT acquired
television station WBIS+ from the City of New York. The Communications Act of
1934, as amended (the "Communications Act"), and applicable Federal
Communications Commission ("FCC") regulations require prior FCC approval for the
transfer or deemed transfer of control or ownership of companies holding FCC
licenses. Applications must be filed with the FCC seeking such approval. The
Communications Act requires that the FCC find that the proposed transfer would
serve the public interest, convenience and necessity as a prerequisite to
granting its approval. To this end, the FCC requires that the transferee
demonstrate that it possesses the requisite legal, financial, technical and
other qualifications to operate the licensed entities in order for the transfer
to be approved.
Before Starwood Lodging can acquire control of ITT's interests in the
partnership that operates WBIS+, prior FCC approval will be required. On
November , 1997, Starwood Lodging filed with the FCC an application seeking
such FCC approval (the "FCC Approval"). There can be no assurance that the FCC
will grant the FCC Approval.
On May 12, 1997, ITT and Dow Jones reached a definitive agreement to sell
WBIS+ to Paxson Communications Corporation. The closing of the sale of ITT's
interest in WBIS+ is subject to FCC approval, which has been applied for, and is
expected to occur in the fourth quarter of 1997. If the closing of such
transaction occurs prior to the Effective Time, the approval of the Merger by
the FCC described above will not be needed.
ANTITRUST. Starwood Lodging and ITT filed Notification and Report Forms
with respect to the Merger under the HSR Act on November , 1997. The waiting
period under the HSR Act with respect to the Merger will expire at 11:59 p.m.,
New York City time, on December , 1997, unless early termination of the
waiting period is granted. In addition, the Antitrust Division of the Department
of Justice (the "Antitrust Division") or the Federal Trade Commission (the
"FTC") may extend the waiting period by requesting additional information or
documentary material from Starwood Lodging or ITT. If such request is made, such
waiting period will expire at 11:59 p.m., New York City time, on the 10th day
after substantial compliance by Starwood Lodging and ITT with such request. Only
one extension of the waiting period pursuant to a request for additional
information is authorized by the HSR Act. Thereafter, such waiting period may be
extended only by court order or with the consent of Starwood Lodging and ITT. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the Antitrust Division or the
FTC raises substantive issues in connection with a proposed transaction, the
parties frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the Antitrust Division or FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
shares of ITT Common Stock or the divestiture of substantial assets of Starwood
Lodging or its subsidiaries, or ITT or its subsidiaries. Private parties may
also bring legal action under the antitrust laws under certain circumstances.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if such a challenge is made, of the results thereof.
REGULATION OF EDUCATIONAL INSTITUTIONS. The ownership and operation of
educational institutions in the United States and the continued availability of
Federal financial aid funds to students of such educational institutions are
subject to extensive federal and state laws and regulations. In this regard, ITT
Educational Services, Inc. ("ITT Educational") must obtain certain approvals
under the applicable laws, regulations and standards of the U.S. Department of
Education (the "ED"), the accrediting commissions that accredit the technical
institutes operated by ITT Educational Services (the "Accrediting Commissions")
and state educational regulatory authorities (the "States").
The ED, the Accrediting Commissions and most of the States have laws,
regulations and/or standards (collectively "Educational Regulations") pertaining
to changes in ownership and/or control (collectively "change in control") of the
educational institutions they regulate. The change in control Educational
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Regulations do not, however, uniformly define what constitutes a change in
control. The ED's change in control Educational Regulations generally subject
ITT Educational Services to the change in control standards of the federal
securities laws. Most States and the Accrediting Commissions include the sale of
a controlling interest of common stock in the definition of a change in control.
Practically all change in control Educational Regulations adopted by the ED, the
Accrediting Commissions and the States are subject to varying interpretations as
to whether a particular transaction constitutes a change in control. ITT
believes that the ED, most of the States and the Accrediting Commissions will
determine that the Merger will constitute a change in control of ITT Educational
Services and all of the technical institutes operated by it under the applicable
Educational Regulation. Starwood Lodging, ITT Educational Services and ITT will
seek to obtain any necessary approvals of the Merger by the ED, the Accrediting
Commissions and the States.
The ED will not preapprove a change in control and will only reinstate a
campus group's eligibility to participate in Federal financial aid programs upon
review and approval of a complete application following the campus group's
change in control. To be complete, among other things, such application must
demonstrate that all of the technical institutes operated by ITT Educational
that comprise a particular campus group are authorized by the appropriate States
and accredited by the appropriate Accrediting Commission. Therefore, before any
such technical institute campus group may regain its eligibility to participate
in Federal financial aid programs following a change in control (a) all of such
campus group's technical institutes must be reaccredited (or continue to be
accredited) by the appropriate Accrediting Commission and reauthorized (or
continue to be authorized) by the appropriate States and (b) the change in
control must otherwise be approved by the ED.
Most States in which ITT Educational operates, including California,
require that a change in control of an institution be approved before it occurs
in order for the institution to maintain its authorization (the "Prior Approval
States"). Some States will only review a change in control of an institution
after it occurs (the "Post Approval States"). With the possible exception of
California (discussed below), management of ITT Educational believes that ITT
Educational will be able to obtain all necessary approvals from the ED and the
States. There can be no assurance, however, that such approvals can be obtained
in a timely manner that would not unreasonably delay the availability of Federal
financial aid program funds. ITT Educational will seek a determination from the
California educational regulators that the Merger will not constitute a change
of control under their Educational Regulations. If such regulators should
determine otherwise, obtaining approval from California would be complicated by
a California statute that prohibits the approval of a change in control of any
institution that has been found to have violated Chapter 7 (formerly Chapter 3)
of the California Education Code ("Chapter 7") in any judicial or administrative
proceeding. In October 1996, the jury in Eldredge, et al. v. ITT Educational
Services, Inc., et al. (the "Eldredge Case") determined that ITT Educational,
through its technical institute in San Diego, California, violated Chapter 7.
ITT Educational has appealed the jury's verdict in the Eldredge Case.
Except as set forth above, the Starwood Companies and ITT know of no other
U.S. Federal or state regulatory requirements or approvals with which they must
comply in order to consummate the Merger, other than the filing of the Articles
of Merger with the Nevada Secretary of State and the filings required to be made
with liquor licensing and similar authorities.
VOTES REQUIRED FOR APPROVAL
STARWOOD LODGING
Approval of the Shares Issuance Proposal requires the affirmative vote of a
majority of the votes cast by Trust shareholders and by Corporation
stockholders, respectively, provided that the total votes cast by Trust
shareholders and Corporation stockholders, respectively, on the Shares Issuance
Proposal represent over 50% of all securities of each of the Trust and the
Corporation, respectively, entitled to vote on the Shares Issuance Proposal.
Consequently, shares which are voted to abstain from voting on approval of the
Shares Issuance Proposal and shares which are not voted with respect to such
approval (including broker non-votes) will have the effect of votes against the
Shares Issuance Proposal.
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ITT
Approval of the ITT Proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of ITT Common Stock. Consequently,
shares which are voted to abstain from voting on approval of the ITT Proposal
and shares which are not voted with respect to such approval (including broker
non-votes) will have the effect of votes against such approval.
NO DISSENTERS' RIGHTS
Under Nevada law, holders of ITT Common Stock are not entitled to dissent
from the Merger and obtain a valuation of their shares of ITT Common Stock in
connection with the Merger because ITT Common Stock was listed on the NYSE on
the ITT Record Date and the Paired Shares that such holders will be entitled to
receive in the Merger will be listed on the NYSE at the Effective Time. Holders
of Paired Shares are not entitled to dissenters' rights under Maryland law in
connection with the Merger because neither the Corporation nor the Trust is a
constituent corporation in the Merger.
FEDERAL SECURITIES LAWS CONSEQUENCES
This Joint Proxy Statement/Prospectus does not cover any resales of Paired
Shares to be received by the stockholders of ITT upon consummation of the
Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
All Paired Shares received by ITT stockholders in the Merger will be freely
transferable, except that Paired Shares received by persons who are deemed to be
"affiliates" of ITT under the Securities Act at the time of the ITT Meeting may
be resold by them only in transactions permitted by Rule 145 or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of ITT for such purposes generally include individuals or entities that control,
are controlled by, or are under common control with, ITT and may include certain
officers, directors and principal stockholders of ITT. The Merger Agreement
requires ITT to use its reasonable best efforts to cause each of such affiliates
to execute a written agreement to the effect that such persons will not offer or
sell or otherwise dispose of any of the Paired Shares issued to such persons in
the Merger in violation of the Securities Act or the rules and regulations
promulgated by the Commission thereunder.
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THE MERGER AGREEMENT
The description of the Merger Agreement contained in this Joint Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Annex A and is incorporated herein by reference. Capitalized terms
used in this section but not defined in this Joint Proxy Statement/Prospectus
have the meanings assigned to them in the Merger Agreement. All shareholders and
stockholders are urged to read carefully the Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides for the merger of Merger Sub with and into
ITT at the Effective Time, whereupon the separate corporate existence of Merger
Sub will cease and ITT will continue as the surviving corporation (the
"Surviving Corporation"). As a result of the Merger, ITT will become a
subsidiary of the Corporation and shall succeed to and assume all the rights and
obligations of Merger Sub in accordance with the NGCL.
EFFECTIVE TIME
The Merger will be consummated as promptly as practicable after
satisfaction or, to the extent permitted under the Merger Agreement, waiver of
all of the conditions to each party's obligation to consummate the Merger
contained in the Merger Agreement, by duly filing the Articles of Merger, in
such form as is required by, and executed in accordance with, the relevant
provisions of the NGCL. The Merger will be effective at such time as the
Articles of Merger are duly filed with the Secretary of State of the State of
Nevada or at such later time agreed to by the parties as is specified in the
Articles of Merger (the "Effective Time"), provided, however, that the Effective
Time must not be on a date that is more than 30 days after the date the Articles
of Merger are filed. The Articles of Merger will be filed on the date of the
Closing. The date on which the Effective Time will occur is referred to as the
"Closing Date."
CONVERSION OF SHARES
As of the Effective Time, by virtue of the Merger and without any action on
the part of Merger Sub, ITT or the holders of any securities of ITT or Merger
Sub:
(a) each issued and outstanding share of common stock, no par value,
of Merger Sub will be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving
Corporation;
(b) all shares of ITT Common Stock that are held in the treasury of
ITT and shares of ITT Common Stock owned by the Corporation, the Trust or
Merger Sub (together, in each case, with the associated Right) will be
cancelled and no cash, capital stock of the Corporation or the Trust or
other consideration will be delivered in exchange therefor. All shares of
ITT Common Stock that are held by any wholly owned subsidiary of ITT, the
Corporation, Merger Sub or the Trust (together, in each case, with the
associated Right) will be converted into validly issued, fully paid and
nonassessable shares of common stock, no par value, of the Surviving
Corporation;
(c) each share of ITT Common Stock (including restricted shares of ITT
Common Stock issued under ITT equity-based incentive plans) issued and
outstanding immediately prior to the Effective Time (other than shares to
be cancelled or converted into shares of the Surviving Corporation in
accordance with the Merger Agreement), together with the associated Right,
which share is to be converted into cash as described under "-- Proration"
below, will be converted into the right to receive $85 in cash, without
interest (except to the extent specified in (f) below);
(d) except as otherwise provided under "--Proration" below, each share
of ITT Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled or converted into shares
of the Surviving Corporation in accordance with (b) above or converted into
the right to receive cash as described in (c) above), together with the
associated Right, will be converted into the right to receive validly
issued, fully paid and nonassessable Paired Shares at the Exchange Ratio;
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(e) all such shares of ITT Common Stock (other than shares to be
cancelled in accordance with (b) above), and the associated Rights, when so
converted as provided in (c) or (d) above, will no longer be outstanding
and will automatically be cancelled and retired and will cease to exist and
each holder of a certificate theretofore representing any such shares (and
the associated Rights) will cease to have any rights with respect thereto,
except the right to receive, upon the surrender of such certificate, (i)
any dividends and other distributions in accordance with the Merger
Agreement, (ii) certificates representing the Paired Shares into which such
shares (and the associated Rights) are converted pursuant to (d) above,
(iii) cash into which such shares are converted pursuant to the (c) above
and cash payable pursuant to (f) below and (iv) any cash, without interest,
in lieu of fractional Paired Shares to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with the
Merger Agreement;
(f) if (but only if) the Closing Date occurs after January 31, 1998,
then each holder of ITT Common Stock issued and outstanding immediately
prior to the Effective Time that is entitled under (c) and (d) above to
receive either cash or Paired Shares will in addition be entitled to
receive the Interest Payment in cash in an amount per share of ITT Common
Stock equal to (i) $85 times (ii) 7% per annum accrued from and including
January 31, 1998, to but excluding the date of Closing (without
compounding).
ELECTION OF STOCK OR CASH
Included with these proxy materials mailed to the ITT stockholders is a
Form of Election on which each ITT stockholder of record is requested to specify
the number of shares of ITT Common Stock which such stockholder desires to have
converted into Paired Shares in the Merger and the number of shares of ITT
Common Stock which such stockholder desires to have converted into cash. ITT
STOCKHOLDERS WHO DO NOT INTEND TO VOTE IN FAVOR OF THE MERGER SHOULD
NEVERTHELESS GIVE CONSIDERATION TO FILING A FORM OF ELECTION IN ORDER TO AVOID
BEING TREATED AS NON-ELECTING STOCKHOLDERS IN THE EVENT THE MERGER IS APPROVED
AND CONSUMMATED.
An Election will have been properly made only if the Exchange Agent
receives, by 5:00 p.m., New York City time, on , a Form of
Election properly completed and signed and accompanied by the certificate or
certificates (the "Certificates") representing the shares of ITT Common Stock
(and associated Rights) to which such Form of Election relates (or by an
appropriate guarantee of delivery of such Certificate or Certificates as set
forth in such Form of Election from a member of any registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, provided such Certificate or Certificates are in fact delivered
by the time set forth in such guarantee of delivery). Any holder of record of
shares of ITT Common Stock may at any time prior to the Election Date change
such holder's Election by written notice received by the Exchange Agent at or
prior to the Election Date accompanied by a properly completed Form of Election.
Any holder of record of shares of ITT Common Stock may at any time prior to the
Election Date revoke such holder's Election by written notice received by the
Exchange Agent at or prior to the Election Date or by withdrawal prior to the
Election Date of such holder's Certificates previously deposited with the
Exchange Agent. Any stockholder of ITT who will have deposited Certificates with
the Exchange Agent will have the right to withdraw such Certificates by written
notice received by the Exchange Agent and thereby revoke such holder's Election
as of the Election Date at any time after the expiration of the period of 60
days following the Election Date if the Merger has not been consummated prior
such period.
STOCKHOLDERS OF ITT SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
ITT COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR THE CONSIDERATION PAYABLE IN
THE MERGER FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH THE TERMS OF
THE MERGER AGREEMENT AND THE FORM OF ELECTION.
A FORM OF ELECTION IS BEING MAILED HEREWITH TO EACH PERSON WHO IS A HOLDER
OF OUTSTANDING SHARES OF ITT COMMON STOCK ON THE ITT RECORD DATE AND, UPON
REQUEST TO THE EXCHANGE AGENT, WILL BE MAILED TO EACH PERSON WHO BECOMES A
HOLDER OR BENEFICIAL OWNER OF ITT COMMON STOCK PRIOR TO THE ELECTION DATE.
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PRORATION
The determination of whether shares of ITT Common Stock, and the associated
Rights, will be converted in the Merger into Paired Shares at the Exchange Ratio
or the right to receive $85 in cash will be made as set forth below:
(a) If Cash Elections are received for a number of shares of ITT
Common Stock that is more than 30% of the total number of shares of ITT
Common Stock issued and outstanding immediately prior to the Effective
Time, each Non-Electing Share and each share of ITT Common Stock for which
a Stock Election has been received (in each case, together with the
associated Right) will be converted in the Merger into Paired Shares at the
Exchange Ratio and the shares of ITT Common Stock for which Cash Elections
have been received (and the associated Rights) will be converted in the
Merger into right to receive cash and Paired Shares at the Exchange Ratio
in the following manner: the largest whole number of shares of ITT Common
Stock (and the associated Rights) covered by each Cash Election which is
not in excess of the number of shares of ITT Common Stock covered by such
Cash Election multiplied by a fraction the numerator of which will be a
number equal to 30% of the number of shares of ITT Common Stock issued and
outstanding immediately prior to the Effective Time and the denominator
will be the aggregate number of shares of ITT Common Stock covered by all
Cash Elections, will be converted into the right to receive $85 per share
in cash, without interest (except for the Interest Payment, if any). The
balance of the shares of ITT Common Stock covered by Cash Elections
(together with the associated Rights) will be converted into the right to
receive Paired Shares at the Exchange Ratio.
(b) If Stock Elections are received for a number of shares of ITT
Common Stock which is more than 82% of the total number of shares of ITT
Common Stock issued and outstanding immediately prior to the Effective
Time, each Non-Electing Share and each share of ITT Common Stock for which
a Cash Election has been received (in each case, together with the
associated Right) will be converted in the Merger into the right to receive
$85 in cash, without interest (except for the Interest Payment, if any),
and the shares of ITT Common Stock for which Stock Elections have been
received will be converted in the Merger into Paired Shares at the Exchange
Ratio and the right to receive cash in the following manner: the largest
whole number of shares of ITT Common Stock (and associated Rights) covered
by each Stock Election which is not in excess of the number of shares of
ITT Common Stock covered by such Stock Election multiplied by a fraction
the numerator of which will be a number equal to 82% of the number of
shares of ITT Common Stock issued and outstanding immediately prior to the
Effective Time and the denominator of which will be the aggregate number of
shares of ITT Common Stock covered by all Stock Elections, will be
converted into the right to receive Paired Shares at the Exchange Ratio.
The balance of the shares of ITT Common Stock covered by Stock Elections
(together with the associated Rights) will be converted into the right to
receive $85 per share in cash, without interest (except for the Interest
Payment, if any).
(c) If Cash Elections are received for a number of shares of ITT
Common Stock which is greater than or equal to 18%, but less than or equal
to 30%, the total number of shares of ITT Common Stock issued and
outstanding immediately prior to the Effective Time, each share of ITT
Common Stock covered by a Cash Election will be converted in the Merger
into the right to receive $85 in cash, without interest (except for the
Interest Payment, if any), and each share of ITT Common Stock covered by a
Stock Election will be converted in the Merger into Paired Shares at the
Exchange Ratio.
(d) If Non-Electing Shares are not converted under either (b) or (c)
above, the Exchange Agent will determine by lot (or by such other method as
is deemed reasonable by Starwood Lodging) which of such Non-Electing Shares
will be converted in the Merger into the right to receive $85 in cash per
share, without interest (except for the Interest Payment, if any);
provided, however, that such selection by lot (or by such other method)
will cease when the sum of the shares converted in such manner, plus the
number of shares of ITT Common Stock covered by Cash Elections is equal to
such percentage, not less than 18% nor more than 30%, as will be specified
by Starwood Lodging, of the total number of shares of ITT Common Stock
issued and outstanding immediately prior to the Effective Time. Each
Non-Electing
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Share not so converted into cash will be converted into the right to
receive Paired Shares at the Exchange Ratio.
EXCHANGE OF CERTIFICATES
STARWOOD LODGING HAS ESTABLISHED A TOLL-FREE TELEPHONE NUMBER
(1-800- ) TO ENABLE STOCKHOLDERS OF ITT AND STARWOOD LODGING TO RECEIVE
INFORMATION REGARDING THE EXCHANGE RATIO. Commencing January , 1998 and ending
on January , 1998, stockholders are encouraged to call such telephone number
to listen to a recorded message indicating what the Exchange Ratio would be as
of the date of such call, based on the average of the Average Prices of Paired
Shares during the 30 consecutive trading days ending as of the day prior to such
call. Commencing on January , 1998, stockholders will be able to call in and
obtain the actual Exchange Ratio. Because the Market Price upon which the actual
Exchange Ratio will be based cannot be finally determined until the close of
trading on January , 1998, callers to such toll-free number prior to January
, 1998 should bear in mind that the actual Exchange Ratio may vary from the
assumed Exchange Ratio indicated on such recorded message prior to January ,
1998 because (i) of fluctuations in the trading price of Paired Shares during
the 30 days ending January , 1998 and (ii) the Exchange Ratio is calculated by
randomly selecting 20 days out of the last 30 consecutive trading days.
As soon as practicable after the Effective Time, Starwood Lodging will
deposit with the Exchange Agent, in trust for the holders of shares of ITT
Common Stock converted in the Merger, certificates representing the Paired
Shares issuable and the cash then payable pursuant to the Merger Agreement (such
cash and Paired Shares, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund"). As soon
as practicable after the Effective Time, the Exchange Agent will distribute to
each holder of shares of ITT Common Stock converted into the right to receive
cash or Paired Shares pursuant to the Merger Agreement, upon surrender to the
Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Certificates for cancellation, a check for the amount
of cash to which such holder is entitled and certificates representing Paired
Shares to which such holder is entitled. As soon as practicable after the
Effective Time, the Exchange Agent will mail to each holder of record of a
Certificate or Certificates whose shares were converted pursuant to the Merger
Agreement (other than any holder who previously surrendered all his or her
Certificates with a Form of Election or pursuant to a guarantee of delivery set
forth in a Form of Election) (A) a letter of transmittal and (B) instructions
for use in effecting the surrender of the Certificates.
Upon surrender for cancellation to the Exchange Agent of a Certificate,
together with such letter of transmittal, duly executed, the holder of such
Certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole Paired Shares issuable and the cash payable to
such holder pursuant to the Merger Agreement. If any certificate representing
Paired Shares or cash or other property is to be issued or delivered in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of such exchange that the Certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such Paired Shares in a name other than that of the registered holder of the
Certificate surrendered, or will establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Starwood Lodging or the
Exchange Agent will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement to any holder of shares of
ITT Common Stock such amounts as Starwood Lodging or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or under any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Starwood Lodging or the Exchange Agent,
such withheld amounts will be treated for all purposes of the Merger Agreement
as having been paid to the holder of the shares of ITT Common Stock in respect
of which such deduction and withholding was made by Starwood Lodging or the
Exchange Agent.
After the Effective Time, there will be no further transfers of ITT Common
Stock on the stock transfer books of ITT. If a certificate representing ITT
Common Stock is presented for transfer, it will be canceled and a certificate
representing the appropriate number of whole Paired Shares and cash in lieu of
fractional shares and any dividends and distributions and/or the appropriate
amount of in cash per share will be issued in
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exchange therefor. After the Effective Time and until surrendered, shares of ITT
Common Stock will be deemed for all corporate purposes, other than the payment
of any dividends and distributions, to evidence only the right to receive the
Merger Consideration.
DIVIDENDS
No dividends or other distributions that are declared on or after the
Effective Time on the Paired Shares, or are payable to the holders of record
thereof on or after the Effective Time, will be paid to any person entitled by
reason of the Merger to receive a certificate representing Paired Shares until
such person surrenders the related Certificate or Certificates pursuant to the
terms of the Merger Agreement. Subject to the effect of applicable law, each
record holder of a new certificate representing such Paired Shares will be paid:
(i) at the time of such surrender or as promptly as practicable thereafter, the
amount, if any, of any dividends or other distributions theretofore paid with
respect to the Paired Shares represented by such new certificate and having a
record date on or after the Effective Time and a payment date prior to such
surrender and; (ii) at the appropriate payment date or as promptly as
practicable thereafter, the amount, if any, of any dividends or other
distributions payable with respect to such Paired Shares and having a record
date on or after the Effective Time but prior to such surrender and a payment
date on or subsequent to such surrender. In no event shall the person entitled
to receive such dividends or other distributions or cash be entitled to receive
interest on such dividends or other distributions or cash.
NO FRACTIONAL SECURITIES
No certificates or scrip representing fractional Paired Shares will be
issued upon the surrender for exchange of Certificates, and no Corporation or
Trust dividend or other distribution or stock split will relate to any
fractional share, and no fractional share will entitle the owner thereof to vote
or to any other rights of a security holder of the Corporation or the Trust, as
applicable. In lieu of any such fractional share, each holder of ITT Common
Stock who would otherwise have been entitled to a fraction of a Paired Share
upon surrender of Certificates for exchange will be paid an amount in cash
(without interest (except for the Interest Payment, if any)), rounded to the
nearest cent, determined by multiplying (i) the average of the per share closing
prices on the NYSE of a Paired Share (as reported in the NYSE Composite
Transactions Tape) during the five consecutive trading days ending on the
trading day immediately prior to the date of the Effective Time by (ii) the
fractional interest to which such holder would otherwise be entitled. As
promptly as practicable after the determination of the amount of cash to be paid
to holders of fractional share interests, the Exchange Agent will notify
Starwood Lodging of such amount, and Starwood Lodging has agreed to deposit such
amount with the Exchange Agent and to cause the Exchange Agent to forward
payments to such holders of fractional share interests subject to the provisions
of the Merger Agreement. For purposes of paying such cash in lieu of fractional
shares, all Certificates surrendered for exchange by an ITT stockholder shall be
aggregated, and no such ITT stockholder will receive cash in lieu of fractional
shares in an amount equal to or greater than the value of one full Paired Share
with respect to such Certificates surrendered.
ITT STOCK OPTIONS
As of the Effective time, each stock option ("ITT Stock Option") and
related stock appreciation right ("SAR") that is outstanding immediately prior
to the Effective Time pursuant to ITT's stock option plans (other than any
"stock purchase plan" within the meaning of Section 423 of the Code) in effect
on the date of the Original Merger Agreement (the "Stock Plans") will be assumed
by the Corporation and become and represent a fully exercisable option (and
related SAR) to purchase the number of Paired Shares (a "Substitute Option")
(decreased to the nearest full share) determined by multiplying (i) the number
of shares of ITT Common Stock subject to such ITT Stock Option immediately prior
to the Effective Time by (ii) the Exchange Ratio, at an exercise price per
Paired Share (rounded up to the nearest tenth of a cent) equal to the difference
between (A) the exercise price per share of ITT Common Stock immediately prior
to the Effective Time divided by the Exchange Ratio and (B) the amount, if any,
of the Interest Payment payable per share pursuant to the Merger Agreement
divided by the Exchange Ratio. The Corporation has agreed to pay cash to holders
of ITT Stock Options in lieu of issuing fractional Paired Shares upon the
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exercise of Substitute Options. As of the Effective Time, each Substitute Option
shall be subject to the same terms and conditions as were applicable immediately
prior to the Effective Time under the related ITT Stock Option and Stock Plan
under which it was granted, including those providing for the accelerated
exercisability and other special rights arising upon an "Acceleration Event" in
accordance with the terms of such Stock Plan. ITT has agreed to use all
reasonable efforts to obtain any necessary consents of holders of ITT Stock
Options and take such other actions as may be necessary to effect the foregoing.
The accelerated lapse of restrictions and other special rights with respect to
shares of restricted ITT Common Stock issued under the Stock Plans will also be
preserved following the Effective Time in accordance with the terms of the Stock
Plans.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement includes joint and several representations and
warranties by the Starwood Companies as to, among other things: (i) the
organization, qualification, standing and power of the Starwood Companies and
each of their subsidiaries; (ii) the capital structure of the Starwood Companies
and certain of their subsidiaries; (iii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (iv)
the Merger Agreement's noncontravention of (a) their charters, declarations of
trust, trustees' regulations or by-laws, as applicable; (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Starwood
Lodging or any of its subsidiaries; or (c) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Starwood Lodging or any of its
subsidiaries or any of their respective properties, assets or operations; (v)
the absence of the need for governmental or other filings or actions with
respect to the Merger Agreement and the transactions contemplated thereby; (vi)
documents filed by Starwood Lodging with the Commission and Starwood Lodging's
financial statements and the accuracy of information contained therein; (vii)
the accuracy of information supplied by the Starwood Companies for inclusion in
the Registration Statement and this Joint Proxy Statement/Prospectus; (viii) the
absence of certain changes or events since December 31, 1996; (ix) the
possession of all necessary franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, certificates, approvals and
orders; (x) the timely filing and the accuracy of information of all material
Starwood Lodging tax returns and certain other tax matters; (xi) the absence of
any actions or proceedings against Starwood Lodging that have had or would
reasonably be expected to have a Material Adverse Effect on Starwood Lodging;
(xii) compliance with worker safety and environmental laws; (xiii) the absence
of liabilities of Starwood Lodging and its subsidiaries; (xiv) certain
intellectual property rights; (xv) receipt of the Bear Stearns Opinion; (xvi)
the requirement of certain approvals of stockholders and shareholders in
connection with the Merger; (xvii) the REIT status of the Trust; and (xviii)
brokers' and finders' fees and expenses.
The Merger Agreement also includes representations and warranties by ITT as
to, among other things: (i) the organization, standing, power and qualification
of ITT and each subsidiary of ITT; (ii) ITT's capitalization; (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (iv) the Merger Agreement's noncontravention of
(a) the charter or by-laws of ITT or any of its subsidiaries; (b) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to ITT or any of
its subsidiaries; or (c) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to ITT or any of its subsidiaries; (v) the absence
of the need for governmental or other filings or actions with respect to the
Merger Agreement and the transactions contemplated thereby; (vi) documents filed
by ITT with the Commission and ITT's financial statements and the accuracy of
information contained therein; (vii) the absence of certain changes or events
since December 31, 1996; (viii) the possession of all necessary franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders; (ix) the accuracy of information
supplied by ITT for inclusion in the Registration Statement and this Joint Proxy
Statement/Prospectus; (x) the timely filing and the accuracy of information of
all material ITT tax returns and certain other tax matters; (xi) the absence of
any actions or proceedings against ITT that would have a Material Adverse Effect
on ITT; (xii) the absence of changes in benefits plans; (xiii) the terms,
existence, operations, liabilities and compliance with applicable laws of ITT's
benefit plans and certain other matters relating to the Employee Retirement
Income Security Act of 1974, as amended; (xiv) compliance
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with worker safety and environmental laws; (xv) the absence of liabilities of
ITT and its subsidiaries that have had and would not reasonably be expected to
have a Material Adverse Effect on ITT; (xvi) certain intellectual property
rights; (xvii) amendment of the Rights Agreement; (xviii) certain parachute
payments; (xix) the Lazard Freres Opinion; (xx) exemption from Nevada State
anti-takeover statutes; (xxi) the requirement of stockholder approval of the
Merger Agreement; and (xxii) broker's and finders' fees and expenses.
BUSINESS OF ITT PENDING THE MERGER
ITT has agreed that from the date of the Original Merger Agreement to the
Effective Time, it will, and it will cause each of its subsidiaries to, carry on
its business in the usual, regular and ordinary course of business consistent
with past practice and, to the extent consistent therewith, use all reasonable
efforts to keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers, licensors, lessors and
others having business dealings with it to the end that goodwill and ongoing
businesses will not be impaired. ITT has agreed that, except as disclosed and
except as otherwise expressly permitted in the Merger Agreement, neither it nor
any of its subsidiaries will: (a) (i) declare, set aside or pay any dividends
on, or make any other actual, constructive or deemed distributions in respect
of, any of its capital stock, or otherwise make any payments to its stockholders
in their capacity as such (other than dividends and other distributions by
direct or indirect wholly owned subsidiaries), (ii) other than in the case of
any direct or indirect wholly owned subsidiary, split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of ITT
or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; (b) issue,
deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire any
such shares, voting securities, equity equivalent or convertible securities,
other than the issuance of shares of ITT Common Stock (and associated Rights)
upon the exercise of employee stock options pursuant to the Stock Plans
outstanding on the date of the Original Merger Agreement in accordance with
their current terms; (c) amend its articles or certificate of incorporation or
by-laws or other comparable organizational documents; (d) acquire or agree to
acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the assets of or equity in, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or (ii) any assets that are, individually or in the aggregate
material to ITT and its subsidiaries taken as a whole, other than transactions
that are in the ordinary course of business consistent with past practice and
not material to ITT and its subsidiaries taken as a whole; (e) sell, lease,
license, mortgage or otherwise encumber or subject to any lien or otherwise
dispose of, or agree to sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of, any of its assets, other than
transactions that are in the ordinary course of business consistent with past
practice and not material to ITT and its subsidiaries taken as a whole; (f)
incur any indebtedness for borrowed money, guarantee any such indebtedness,
issue or sell any debt securities or warrants or other rights to acquire any
debt securities, guarantee any debt securities or make any loans, advances or
capital contributions to, or other investments in, any other person, or enter
into any arrangement having the economic effect of any of the foregoing, other
than (i) indebtedness incurred in the ordinary course of business consistent
with past practice and (ii) indebtedness, loans, advances, capital contributions
and investments between ITT and any of its wholly owned subsidiaries or between
any of such wholly owned subsidiaries; (g) alter (through merger, liquidation,
reorganization, restructuring or in any other fashion) the corporate structure
or ownership of ITT or any subsidiary; (h) enter into or adopt any new, or amend
any existing, severance plan, agreement or arrangement or enter into certain new
or amend certain existing pension plans, welfare plans or other material benefit
plans or employment or consulting agreements, other than as required by law,
except that ITT or its subsidiaries may enter into (i) employment agreements if
such agreements (A) are no longer than one year in duration and (B) provide for
an annual base salary of less than $150,000, and (ii) consulting agreements in
the ordinary course of business that are terminable on no more than 90 days'
notice without penalty, and ITT or its subsidiaries may amend certain pension,
welfare or other benefit plans or other plans, programs, policies or
arrangements if such amendment will result in not more than a de minimis
additional cost to ITT or its subsidiaries; (i) increase the compensation
payable or to
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become payable to its officers or employees, except for (A) increases in the
ordinary course of business consistent with past practice in salaries or wages
of employees of ITT or any of its subsidiaries and (B) except to the extent
required under the terms of any applicable incentive plan, the payment of annual
incentive bonuses for 1997 which are not in the aggregate in excess of two times
the target bonus for 1997 established for 1997 prior to the date of the Original
Merger Agreement; (j) grant or award any stock options, restricted stock,
performance shares, stock appreciation rights or other equity-based incentive
awards, other than an award which (A) is made to a management employee or
non-employee director who would be eligible to receive such award under the
terms of the ITT Stock Plans as applied consistently with past practice and (B)
is made on terms substantially the same as the terms of awards previously
awarded under such plan; (k) take any action, other than reasonable and usual
actions in the ordinary course of business consistent with past practice, with
respect to accounting policies or procedures (other than actions required to be
taken by generally accepted accounting principles); (l) make or agree to make
any new capital expenditure or expenditures which, individually, is in excess of
$5,000,000 or, in the aggregate, are in excess of $50,000,000; (m) pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of ITT filed with the Commission or incurred
in the ordinary course of business consistent with past practice; (n) settle or
compromise any material federal, state, local or foreign tax liability; (o)
authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
BUSINESS OF STARWOOD LODGING PENDING THE MERGER
Starwood Lodging has agreed that, from the date of the Original Merger
Agreement to the Effective Time, they will, and will cause each of their
respective subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
keep available the services of their respective current officers and employees
and preserve their respective relationships with customers, suppliers,
licensors, lessors and others having business dealings with them to the end that
their goodwill and ongoing business will not be impaired. Starwood Lodging has
agreed that, except as disclosed and except as otherwise expressly permitted by
the Merger Agreement, neither they nor any of their respective subsidiaries
will: (a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such (other than (A) dividends in the aggregate amount not to exceed the greater
of (a) the current rate of Starwood Lodging's dividends and (b) the Trust's
"real estate investment taxable income" (as such term is defined for purposes of
the Code) without regard to any net capital gains or the deduction for dividends
paid and (B) dividends and other distributions by direct, indirect or wholly
owned subsidiaries) or (ii) other than in the case of any subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for Paired Shares; (b) in the case of Starwood Lodging only, amend any of its
articles or certificate of incorporation or declaration of trust, other than in
connection with the Corporation Amendment and the Trust Amendment; (c) take or
omit any action that would reasonably be expected to cause the Trust to cease to
qualify as a "real estate investment trust" for federal income tax purposes or
that would reasonably be expected to cause the Trust to become subject to
Section 269B(a)(3) of the Code; or (d) authorize, recommend, propose or announce
an intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
Notwithstanding the foregoing and except as expressly permitted by the
Merger Agreement, neither the Corporation nor the Trust shall declare, set aside
or pay any cash dividend or make any cash distribution or otherwise make any
payments in cash to its stockholders, having a record date for the determination
of the stockholders entitled to such dividend, distribution or other payment
occurring during the period from and including the first day of the Averaging
Period through and including the fourth trading day after the last day of the
Averaging Period.
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ACQUISITION PROPOSALS
The Merger Agreement provides that ITT must not, nor may it permit any of
its subsidiaries to, nor may it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant, agent or other
advisor or representative of ITT or any of its subsidiaries to, (i) solicit,
initiate, or encourage the submission of, any takeover proposal (as defined
below), (ii) except to the extent permitted by the Merger Agreement, enter into
any agreement with respect to any takeover proposal or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any takeover proposal; provided, however, that prior to the ITT Meeting, to
the extent required by the fiduciary obligations of the ITT Board, as determined
in good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, ITT may, in response to unsolicited requests
therefor, participate in discussions or negotiations with, or furnish
information pursuant to an appropriate confidentiality agreement to, any person.
Any violation of the foregoing restrictions by any officer, director or
employee, of or any investment banker, attorney, accountant, agent or other
advisor or representative of, ITT or any of its subsidiaries, whether or not
such person is purporting to act on behalf of ITT or otherwise, shall be deemed
to be a breach by ITT. ITT immediately shall cease and cause to be terminated
all existing discussions or negotiations with any persons with respect to, or
that could reasonably be expected to lead to, any takeover proposal.
The Merger Agreement also provides that neither the ITT Board nor any
committee thereof may (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to the Corporation, the Trust or Merger Sub, the approval or
recommendation by the ITT Board or any such committee of the Merger Agreement or
the Merger or (ii) approve or recommend, or propose to approve or recommend, any
takeover proposal. Notwithstanding the foregoing, the ITT Board, to the extent
required by the fiduciary obligations thereof, as determined in good faith by a
majority of the disinterested members thereof based on the advice of outside
counsel, may approve or recommend (and, in connection therewith, withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger) a
superior proposal (as defined below). If the ITT Board approves or recommends a
superior proposal, ITT may take appropriate action to render the Rights
inapplicable to such superior proposal.
ITT has agreed to immediately advise the Corporation orally and in writing
of any takeover proposal or any inquiry with respect to or which could
reasonably be expected to lead to any takeover proposal, the material terms and
conditions of such takeover proposal or inquiry and the identity of the person
making any such takeover proposal or inquiry. ITT has agreed to keep the
Corporation fully informed of the status and details of any such takeover
proposal or inquiry. Starwood Lodging has agreed to waive any applicable
confidentiality provisions to the extent necessary to allow ITT solely to
explain the terms of this transaction to persons making takeover proposals. If,
to the extent permitted by the foregoing, the ITT Board approves or recommends a
superior proposal, ITT may take appropriate action to render the Rights
inapplicable to such superior proposal.
As used in the Merger Agreement and herein, "takeover proposal" means any
proposal, other than a proposal by the Corporation or the Trust for a merger,
consolidation, share exchange, business combination or other similar transaction
involving ITT or any of its Significant Subsidiaries or any proposal or offer
(including, without limitation, any proposal or offer to stockholders of ITT),
other than a proposal or offer by the Corporation or the Trust to acquire in any
manner, directly or indirectly, an equity interest in, any voting securities of,
or a substantial portion of the assets of, ITT or any of its Significant
Subsidiaries. ITT immediately shall cease and cause to be terminated all
existing discussions or negotiations with any persons conducted heretofore with
respect to, or that could reasonably be expected to lead to, any takeover
proposal. "Significant Subsidiary" means any subsidiary that would constitute a
"significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X of
the Commission.
As used in the Merger Agreement and herein, "superior proposal" means a
bona fide written proposal made by a third party to acquire ITT pursuant to a
tender or exchange offer, a merger, a share exchange, a sale of all or
substantially all its assets or otherwise on terms which a majority of the
disinterested members of the
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ITT Board determines in their good faith judgment (based on the opinion, with
only customary qualifications, of independent financial advisors that the value
of the consideration provided for in such proposal exceeds the value of the
consideration provided for in the Merger) to be more favorable to ITT and its
stockholders than the Merger and for which financing, to the extent required, is
then fully committed or which, in the good faith judgment of a majority of such
disinterested members (based on the advice of independent financial advisors),
is reasonably capable of being financed by such third party.
Except to the extent reasonably required in connection with ITT's
obligations pursuant to the Merger Agreement and permitted pursuant to that
letter agreement dated as of November 6, 1997, among the Corporation, the Trust,
Merger Sub and ITT, during the period from the date of the Original Merger
Agreement through the Effective Time, ITT may not terminate, amend, modify or
waive any provision of any confidentiality or standstill or similar agreement to
which ITT or any of its subsidiaries is a party (other than any involving the
Corporation or the Trust) unless a majority of the disinterested members of the
ITT Board determines in their good faith judgment based on the advice of outside
counsel that failure to take such action would violate the fiduciary obligations
of such board under applicable law. Subject to the foregoing, during such
period, ITT has agreed to enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreements, including, but not
limited to, obtaining injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any court of the
United States or any state thereof having jurisdiction.
CERTAIN TRANSACTIONS
The Merger Agreement provides that ITT must use reasonable efforts to enter
into agreements to sell assets of ITT as agreed from time to time between ITT
and the Corporation on terms acceptable to ITT and must permit Starwood Lodging
and its financial and legal advisors to participate in such process; provided,
however, that such agreements may provide at ITT's election that any such sale
or disposition shall not be consummated until after the Effective Time and may
provide at ITT's election that such agreements are terminable by ITT if the
Merger Agreement is terminated for any reason; provided, however, that neither
ITT nor any of its subsidiaries may enter into a definitive agreement with
respect to any such sale without the prior approval of both the Corporation and
the Trust and the ITT Board;
Pursuant to the Merger Agreement, ITT has agreed not to implement the
Comprehensive Plan (as such term is defined in the Definitive Proxy Statement on
Schedule 14A filed by ITT with the Commission on October 9, 1997 (the "Proxy
Statement")), including, without limitation, consummating the Tender Offers (as
such term is defined in the Proxy Statement); provided, however, that ITT will
be permitted to pay the Termination Fee and Purchaser's Expenses (each as
defined in the CDRV Investment Agreement) and any other payments pursuant to the
CDRV Investment Agreement.
Promptly after the consummation of the Merger, the Trust must dispose of
any shares of common stock of the Surviving Corporation received by the Trust in
connection with the Merger.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
Pursuant to the Merger Agreement, Starwood Lodging has agreed that all
rights to indemnification and exculpation from liabilities for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers of ITT and its subsidiaries as provided in their
respective articles or certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification agreements of ITT will survive
the Merger and will continue in full force and effect in accordance with their
terms for a period of not less than six years from the Effective Time and the
obligations of ITT in connection therewith shall be assumed by Starwood Lodging.
The Corporation has agreed to provide, or to cause the Surviving Corporation to
provide, ITT's current directors and officers an insurance and indemnification
policy (including any fiduciary liability policy) that provides coverage with
respect to any claims made during the six-year period following the Effective
Time for events occurring prior to the Effective Time (the "D&O Insurance") that
is substantially similar to ITT's existing policies or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
provided, however, that the Surviving Corporation shall
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not be required to pay an annual premium for the D&O Insurance in excess of 150
percent of the last annual premium paid prior to the date of the Original Merger
Agreement (which premium ITT represents and warrants to be approximately $1.4
million in the aggregate), unless such annual premium would but for this proviso
exceed such amount, in which case the Corporation must purchase as much coverage
as possible for such amount.
CERTAIN EMPLOYEE MATTERS
Except with respect to Stock Plans, for not less than one year following
the Effective Time, Starwood Lodging has agreed to maintain, or to cause ITT and
its subsidiaries to maintain, compensation and employee benefits plans and
arrangements for employees of ITT and its subsidiaries ("Affected Employees")
that are, in the aggregate, no less favorable than as provided under the
compensation arrangements and ITT Plans as in effect on the date of the Original
Merger Agreement. Without limiting the generality of the foregoing, for not less
than one year following the Effective Time (or such longer period as may be
required under the applicable ITT Plan), Starwood Lodging has agreed to provide,
or to cause ITT and its subsidiaries to provide, severance pay and benefits to
each Affected Employee as of the Effective Time that are no less favorable than
under the ITT Plans and current practices of ITT as in effect as of the date of
the Original Merger Agreement. Notwithstanding the foregoing, Starwood Lodging
has the right (i) following the Effective Time to transfer to one or more
employee benefit plans maintained by Starwood Lodging any employee of ITT or any
subsidiary who becomes an employee of Starwood Lodging or any of its
subsidiaries and (ii) in the good faith exercise of it managerial discretion, to
terminate the employment of any employee.
Starwood Lodging has agreed to honor, or to cause ITT to honor, all ITT
Plans and other contractual commitments in effect immediately prior to the
Effective Time between ITT or its subsidiaries and Affected Employees or former
employees of ITT or its subsidiaries. Without limiting the generality or the
foregoing, Starwood Lodging has agreed to honor all vacation, holiday, sickness
and personal days accrued by Affected Employees and, to the extent applicable,
former employees of ITT and its subsidiaries ("Former Employees") as of the
Effective Time.
Employees and, to the extent applicable, Former Employees will be given
credit for all service with ITT and its subsidiaries (or service credited by ITT
or such subsidiaries) under all employee benefit plans and arrangements
currently maintained by Starwood Lodging or any of its respective subsidiaries
in which they are or will become participants for purposes of eligibility,
vesting, level of participant contributions and benefit accruals (but subject to
an offset, if necessary, to avoid duplication of benefits) to the same extent as
if rendered to Starwood Lodging or any of their respective subsidiaries.
Starwood Lodging has agreed to cause to be waived any pre-existing condition
limitation under their welfare plans that might otherwise apply to an Affected
Employee or, to the extent applicable, a Former Employee. Starwood Lodging has
agreed to recognize (or cause to be recognized) the dollar amount of all
expenses incurred by Affected Employees or, to the extent applicable, Former
Employees, during the calendar year in which the Effective Time occurs for
purposes of satisfying the calendar year deductions and co-payment limitations
for such year under the relevant benefit plans of Starwood Lodging and their
respective subsidiaries.
CERTAIN GAMING REGULATORY MATTERS
Pursuant to the Merger Agreement Starwood Lodging has agreed to
disassociate itself and to cause its respective subsidiaries to disassociate and
to use all reasonable efforts to cause its respective affiliates other than
subsidiaries to disassociate themselves, if such disassociation is necessary to
obtain any regulatory approval for the Merger Agreement or the transactions
contemplated thereby, from any person or persons deemed, or reasonably likely to
be deemed, unacceptable by a governmental entity with authority to administer
gaming laws and, in the case of any such person who is a nominee to serve as a
director or trustee of Starwood Lodging or any subsidiary of Starwood Lodging,
Starwood Lodging has agreed to replace, and to cause the relevant subsidiary or
subsidiaries to replace, any such director nominee with a suitable substitute
nominee. Starwood Lodging also has agreed to use all reasonable efforts to cause
the trust arrangements described in paragraph (iii) under "-- Conditions to
Consummation of the Merger" below to be in full force and effect and has further
agreed that, if the requisite approvals are obtained from the New Jersey
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Commission, they will place shares of ITT Common Stock or shares of common stock
of the Surviving Corporation, as applicable, in trust as contemplated by such
clauses.
In connection with the application for qualification and licensing by
Starwood Lodging with the New Jersey Commission pursuant to the New Jersey Act
and the rules and regulations promulgated thereunder, if requested by Starwood
Lodging (for the purpose of permitting Starwood Lodging to hold directly (and
not in trust) the shares of ITT Common Stock to be acquired pursuant to the
Merger while Starwood Lodging's application for qualification and licensing is
pending with the New Jersey Commission), ITT has agreed to execute and deliver a
trust agreement prepared by Starwood Lodging and reasonably acceptable to ITT
and the New Jersey Commission and complying with the requirements of the New
Jersey Act and the rules and regulations promulgated thereunder.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of ITT, on the one hand, and Starwood Lodging,
on the other hand, to consummate the Merger are subject to the fulfillment (or
waiver by such party) at or prior to the Effective Time of the following
conditions:
(a) the Merger Agreement has been duly approved by the requisite vote
of stockholders of ITT in accordance with applicable law and the Restated
Articles of Incorporation, as amended, of ITT (the "ITT Articles") and ITT
By-laws, and the Shares Issuance Proposal, the Trust Amendment and the
Corporation Amendment have been duly approved by the requisite vote of the
stockholders or shareholders, as applicable, of each of the Corporation and
the Trust in accordance with applicable rules of the NYSE, applicable law
and the Corporation Articles and the Corporation By-laws and the Trust
Declaration and Trustees' Regulations;
(b) the Paired Shares issuable in the Merger and pursuant to the
Substitute Options have been authorized for listing on the NYSE, subject to
official notice of issuance;
(c)(i) the waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act has expired or been
terminated;
(ii) all consents, approvals, orders or authorizations of or
registrations, declarations or filings with any governmental entity, which
the failure to obtain, make or occur would reasonably be expected to have a
Material Adverse Effect on ITT (assuming the Merger has taken place), have
been obtained, have been made or have occurred, and are in full force and
effect;
(iii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, (A) any governmental entity
with jurisdiction in respect of gaming laws (other than New Jersey), (B)
the FCC and (C) state educational authorities, non-governmental educational
accrediting commissions and the ED (in the case of this clause (C) which
are required to be made or obtained prior to consummation of the Merger),
in each case, which are required or necessary in connection with the Merger
and the Merger Agreement and the transactions contemplated by the Merger
Agreement (including the changes in the composition of the ITT Board) have
been obtained and are in full force and effect, and in the case of the New
Jersey Act and the rules and regulations promulgated thereunder, either, at
the option of Starwood Lodging, (x) as contemplated by "-- Certain Gaming
Regulatory Matters" above, all required shares of common stock have been
deposited in trust with a trustee qualified and otherwise acceptable to the
New Jersey Commission and the transactions and arrangements contemplated by
"-- Certain Gaming Regulatory Matters" above shall be in full force and
effect or (y) (1) the New Jersey Commission has approved a form of trust
agreement in form and substance reasonably satisfactory to Starwood Lodging
(including in respect of control by Starwood Lodging of ITT and its
subsidiaries) in respect of a trust arrangement for the shares of ITT
Common Stock to be acquired pursuant to the Merger or shares of the common
stock of the Surviving Corporation pending final qualification of Starwood
Lodging to hold a casino license under the New Jersey Act and the rules and
regulations thereunder, (2) a trustee qualified and otherwise acceptable to
the New Jersey Commission and Starwood Lodging in respect of such trust
arrangement for the shares of ITT Common
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Stock to be acquired pursuant to the Merger or shares of the common stock
of the Surviving Corporation has been appointed or designated and (3) the
directors of Merger Sub have been qualified on a permanent or temporary
basis to serve as directors of a company (including ITT) that either
directly, or through its subsidiaries, holds a casino license under the New
Jersey Act and the rules and regulations thereunder;
(d) the Registration Statement has become effective in accordance with
the provisions of the Securities Act. No stop order suspending the
effectiveness of the Registration Statement has been issued by the
Commission and no proceedings for that purpose have been initiated or, to
the knowledge of Starwood Lodging or ITT, threatened by the Commission. All
necessary state securities or blue sky authorizations have been received;
(e) no court or other governmental entity having jurisdiction over
ITT, the Corporation or the Trust, or any of their respective subsidiaries,
has enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) (after the date of the Merger
Agreement) which is then in effect and has the effect of making the Merger
or any of the transactions contemplated thereby illegal; provided, however,
that each of the parties has used all reasonable efforts to prevent and to
appeal as promptly as possible any such law, rule, regulation, executive
order, decree, injunction or other order; and
(f) no Federal legislative or regulatory change has occurred that
would cause the Trust to cease to qualify as a "real estate investment
trust" for federal income tax purposes or that would cause the Trust to
become subject to Section 269B(a)(3) of the Code.
The obligation of ITT to effect the Merger is subject to the fulfillment
(or waiver by ITT) at or prior to the Effective Time of the following additional
conditions:
(a) each of the Corporation, Merger Sub and the Trust has performed in
all material respects each of its agreements contained in the Merger
Agreement required to be performed at or prior to the Effective Time, each
of the representations and warranties of the Corporation, Merger Sub and
the Trust contained in the Merger Agreement that is qualified as to
materiality is true and correct at and as of the Effective Time as if made
at and as of such time (other than representations and warranties which
address matters only as of a certain date, which are true and correct as of
such certain date) and each of the representations and warranties that is
not so qualified is true and correct in all material respects at and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which are true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by the
Merger Agreement, and ITT has received certificates signed on behalf of
each of the Corporation, Merger Sub and the Trust by its Chief Executive
Officer and its Chief Financial Officer to such effect;
(b) there is not pending or threatened any suit, action or proceeding
by any governmental entity or any other person, or before any court or
governmental authority, agency or tribunal, domestic or foreign, in each
case that has a significant likelihood of success challenging the
acquisition by Starwood Lodging of any shares of ITT Common Stock, seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or seeking to obtain from
the Corporation, the Trust or Merger Sub any damages that are material in
relation to ITT, Starwood Lodging and their subsidiaries taken as a whole;
and
(c) the opinion of Sidley & Austin, counsel for Starwood Lodging, is
delivered to ITT on the Closing Date in form and substance reasonably
satisfactory to ITT stating that (i) the Trust is a "real estate investment
trust" for federal income tax purposes and the Trust is not subject to
Section 269B(a)(3) of the Code by reason of Section 136(c) of the Deficit
Reduction Act of 1984 and (ii) consummation of the transactions
contemplated by the Merger Agreement will not cause the Trust to cease to
qualify as a "real estate investment trust" for federal income tax purposes
and will not cause the Trust to become subject to Section 269B(a)(3) of the
Code. In rendering such opinion, such counsel
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is entitled to rely upon customary representations reasonably requested by
such counsel and made by Starwood Lodging.
The obligations of the Starwood Companies to effect the Merger are subject
to the fulfillment (or waiver by Starwood Lodging) at or prior to the Effective
Time of the following additional conditions:
(a) ITT has performed in all material respects each of its agreements
contained in the Merger Agreement required to be performed at or prior to
the Effective Time, each of the representations and warranties of ITT
contained in the Merger Agreement that is qualified as to materiality is
true and correct at and as of the Effective Time as if made at and as of
such time (other than representations and warranties which address matters
only as of a certain date, which are true and correct as of such certain
date) and each of the representations and warranties that is not so
qualified is true and correct in all material respects at and as of the
Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which are true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by the
Merger Agreement, and Starwood Lodging shall have received a certificate
signed on behalf of ITT by its Chief Executive Officer and its Chief
Financial Officer to such effect;
(b) ITT has obtained the consent or approval of each person that is
not a governmental entity whose consent or approval is required in
connection with the transactions contemplated hereby under any loan or
credit agreement, note, mortgage, indenture, lease, hotel management
agreement or other agreement or instrument, except as to which the failure
to obtain such consents and approvals, individually or in the aggregate,
would not be expected, in the reasonable opinion of Starwood Lodging, to
have a Material Adverse Effect on ITT or upon the consummation of the
transactions contemplated in the Merger Agreement; and
(c) the Corporation has received from certain persons identified as
affiliates of ITT an executed copy of an agreement relating to the resale
of Paired Shares;
(d) there is not pending or threatened any suit, action or proceeding
by any governmental entity or any other person, or before any court or
governmental authority, agency or tribunal, domestic or foreign, in each
case that has a significant likelihood of success (i) challenging the
acquisition by Starwood Lodging of any shares of ITT Common Stock, seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or seeking to obtain from
ITT any damages that are material in relation to ITT, Starwood Lodging and
their subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
ownership or operation by ITT, the Corporation or any of their respective
subsidiaries of any material portion of the combined business or assets of
ITT, the Corporation, the Trust and their respective subsidiaries, or to
compel ITT, the Corporation, the Trust and their respective subsidiaries to
dispose of or hold separate any material portion of the combined business
or assets of ITT, the Corporation, the Trust and their respective
subsidiaries, as a result of the Merger or any of the other transactions
contemplated by the Merger Agreement, (iii) seeking to impose limitations
on the ability of the Corporation, the Trust or Merger Sub to acquire or
hold, or exercise full rights of ownership of, any shares of ITT Common
Stock, including, without limitation, the right to vote any ITT Common
Stock purchased by it on all matters properly presented to the shareholders
of ITT, (iv) seeking to prohibit the Corporation, the Trust or any of their
respective subsidiaries from effectively controlling in any material
respect the business or operations of ITT or its subsidiaries or (v) which
otherwise would reasonably be expected to have a Material Adverse Effect on
ITT; and
(e) the Rights have not become nonredeemable, exercisable, distributed
or triggered pursuant to the terms of the Rights Agreement.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time whether before or after the approval by the stockholders of ITT or of the
shareholders of Starwood Lodging:
(a) by mutual written consent of Starwood Lodging and ITT;
(b) by either Starwood Lodging or ITT if there has been a material
breach of the representations, warranties, covenants and agreements on the
part of the other set forth in the Merger Agreement, which breach has not
been cured within ten business days following receipt by the breaching
party of notice of such breach from the nonbreaching party;
(c) by either Starwood Lodging or ITT if any permanent order, decree,
ruling or other action of a court or other competent authority restraining,
enjoining or otherwise preventing the consummation of the Merger has become
final and non-appealable;
(d) by either Starwood Lodging or ITT if the Merger has not been
consummated before December 31, 1998, unless the failure to consummate the
Merger is the result of a material breach of the Merger Agreement by the
party seeking to terminate the Merger Agreement; provided, however, that
the passage of such period will be tolled for any part thereof during which
any party is subject to a nonfinal order, decree, ruling or other action
restraining, enjoining or otherwise preventing the consummation of the
Merger;
(e) by either Starwood Lodging or (if ITT has paid to the Corporation
an amount in cash equal to the sum of the Termination Fee plus all Expenses
if required by the Merger Agreement) the ITT Board if any required approval
of the Merger by the stockholders of ITT has not been obtained by reason of
the failure to obtain the required vote at a duly held meeting of such
stockholders or at any adjournment thereof;
(f) by Starwood Lodging if the ITT Board shall or shall resolve to (i)
not recommend, or withdraw its approval or recommendation of, the Merger,
the Merger Agreement or any of the transactions contemplated by the Merger
Agreement, (ii) modify such approval or recommendation in a manner adverse
to the Corporation, Merger Sub or the Trust or (iii) approve or recommend a
superior proposal;
(g) by the ITT Board if (i) the ITT Board has approved or recommended
a superior proposal and (ii) ITT has paid to the Corporation an amount in
cash equal to the sum of the Termination Fee plus all Expenses as provided
by the Merger Agreement; or
(h) by either Starwood Lodging or the ITT Board if the approval of the
Shares Issuance Proposal, the Trust Amendment and the Corporation Amendment
by the shareholders of the Trust or the stockholders of the Corporation has
not have been obtained by reason of the failure to obtain the required vote
at a duly held meeting of such shareholders or stockholders.
CERTAIN FEES AND EXPENSES
The Merger Agreement provides that, except as described below, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby, including
the fees and disbursements of counsel, financial advisors and accountants, shall
be paid by the party incurring such costs and expenses, except that expenses
incurred in connection with printing and mailing this Joint Proxy
Statement/Prospectus and the Registration Statement shall be borne equally by
the Corporation and ITT.
Provided that none of the Corporation, Merger Sub or the Trust is in
material breach of their representations, warranties and agreements under the
Merger Agreement, (i) if the Merger Agreement is terminated by the ITT Board
pursuant to paragraph (g) under "-- Termination" above, (ii) if the Merger
Agreement is terminated by Starwood Lodging pursuant to paragraph (b) under
"-- Termination" above, (iii) if the Merger Agreement is terminated by Starwood
Lodging pursuant to paragraph (f) under "-- Termination" above, or (iv) if (A)
after the date of the Original Merger Agreement, (x) any person or
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group has made or indicated an intention to make or amend or modify (whether or
not subject to conditions) a takeover proposal or (y) it has been publicly
disclosed or the Corporation has otherwise learned that any person or group has
beneficial ownership of more than 15% of the outstanding shares of ITT Common
Stock or (z) the Corporation has the right to terminate the Merger Agreement
pursuant to paragraph (f) under "-- Termination" above because the ITT Board has
taken or has resolved to take an action referred to therein and (B) the
stockholders of ITT do not approve the Merger at the ITT Meeting or the Merger
Agreement is terminated pursuant to paragraph (d) under "-- Termination" above
prior to the ITT Meeting being held, then ITT must pay to the Corporation $225
million (the "Termination Fee") in same-day funds, plus (notwithstanding the
first paragraph of this section) all the Expenses, on the date of such
termination, in the case of clause (i), (ii) or (iii) above, or on the date of
the ITT Meeting or such termination, as the case may be, in the case of clause
(iv) above.
If the Merger Agreement is terminated for any reason (other than by ITT in
the event of breach by Starwood Lodging), ITT has agreed to, on the date of such
termination, pay to the Corporation the cash amount necessary to permit the
Corporation fully to reimburse itself, Merger Sub and the Trust and their
affiliates for all out-of-pocket fees and expenses incurred at any time prior to
such termination by any of them or on their behalf in connection with the
Merger, the preparation of the Merger Agreement and the transactions
contemplated by the Merger Agreement (including any currency or interest rate
hedging activities in connection with the transactions contemplated by the
Merger Agreement), including (x) all fees and expenses of counsel, investment
banking firms, financial advisors, accountants, experts and consultants to the
Corporation, Merger Sub and the Trust or any of their affiliates and (y) all
fees and expenses payable to banks, investment banking firms and other financial
institutions and their respective counsel, accountants and agents in connection
with arranging or providing financing (fees and expenses under clause (y)
collectively, "Financing Fees" and the fees and expenses contemplated by this
paragraph, collectively, but subject to the next succeeding proviso, the
"Expenses"); provided, however, that the aggregate amount of Expenses, other
than Financing Fees and all fees and expenses of counsel in connection with any
litigation, cannot exceed $25 million.
WAIVERS
At any time prior to the Effective Time, the parties may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties to be performed under the Merger Agreement, (ii) waive any inaccuracies
in the representations and warranties contained in the Merger Agreement or in
any document delivered pursuant thereto and (iii) waive compliance with any of
the agreements or conditions contained in the Merger Agreement which may legally
be waived.
SPECIAL DISTRIBUTION PROPOSAL
GENERAL
Pursuant to the Merger Agreement, the Trust intends to declare a special
distribution (the "Special Distribution") to holders of Trust Shares consisting
of property (other than cash or real property). The property distributed in the
Special Distribution shall be subject to a right of the Corporation to purchase
such property (a "Redemption") by issuing to the holder thereof Corporation
Shares (the "Corporation Shares Issuance").
After the payment of the Special Distribution, the Corporation expects to
effect a -for- reverse stock split (the "Reverse Split") of the
Corporation Shares so that after the Reverse Split the Trust Shares and the
Corporation Shares will again be paired on a one-for-one basis. Pursuant to the
Reverse Split each Corporation Shares outstanding at the effective
date of the Reverse Split will be changed into Corporation Shares. The
Corporation Board will be authorized to determine the effective date of the
Reverse Split. The Reverse Split will be effected by an amendment of the
Corporation Articles, which will be filed immediately prior to the effective
date of the Reverse Split.
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CERTAIN EFFECTS OF SPECIAL DISTRIBUTION PROPOSAL
The Redemption, the Corporation Shares Issuance and the Reverse Split will
not affect the percentage ownership interest or proportional voting power of any
holder of Paired Shares. No adjustment will be necessary as a result of the
Redemption, the Corporation Shares Issuance and the Reverse Split with respect
to any Paired Options or any other security convertible into or exchangeable for
Paired Shares. After the Redemption, the Corporation Share Issuance and the
Reverse Split, the Trust Shares and the Corporation Shares will continue to be
paired on a one-for-one basis pursuant to the terms of the Pairing Agreement, to
the same extent as they are prior to the Redemption, the Corporation Shares
Issuance and the Reverse Split.
VOTES REQUIRED FOR APPROVAL
Approval of the Special Distribution Proposal requires the affirmative vote
of a majority of the outstanding Trust Shares entitled to vote at the Trust
Meeting and the affirmative vote of a majority of the outstanding Corporation
Shares entitled to vote at the Corporation Meeting. Consequently, shares which
are voted to abstain from voting on the approval of the Special Distribution
Proposal and shares which are not voted with respect to such approval (including
broker non-votes) will have the effect of a vote against such approval.
THE TRUST BOARD RECOMMENDS THAT SHAREHOLDERS OF THE TRUST VOTE FOR APPROVAL
OF THE SPECIAL DISTRIBUTION PROPOSAL AND THE CORPORATION BOARD RECOMMENDS THAT
STOCKHOLDERS OF THE CORPORATION VOTE FOR APPROVAL OF THE SPECIAL DISTRIBUTION
PROPOSAL.
APPROVAL OF THE SPECIAL DISTRIBUTION PROPOSAL IS NECESSARY IN ORDER TO
CONSUMMATE THE MERGER. IF THE SPECIAL DISTRIBUTION PROPOSAL IS NOT APPROVED BY
THE SHAREHOLDERS OF THE TRUST AND THE STOCKHOLDERS OF THE CORPORATION, THE TRUST
AND THE CORPORATION DO NOT EXPECT TO CONSUMMATE THE MERGER.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger and the Special Distribution to Starwood Lodging, the shareholders
and stockholders of Starwood Lodging and the stockholders of ITT. This summary
is for information purposes only and is not tax advice. Except as discussed
below, no ruling or determination letters from the Internal Revenue Service
("IRS") have been or will be requested by ITT or Starwood Lodging on any tax
issue connected with the Merger, the Special Distribution or other matters
discussed in this Joint Proxy Statement/Prospectus. 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.
This summary does not purport to deal with all aspects of taxation that may
be relevant to Starwood Lodging, to particular shareholders and stockholders of
Starwood Lodging or to particular stockholders of ITT 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 shares of Starwood Lodging and of ITT 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 Joint Proxy
Statement/Prospectus with respect to transactions entered into or contemplated
prior to the effective date of such changes.
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EACH SHAREHOLDER AND STOCKHOLDER OF STARWOOD LODGING AND EACH STOCKHOLDER
OF ITT IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES TO HIM OR HER OF THE MERGER AND THE SPECIAL DISTRIBUTION,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE
MERGER AND THE SPECIAL DISTRIBUTION AND OF POTENTIAL CHANGES IN THE APPLICABLE
TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
FEDERAL INCOME TAX CONSEQUENCES TO ITT STOCKHOLDERS. Pursuant to the
Merger, a corporation jointly owned by the Trust and the Corporation will merge
with and into ITT. For federal income tax purposes, the Merger should be treated
as if the ITT stockholders had sold a portion of their ITT Common Stock to the
Trust and to the Corporation, respectively, in exchange for Paired Shares and
ITT had redeemed the balance of their ITT Common Shares for cash. A stockholder
of ITT generally will recognize gain as a result of the Merger in an amount
equal to the excess of (a) the amount of cash and the fair market value of the
Paired Shares received over (b) such stockholder's adjusted basis in his or her
ITT Common Stock. A stockholder of ITT generally will recognize loss as a result
of the Merger in an amount equal to the excess of (a) such stockholder's
adjusted basis in his or her ITT Common Stock over (b) the amount of cash and
the fair market value of the Paired Shares received. Any gain or loss recognized
by stockholders of ITT generally will constitute capital gain or loss, and ITT
stockholders who are individuals may be entitled to lower capital gains tax
rates, depending on the holding period of the ITT Common Stock.
It is possible that the IRS may assert that the Merger should be treated
for federal income tax purposes in a manner other than the manner described
above. Such a recharacterization by the IRS could result in federal income tax
consequences to certain stockholders of ITT that, actually or constructively,
own as of the Effective Time Paired Shares that are different from those
described above.
Cash received in lieu of fractional Paired Shares will be treated as
received by the ITT stockholder in redemption for such fractional interest, and
gain or loss will be recognized, measured by the difference between the amount
of cash received and the portion of the basis of the Paired Shares allocable to
such fractional Paired Shares.
FEDERAL INCOME TAX CONSEQUENCES TO ITT, THE TRUST, THE CORPORATION AND THE
SHAREHOLDERS AND STOCKHOLDERS OF STARWOOD LODGING.
No gain or loss should be recognized by ITT, the Trust, the Corporation or
the shareholders and stockholders of Starwood Lodging as a result of the Merger.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPECIAL DISTRIBUTION
Prior to the Merger, the Trust will declare the Special Distribution
payable to the then shareholders of the Trust. For federal income tax purposes,
the Special Distribution should be taxed to a shareholder of the Trust as
follows: (a) first, as a dividend to the extent of the allocable portion of the
Trust's earnings and profits, (b) second, as a return of capital to the extent
of such shareholder's adjusted basis in his or her Trust Shares and (c)
thereafter, as gain from the sale or exchange of Trust Shares. The Trust's
earnings and profits will be allocable to the Special Distribution in the same
proportion as the Trust's total earnings and profits for the taxable year in
which the Special Distribution is made bears to the total distributions made to
shareholders of the Trust in such taxable year. Gain recognized by a shareholder
of the Trust should be treated as capital gain, and shareholders of the Trust
who are individuals may be entitled to lower capital gains tax rates depending
on the holding period of the Trust Shares. The shareholders of the Trust should
have a basis in the property that constitutes the Special Distribution equal to
the fair market value of such property.
The property distributed as the Special Distribution is expected to be
acquired by the Corporation in exchange for additional Corporation Shares at or
about the Effective Time. A stockholder's basis in such additional Corporation
Shares generally should equal the fair market value of the property distributed
to such stockholder in connection with the Special Distribution.
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As a result of the earnings and profits allocation rules discussed above,
the Special Distribution is likely to result in shareholders of the Trust (other
than shareholders who receive their Trust Shares as a result of the Merger)
being allocated more of the earnings and profits of the Trust than such
shareholders would have been allocated in the absence of the Special
Distribution. Shareholders of the Trust who are shareholders at the time the
Special Distribution is made are therefore likely to have taxable income in
excess of the income they would have had had the Trust made only its regular
cash distributions. Starwood Lodging expects that the portion of the Special
Distribution that should be taxable as a dividend to be between $ and $ per
Trust Share. The portion of the Special Distribution that is taxable as a
dividend should increase the portion of the Trust's regular cash distributions
that is treated as a return of capital. The amount of the Special Distribution,
the portion of the Special Distribution taxable as a dividend and the portion of
the Trust's regular cash distributions treated as a return of capital depend on
a number of factors, including the Exchange Ratio, the amount of cash to be
received by holders of ITT Common Stock in the Merger, the fair market value of
certain real property owned by ITT, the issuance percentage of Starwood Lodging,
the number of Paired Shares outstanding as of the Special Distribution Record
Date, the amount of the Trust's cash distributions and the earnings and profits
of the Trust. Certain of these factors may not be known until after the close of
the year in which the Special Distribution occurs.
It is possible that the IRS may assert that the Special Distribution and
its acquisition by the Corporation should be treated for federal income tax
purposes in a manner other than the manner described above. Such a
recharacterization by the IRS could result in federal income tax consequences to
the shareholders and stockholders of Starwood Lodging that are different from
those described above. Although Starwood Lodging believes that any such
recharacterization by the IRS is unlikely to be upheld by a court, no assurances
can be given.
The holders of ITT Common Stock will not recognize any gain or loss for
federal income tax purposes as a result of the Special Distribution.
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 provided 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 permitted 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. The Chairman of the Ways & Means Committee
of the U.S. House of Representatives has announced that although he has no
intention of repealing the existing
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"grandfathering" of paired share REITs such as that of the Trust, the staff of
the Committee will look into the issue of whether restrictions should be placed
on such REITs.
GENERAL. The Trust has elected to be taxed as a REIT under Sections 856
through 860 of the Code and applicable Treasury Regulations (the "REIT
Requirements" or "REIT Provisions"), commencing with its taxable year ended
December 31, 1995. The Trust believes that, commencing with such taxable year,
it was organized and has 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 Effective Time of the Merger, 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 REIT Requirements, and its proposed method of operation
will enable it to continue to meet the REIT Requirements. It must be emphasized
that Sidley & Austin's opinion will 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 will 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 Joint Proxy Statement/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" below.
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 nonetheless
maintains its qualification as a REIT because certain other requirements are
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
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the Trust from a corporation that is or has been a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in certain
transactions in which the basis of the Built-in Gain Asset in the hands of the
Trust is determined by reference to the basis of the asset in the hands of the C
corporation, and the Trust directly or indirectly recognizes gain on the
disposition of such asset during the 10-year period (the "Recognition Period")
beginning on January 1, 1995 with respect to assets held by the Trust on such
date or, with respect to other assets, the date on which such asset was acquired
by the Trust, then, to the extent of the Built-in Gain (i.e., the excess of (a)
the fair market value of such asset over (b) the Trust's adjusted basis in such
asset, determined as of the beginning of the Recognition Period), such gain will
be subject to tax at the highest regular corporate rate pursuant to Treasury
Regulations that have not yet been promulgated. The results described above with
respect to the recognition of Built-in Gain assume that the Trust will make an
election pursuant to IRS Notice 88-19 with respect to assets acquired by the
Trust from a corporation that is or has been a C corporation. The Trust believes
that it had Built-in-Gain Assets as of January 1, 1995 and, thus, direct or
indirect sales of such Built-in-Gain Assets by the Trust after 1994 may 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) do 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). The Trust believes that the dividends paid and to be paid by the Trust
and its predecessors will enable the Trust to satisfy condition (vii) 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
Starwood Securities -- 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. Unless the context otherwise requires, all references
to the Trust in this "Certain Federal Income Tax Consequences" section include
the Trust's Qualified REIT Subsidiaries. As part of the acquisition of Westin,
the Realty Partnership will acquire substantially all of the stock of three
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corporations that intend to elect to be taxed as REITs (the "Subsidiary REITs").
The Subsidiary REITs will not be treated as Qualified REIT Subsidiaries and will
be subject to the REIT Provisions as described in this section. Also as part of
the Westin Acquisition, certain of the assets of Westin, including third party
management, franchise and representation agreements and certain trademarks and
other intangible property will be held by corporations (the "Management
Subsidiaries") of which the Trust or the Realty Partnership will own all of the
nonvoting preferred stock and common stock comprising less than 10% of the
outstanding voting stock of each Management Subsidiary. The remainder of the
voting stock of the Management Subsidiaries will be owned by the Corporation.
The Management Subsidiaries will not be treated as Qualified REIT Subsidiaries.
In the case of a REIT that is a partner in a partnership, the REIT
Provisions provide that the REIT is deemed to own its proportionate share of the
assets of the partnership based on the REIT's capital interest in the
partnership and is deemed to be entitled to the income of the partnership
attributable to such proportionate share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of satisfying the gross income tests and the
asset tests described below. Similar treatment applies with respect to
lower-tier partnerships which the REIT indirectly owns through its interests in
higher-tier partnerships. Thus, the Trust's proportionate share of the assets,
liabilities and items of income of the Realty Partnership and the other
partnerships and limited liability companies in which the Trust owns a direct or
indirect interest (collectively, the "Realty Subsidiary Entities"), will be
treated as assets, liabilities and items of income of the Trust for purposes of
applying the gross income tests and the asset tests described below, provided
that the Realty Partnership and the Realty 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
tests and the asset tests 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 tests or asset tests 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 a REIT and a 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
Effective Time of the Merger, Sidley & Austin will render an opinion to the
effect that the termination of the Trust's REIT election for the taxable years
ended December 31, 1991 through 1994 did not, and the consummation of the Merger
will 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 will 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 of the
Trust and the Corporation 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 (collectively, the "Operating
Subsidiary Entities") 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, and
the entities in which they own a direct or indirect interest 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 Effective Time of
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the Merger, 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 and certain of the entities in which they own a direct or indirect
interest 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 and the entities in
which they own a direct or indirect interest have been and will be negotiated
and structured with the intention of achieving an arm's-length result. As a
result, the potential application of Section 482 of the Code should not have a
material effect on the Trust or the Corporation.
Income Tests. In order to maintain qualification as a REIT, the Trust must
annually satisfy certain gross income requirements (the "gross income tests").
First, at least 75% of the Trust's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined types of
income derived directly or indirectly from investments relating to real property
or mortgages on real property (including "rents from real property," as
described below, and in certain circumstances, interest) or from certain types
of qualified temporary investments. Second, at least 95% of the Trust's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from the same items which qualify under the 75% income test
and from dividends, interest, and gain from the sale or disposition of stock or
securities that do not constitute dealer property or from any combination of the
foregoing. Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less 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 and its ownership of the Subsidiary REITs. The Realty Partnership, the
Realty Subsidiary Entities currently, and the Subsidiary REITs will, lease for a
fixed period all of their fee and leasehold interests in their hotels and
associated property to the Operating Partnership, to
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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 determined
by calculating a fixed percentage of the gross room revenues and adding, 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 Effective Time of the Merger, 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 will be based, in part, on the following
facts: (i) the lessors and the lessees intend for their relationship to be that
of lessor and lessee and each such relationship will be documented by a lease
agreement; (ii) the lessees will have the right to exclusive possession and use
and quiet enjoyment of the leased premises during the term of the Leases; (iii)
the lessees will bear the cost of, and be responsible for, day-to-day
maintenance and repair of the leased premises, other than the cost of certain
capital expenditures, and will dictate how the leased premises are operated and
maintained; (iv) the lessees will bear all of the costs and expenses of
operating the leased premises during the term of the Leases; (v) the term of the
Leases is less than the economic life of the leased premises and the lessees do
not have purchase options with respect to the leased premises; (vi) the lessees
are required to pay substantial fixed rent during the term of the Leases; and
(vii) each lessee stands to incur substantial losses or reap substantial profits
depending on how successfully it operates the leased premises.
Shareholders and stockholders 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 will 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, or, in the case of the recharacterization of a Lease of a
Subsidiary REIT, one or more of the asset 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 that, with respect to hotel
properties that the Realty Partnership or the Subsidiary REITs may directly or
indirectly acquire in the future, the Realty Partnership and the Subsidiary
REITs will not charge rent that is based in whole or in part on the net 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
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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, or,
in the case of the recharacterization of a Lease of a Subsidiary REIT, one or
more of the asset 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 neither the Trust nor any Subsidiary REIT may own,
directly or constructively, 10% or more of the Operating Partnership, any
Operating Subsidiary Entity or any other tenant under a Lease. If the Trust or
any Subsidiary REIT were to own directly or indirectly, 10% or more of 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 Shares will be ineffective. See "Description of the Starwood
Capital Stock -- Ownership Limits; Restrictions on Transfer; Repurchase and
Redemption of Shares." However, notwithstanding such restrictions, because the
Code's constructive ownership rules for purposes of the 10% ownership limit are
broad and it is not possible to continually monitor direct and indirect
ownership of Paired Shares, it is possible that some person may at some time own
sufficient Paired 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, any Realty Subsidiary
Entity, any Subsidiary REIT or any Management Subsidiary 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, any
Realty Subsidiary Entity, any Subsidiary REIT or any Management Subsidiary
should be treated as rendering or furnishing Prohibited Services to the
occupants of the properties. The Trust has represented that neither it nor any
entity in which it directly or indirectly owns an interest or from which it
receives income will be providing Prohibited Services to the Corporation or to
any entity in which the Corporation directly or indirectly owns an interest, or
will be managing or operating any assets owned directly or indirectly by the
Trust. If the IRS were to successfully assert that one or more of the Management
Subsidiaries were providing Prohibited Services to the Corporation or to any
entity in which the Corporation directly or indirectly owns an interest, or was
managing or operating any assets owned directly or indirectly by the Trust, then
it is possible that the Trust would not be able to satisfy either the 75% or 95%
gross income test, or one or more of the asset tests, and, as a result, would
lose its REIT status.
Based on the foregoing, prior to the Effective Time of the Merger, 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
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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 will be treated as
qualifying income for the 95% gross income test but will 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. In addition, 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
the 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, a REIT, 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
REIT'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
REIT), cash, cash items, government securities and shares of REITs. Second, not
more than 25% of the REIT'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 REIT may not
exceed 5% of the value of the REIT's total assets, and the REIT 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 the Westin Acquisition, the Trust (or the Realty Partnership) will
own all of the nonvoting stock and less than 10% of the voting stock of each
Management Subsidiary. Neither the Trust nor the Realty Partnership, however,
will directly own more than 10% of the voting securities of any Management
Subsidiary. The Trust will also acquire, as a result of the Westin Acquisition,
certain intangible assets of Westin. The Trust believes that, as of the end of
each calendar quarter commencing with the calendar quarter ending March 31,
1998, the value of the securities of each Management Subsidiary held directly by
the Trust and the Trust's pro rata share of the value of the securities of each
Management Subsidiary held indirectly through the Realty Partnership will not
exceed 5% of the value of the Trust's total assets and that not more than 25% of
the value of the Trust's total assets will consist of assets other than "real
estate assets," cash and cash items (including receivables), government
securities and shares of REITs. The Trust's belief is based in part upon its
analysis of the estimated values of the various securities and other assets
owned by the Trust and the Realty Partnership (or to be owned by them as a
result of the Westin Acquisition). There can be no assurance, however, that the
IRS will not successfully assert that certain securities held by the Trust or
the Realty Partnership cause the Trust to fail either the 5% or 10% asset tests
or that less than 75% of the value of the Trust's total assets consists of "real
estate assets," cash and cash items (including receivables), government
securities and shares of REITs.
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After 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 subsequent 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 Subsidiary REIT may find it necessary to arrange for short-term
or possible long-term borrowings.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Trust's deduction
for dividends paid for the earlier year. Thus, the Trust may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Trust
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY. If the Trust fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Trust fails to qualify will not be deductible by the Trust nor will
they be required to be made. As a result, the Trust's failure to qualify as a
REIT could reduce the cash available for distribution by the Trust to its
shareholders. In addition, if the Trust fails to qualify as a REIT, all
distributions to shareholders will be taxable as ordinary income to the extent
of the Trust's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific statutory
provisions, the Trust will also be disqualified from taxation as a REIT for the
four taxable years following the year during which qualification was lost. It is
not possible to state whether in all circumstances the Trust would be entitled
to such statutory relief.
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"). The Corporation Group
will be subject to federal income tax on its taxable income.
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FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
FEDERAL INCOME TAXATION OF TAXABLE U.S. HOLDERS. As used herein, the term
"U.S. Shareholder" means a holder of Paired 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 will
be required to include their proportionate share of the undistributed long-term
capital gains in income and will receive a credit for their share of the tax
paid by the Trust. The basis of the Trust's U.S. Shareholders' Trust Shares
would be increased by a corresponding amount.
The Trust will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Trust up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed
above. As a result, holders may be required to treat certain distributions that
would otherwise result in a tax-free return of capital as taxable distributions.
Moreover, any "deficiency dividend" will be treated as a "dividend" (either as
ordinary or capital gain dividend, as the case may be), regardless of the
Trust's earnings and profits.
Distributions from the Trust and gain from the disposition of the Trust
Shares will not be treated as passive activity income and, therefore,
shareholders will not be able to apply any "passive losses" against such income.
Dividends from the Trust (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment interest expense limitation. Gain from the disposition of shares and
capital gains dividends will not be treated as investment income unless the
holders elect to have the gain taxed at ordinary income rates.
Distributions from the Corporation up to the amount of the Corporation's
current or accumulated earnings and profits will be taken into account by U.S.
Shareholders as ordinary income and will be eligible for the dividends-received
deduction for corporations. Distributions in excess of the Corporation's current
and accumulated earnings and profits will not be taxable to a holder to the
extent that they do not exceed the 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 Shares equal to the difference between the amount realized
on such disposition and the holder's adjusted basis in such Paired Shares. Such
gain or loss will generally constitute long-term capital gain or loss if the
holder held such Paired 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-
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term capital loss to the extent of distributions from the Trust that are 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 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. The eligibility of capital gains dividends for lower capital
gains tax rates is subject to special rules.
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 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 Limit, the Trust does
not expect to be a "pension held REIT" within the meaning of the Code.
FEDERAL TAXATION OF NON-U.S. HOLDERS OF PAIRED 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. Non-U.S.
Shareholders should consult with their own tax advisors to determine the effect
of federal, state, local, and foreign income tax laws with regard to an
investment in Paired Common Shares, including any reporting requirements.
United States Treasury Regulations were issued on October 14, 1997 (the
"1997 Final Regulations") that will affect the United States federal income
taxation of distributions by the Trust or Corporation to Non-U.S. Shareholders.
The 1997 Final Regulations are generally effective for payments after December
31, 1998. The discussion below does not include a complete discussion of the
1997 Final Regulations, and prospective Non-U.S. Shareholders are urged to
consult their tax advisors concerning the tax consequences of their investment
in light of the 1997 Final Regulations.
In general, a Non-U.S. Shareholder will be subject to regular United States
income tax with respect to its investment in Paired Shares if such investment is
"effectively connected" with the Non-U.S. Shareholder's
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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 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 Shares if the
Non-U.S. Shareholder otherwise would be subject to tax on any gain from the sale
or other disposition of Paired Shares, as described below. Distributions to
Non-U.S. Shareholders that reduce the adjusted basis of Trust Shares or
Corporation Shares and distributions to Non-U.S. Shareholders that exceed the
adjusted basis of Trust Shares or Corporation Shares will ordinarily be subject
to a withholding tax on a gross basis at a 10% rate, regardless of whether such
distributions result in gain to the Non-U.S. Shareholder. The Trust or the
Corporation, as the case may be, may apply to the IRS for a certificate that
reduces or eliminates this withholding tax. Any such amounts withheld should be
creditable against the Non-U.S. Shareholder's United States federal income tax
liability.
If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current or accumulated earnings and
profits, the distribution will generally be treated as a dividend for
withholding purposes. However, amounts thus withheld are generally refundable if
it is subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Trust or the Corporation, as
the case may be. The Trust and the Corporation expect to withhold United States
income tax at the rate of 30% on the gross amount of any such distributions made
to a Non-U.S. Shareholder unless (i) a lower rate is provided for under an
applicable tax treaty and the shareholder files the required form evidencing
eligibility for that reduced rate with the Trust and the Corporation, or (ii)
the Non-U.S. Shareholder files an IRS Form 4224 with the Trust and the
Corporation claiming that the distribution is "effectively connected" income.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Trust of United States real property interests will
cause the Non-U.S. Shareholder to be treated as recognizing 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 Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or other disposition of Paired 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 Shares are regularly
traded on an established securities market (e.g., the NYSE, where the Paired
Shares are currently traded) and (B) the
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selling Non-U.S. Shareholder held 5% or less of the outstanding Paired Shares at
all times during the specified period, unless, in the case of a Non-U.S.
Shareholder who is a non-resident alien individual, such individual is present
in the United States for 183 days or more and certain other conditions apply. A
domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. The Trust believes that it
qualifies as a domestically controlled REIT.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under certain circumstances, U.S. Shareholders 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 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
A substantial portion of the Trust's assets are held directly or indirectly
through the Realty Partnership and a substantial portion of the Corporation's
assets are held directly or indirectly through the Operating Partnership.
The Realty Partnership, the Operating Partnership, the Realty Subsidiary
Entities and the Operating Subsidiary Entities involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of such partnerships or limited liability companies as a
partnership (as opposed to an association taxable as a corporation) for federal
income tax purposes. If any of such partnerships or limited liability companies
were to be treated as an association, it would be taxable as a corporation and,
therefore, subject to an entity level tax on its income. Such an entity level
tax is likely to substantially reduce the amount of cash available for
distribution to holders of Paired 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 other parties (including affiliates of Starwood Capital) and
property has been contributed to certain of
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such entities. 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 or a lower-tier entity 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" above. 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 Shares"
above. The application of these rules over time may result in a higher portion
of distributions being taxed as dividends than would have occurred had the Trust
and the Corporation contributed assets with an adjusted tax basis equal to their
fair market values.
PARTNERSHIP ANTI-ABUSE RULE
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is formed
or availed of in connection with a transaction a principal purpose of which is
to reduce substantially the present value of the partners' aggregate federal tax
liability in a manner that is inconsistent with the intent of the Partnership
Provisions, the IRS can recast the transaction for federal tax purposes to
achieve tax results that are consistent with the intent of the Partnership
Provisions. This analysis is to be made based on all facts and circumstances.
The Anti-Abuse Rule states that the intent of the Partnership Provisions
incorporates the following requirements: (i) the partnership must be bona fide
and each partnership transaction or series of related transactions must be
entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
Prior to the Effective Time of the Merger, 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 will 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
income and asset tests. 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.
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OTHER TAX CONSEQUENCES
Starwood Lodging and its shareholders and stockholders 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 Starwood
Lodging and its shareholders and stockholders may not conform to the federal
income tax consequences discussed above. CONSEQUENTLY, SHAREHOLDERS AND
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE
AND LOCAL TAX LAWS ON THE MERGER AND ON THE PURCHASE, OWNERSHIP AND SALE OF
PAIRED SHARES.
AMENDMENTS TO THE DECLARATION OF TRUST OF THE TRUST
AND THE ARTICLES OF INCORPORATION OF THE CORPORATION
The Trust Board approved and declared advisable the Trust Amendment and
directed that the Trust Amendment be submitted to shareholders of the Trust at
the Trust Meeting. As described below, the Trust Amendment would (i) increase
the number of authorized shares of beneficial interest of the Trust and (ii)
provide that in certain circumstances when the Corporation redeems certain of
its securities, the Trust shall simultaneously redeem any of its securities that
are paired with such securities of the Corporation.
The Corporation Board approved and declared advisable the Corporation
Amendment and directed that the Corporation Amendment be submitted to
stockholders of the Corporation at the Corporation Meeting. As described below,
the Corporation Amendment would (i) increase the number of authorized shares of
stock of the Corporation and (ii) to enable the Corporation to secure and
maintain in good standing licenses, franchises and other regulatory approvals
necessary to operate gaming businesses.
AUTHORIZED SHARES
CURRENT PROVISIONS. On December 12, 1997, the shareholders of the Trust
approved an amendment to the Trust Declaration to authorize the Trust to issue
305 million shares of beneficial interests in the Trust, including (i) 200
million Trust Shares, (ii) 40 million Excess Trust Shares and (iii) 10 million
Excess Trust Preferred Shares. The Trust Declaration grants to the Trustees the
power to create and authorize the issuance of shares of beneficial interest in
one or more additional classes or series ("Trust Preferred Shares") having such
voting rights, such rights to dividends and distributions and rights in
liquidation, such conversion, exchange and redemption rights, and such
designations, preferences and participations and other limitations or
restrictions as are not prohibited by the Trust Declaration or applicable law
and as are specified by the Trustees in their discretion.
On December 12, 1997, the stockholders of the Corporation approved an
amendment to the Corporation Articles to provide that the authorized capital
stock of the Corporation consist of 305 million shares, consisting of (i) 200
million Corporation Shares, (ii) 40 million shares of Excess Common Stock, (iii)
10 million shares of Excess Preferred Stock and (iv) 55 million shares of
Preferred Stock.
As of the Trust Record Date, Trust Shares were issued and
outstanding and Trust Shares were reserved for issuance and no Trust
Preferred Shares, Excess Trust Shares or Excess Trust Preferred Shares were
issued and outstanding or reserved for issuance. As of the Corporation Record
Date, Corporation Shares were issued and outstanding and
Corporation Shares were reserved for issuance and no shares of Excess Common
Stock, Excess Preferred Stock or Preferred Stock of the Corporation were issued
or outstanding or reserved for issuance.
On December 12, 1997, the shareholders of the Trust and the stockholders of
the Corporation approved the acquisition of Westin, pursuant to which, among
other things, the Trust will issue, at the closing of such acquisition,
11,580,566 Trust Preferred Shares and will reserve for issuance 12,571,566 Trust
Shares and the Corporation will reserve for issuance 12,571,566 Corporation
Shares. The acquisition of Westin is expected to close in early January 1998.
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It is currently anticipated that approximately Paired Shares will
be issued in connection with the Merger. Accordingly, assuming the closing of
the Westin acquisition and the consummation of the Merger, the Trust will have
an aggregate of Trust Shares issued and outstanding or reserved for
issuance and the Corporation will have an aggregate of Corporation
Shares issued and outstanding or reserved for issuance. Because these amounts
exceed the authorized Trust Shares and Corporation Shares, adoption of the Trust
Amendment and the Corporation Amendment is necessary in order to permit the
Trust and the Corporation to effect the Merger.
PROPOSED AMENDMENTS. The Trust Amendment provides that the Trust may issue
1.35 billion shares of beneficial interests in the Trust, consisting of (i) one
billion Trust Shares, (ii) 200 million Excess Trust Shares, (iii) 100 million
Trust Preferred Shares and (iv) 50 million Excess Trust Preferred Shares. The
Trustees would continue to have the power to create or authorize Trust Preferred
Shares, as described above. If the shareholders of the Trust approve the Trust
Amendment, Section 6.1 of the Trust Declaration will be amended to read in its
entirety as follows:
"6.1. Shares. The units into which the beneficial interests in the
Trust will be divided shall be designated as Shares consisting of (a)
1,000,000,000 Trust Shares with a par value of $0.01 per share and having
equal dividend, distribution, liquidation and other rights but without
preference, pre-emptive, appraisal, conversion or exchange rights of any
kind, (b) 200,000,000 Excess Trust Shares with a par value of $0.01 per
share and having the rights provided in Article VI hereof, (c) 100 million
Trust Preferred Shares with a par value of $0.01 per share and having the
rights provided in Article VI hereof and (d) 50,000,000 Excess Preferred
Shares with a par value of $0.01 per share and having the rights provided
in Article VI hereof; provided, however, that the Trustees may, in their
discretion, create and authorize the issuance of Shares of one or more
additional classes, or one or more series within any such class, with or
without par value, having such voting rights, such rights to dividends,
distributions and in liquidation, such conversion, exchange and redemption
rights, and such designations, preferences, participation, and other
limitations or restrictions, as shall not be prohibited by this Declaration
or the Real Estate Investment Trust provisions of the Internal Revenue Code
or the laws of the State of Maryland and as shall be specified by the Board
of Trustees in their discretion in a resolution or resolutions duly adopted
by the Board of Trustees and filed and accepted for record with the State
Department of Assessments and Taxation of Maryland. As used herein, the
term "Shares" shall mean and include (i) the Trust Shares, Excess Trust
Shares, Trust Preferred Shares and Excess Preferred Shares, and (ii) from
and after the issuance of Shares of any other and additional classes of
Shares so created and authorized by the Trustees, such Shares. The
certificates evidencing the Shares shall be in such form and signed
(manually or by facsimile) on behalf of the Trust in such manner as the
Trustees may from time to time prescribe or as may be prescribed in the
Trustees' Regulations. The certificates shall be negotiable and title
thereto and to the Shares evidenced thereby shall be transferred by
assignment and delivery thereof to the same extent and in all respects as a
share certificate of a Maryland corporation. The Shares may be issued for
such consideration as the Trustees shall determine or by way of share
dividend or share split in the discretion of the Trustees. Shares
reacquired by the Trust shall no longer be deemed outstanding and shall
have no voting or other rights unless and until reissued. Shares reacquired
by the Trust may be cancelled and restored to the status of authorized and
unissued Shares by action of the Trustees. All Shares shall be fully paid
and non-assessable by or on behalf of the Trust upon receipt of full
consideration for which they have been issued or without additional
consideration if issued by way of share dividend or share split. The Board
of Trustees may authorize the issuance from time to time of shares of
beneficial interest of the Trust of any class or series, whether now or
hereafter authorized, or securities or rights convertible into shares of
beneficial interest of any class or series, whether now or hereafter
authorized, for such consideration (whether in cash, property, past or
future services, obligation for future payment or otherwise) as the Board
of Trustees may deem advisable (or without consideration in the case of a
share split or share dividend), subject to such restrictions or
limitations, if any, as may be set forth in this Declaration or the
Trustees' Regulations."
The Corporation Amendment provides that the authorized stock of the
Corporation consists of 1.35 billion shares, consisting of (i) one billion
Corporation Shares, (ii) 50 million shares of Excess Common
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Stock, (iii) 100 million shares of Excess Preferred Stock and (iv) 200 million
shares of Preferred Stock. If the stockholders of the Corporation approve the
Corporation Amendment, Article FIFTH of the Corporation Articles will be amended
to read in its entirety as follows:
"FIFTH: The total number of shares of stock which the Corporation has
authority to issue is one billion three hundred and fifty million
(1,350,000,000) shares, consisting of (a) one billion (1,000,000,000)
shares of common stock with a par value of $0.01 per share, (b) two hundred
million (200,000,000) shares of preferred stock with a par value of $0.01
per share, (c) fifty million (50,000,000) shares of excess common stock
with a par value of $0.01 per share, and (d) one hundred million
(100,000,000) shares of excess preferred stock with a par value of $0.01
per share. The preferred stock may be issued in such series and with such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications, and
terms and conditions of redemption, if any, as may be fixed by the Board of
Directors. The excess common stock and the excess preferred stock shall
have the rights provided in the NINTH Article hereof. The aggregate par
value of all shares of stock which the Corporation has authority to issue
is thirteen million five hundred thousand Dollars ($13,500,000). The Board
of Directors may authorize the issuance from time to time of shares of
stock of the Corporation of any class or series, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of
any class or series, whether now or hereafter authorized, for such
consideration (whether in cash, property, past or future services,
obligation for future payment or otherwise) as the Board of Directors may
deem advisable (or without consideration in the case of a stock split or
stock dividend), subject to such restrictions or limitations, if any, as
may be set forth in the charter or the Bylaws."
PURPOSE AND EFFECT OF PROPOSED AMENDMENTS TO INCREASE AUTHORIZED
SHARES. The purpose of the proposed increases in the number of authorized
shares of the Trust and the Corporation is to provide for sufficient authorized
shares to consummate the Merger and to ensure that additional Trust Shares and
Corporation Shares will be available, if and when needed, for issuance from time
to time for any proper purpose approved by the respective Starwood Boards,
including issuances to raise capital or effect acquisitions, and for other
corporate purposes. Although there are no present arrangements, agreements or
understandings for the issuance of additional Trust Shares or Corporation Shares
(other than the shares previously reserved for issuance as described above, the
shares to be issued and reserved for issuance in connection with the acquisition
of Westin, and the shares to be issued pursuant to the Merger and in connection
with acquisitions in the ordinary course of business), the Trust Board and the
Corporation Board each believe that the availability of the additional
authorized shares for issuance upon approval of the respective Starwood Board
without the necessity for, or the delay inherent in, a meeting of the
shareholders of the Trust and the stockholders of the Corporation will be
beneficial to the Trust and its shareholders and the Corporation and its
stockholders by providing the Trust and the Corporation with the flexibility
required to promptly consider and respond to future business opportunities and
needs as they arise.
If the proposed amendments are approved by the shareholders of the Trust
and the stockholders of the Corporation, the respective Starwood Boards do not
presently intend to seek further shareholder or stockholder approval with
respect to any particular issuance of shares, unless required by applicable law,
by regulatory authorities, or by the policies, rules and regulations of the NYSE
or such other stock exchange on which the securities of the Trust or the
Corporation may then be listed.
Shareholders of the Trust and stockholders of the Corporation do not have
any preemptive or similar rights to subscribe for or purchase any additional
shares that may be issued in the future and, therefore, future issuances,
depending upon the circumstances, may have a dilutive effect on the earnings per
share, book value per share, voting power and other interests of the existing
stockholders and shareholders.
The proposed increase in the authorized number of shares could have an
antitakeover effect, although that is not its purpose. For example, if the Trust
and the Corporation were the subject of a hostile takeover attempt, they could
try to impede the takeover by issuing Trust Shares or Corporation Shares,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost of the takeover. The availability of this defensive strategy
could delay, defer or prevent a change in control, thereby limiting the
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opportunity for the shareholders and stockholders to realize a higher price for
their shares than might otherwise be available in the public markets. The Trust
Board and the Corporation Board are not aware of any attempt, or contemplated
attempt, to acquire control of the Trust or the Corporation, and this proposal
is not being presented for the purpose of creating an antitakeover device.
GAMING PROVISIONS
PROPOSED AMENDMENT TO CORPORATION ARTICLES. The Corporation Amendment would
enable the Corporation to secure and maintain in good standing all licenses,
franchises and other regulatory approvals issued by Gaming Authorities (as
hereinafter defined) which are necessary for the lawful operation of gaming and
related businesses. The New Jersey Act requires a publicly traded holding
company of a gaming licensee to have certain language in its corporate charter.
The corporate charter must contain language to the effect that securities of
such a corporation are held subject to the condition that if a holder is found
to be disqualified by the New Jersey Commission, such holder shall dispose of
its interest in the corporation, as reflected in new Article NINETEENTH, the
full text of which is set forth as Annex D to this Joint Proxy Statement/
Prospectus. The following discussion of Article NINETEENTH does not purport to
be complete and is qualified in its entirety by reference to Article NINETEENTH
of Annex D attached hereto.
Article NINETEENTH, in general, provides that securities of the Corporation
shall be subject to redemption by the Corporation, pursuant to Section 78.196 of
the Nevada Revised Statutes or any other applicable provision of law, to the
extent necessary to prevent the loss or to secure the reinstatement of any
gaming license held by the Corporation or any of its subsidiaries.
Article NINETEENTH also provides that securities of the Corporation shall
be held subject to the condition that if a holder thereof is found by a Gaming
Authority to be disqualified or unsuitable pursuant to any law or regulation
governing the conduct of gaming and related businesses (a "Disqualified
Holder"), such holder shall dispose of all of the Corporation's securities held
by such holder within the 120 day period commencing with the date (the "Notice
Date") upon which the Corporation shall have received notice from a Gaming
Authority of such holder's disqualification.
If any Disqualified Holder fails to dispose of the Corporation's securities
within the 120-day period, the Corporation would also have the right to redeem
such securities (and the Trust would simultaneously redeem any securities of the
Trust that are paired with such securities of the Corporation pursuant to the
Pairing Agreement) at the lesser of (1) the lowest closing sale price of such
securities on any trading day during such 120-day period or (2) such
Disqualified Holder's original purchase price.
Article NINETEENTH also provides that commencing on the Notice Date, it
shall be unlawful for a Disqualified Holder to receive payments of dividends or
interest upon any securities of the Corporation held by such Disqualified
Holder, exercise, directly or indirectly, any right conferred by the
Corporation's securities upon the holders thereof, or receive any remuneration
in any form, for services rendered or otherwise from the subsidiary of the
Corporation that holds a gaming license.
Pursuant to Article NINETEENTH, the Corporation shall be entitled to
injunctive relief to enforce the provisions of such Article and a Disqualified
Holder must indemnify the Corporation and its subsidiaries for any and all
direct or indirect costs (including attorneys' fees) incurred by the Corporation
as a result of such holder's continuing ownership of or failure to divest of
securities of the Corporation.
For purposes of this section, the term "Gaming Authorities" includes all
governmental authorities within or without the United States which issue or
grant any license, franchise or regulatory approval necessary or appropriate for
the lawful operation of gaming and related businesses. With respect to the State
of Nevada, the term "Gaming Authorities" shall include, without limitation, the
Nevada Commission, the Nevada Board or their respective successors; and with
respect to New Jersey, the term "Gaming Authorities" shall include, without
limitation, the New Jersey Commission, the Division of Gaming Enforcement or
their respective successors.
PROPOSED AMENDMENT TO DECLARATION OF TRUST. The Trust Amendment provides
that in the event the Corporation redeems any securities of the Corporation
pursuant to Article NINETEENTH of the Corpora-
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<PAGE> 93
tion Articles, the Trust shall simultaneously redeem any shares of beneficial
interest of the Trust that are paired with such securities of the Corporation
pursuant to the Pairing Agreement. If the shareholders of the Trust approve the
Trust Amendment, a new Section 6.16 would be added to the Trust Declaration
reading in its entirety as follows:
"6.16 Redemption. In the event that the Corporation shall redeem any
shares of its capital stock pursuant to Article NINETEENTH of the Articles
of Incorporation of the Corporation and such shares are subject to the
limitation on transfer provided for in the Pairing Agreement, the Trust
shall simultaneously redeem, upon the terms of such Article NINETEENTH, any
Shares that are paired with such shares of the Corporation's capital stock
pursuant to the Pairing Agreement."
VOTES REQUIRED FOR APPROVAL
Approval of the Trust Amendment requires the affirmative vote of the
holders of a majority of the outstanding Trust Shares entitled to vote at the
Trust Meeting. Approval of the Corporation Amendment requires the affirmative
vote of the holders of a majority of the outstanding Corporation Shares entitled
to vote on the matter at the Corporation Meeting. Consequently, shares which are
voted to abstain from voting on the approval of the Trust Amendment or the
Corporation Amendment and shares which are not voted with respect to such
approval (including broker non-votes) will have the effect of a vote against
such approval.
THE TRUST BOARD RECOMMENDS THAT SHAREHOLDERS OF THE TRUST VOTE FOR APPROVAL
OF THE TRUST AMENDMENT AND THE CORPORATION BOARD RECOMMENDS THAT STOCKHOLDERS OF
THE CORPORATION VOTE FOR APPROVAL OF THE CORPORATION AMENDMENT.
APPROVAL OF EACH OF THE TRUST AMENDMENT AND THE CORPORATION AMENDMENT IS
NECESSARY IN ORDER TO CONSUMMATE THE MERGER. IF EITHER THE TRUST AMENDMENT OR
THE CORPORATION AMENDMENT IS NOT APPROVED BY THE SHAREHOLDERS OF THE TRUST AND
THE STOCKHOLDERS OF THE CORPORATION, RESPECTIVELY, THE TRUST AND THE CORPORATION
DO NOT EXPECT TO CONSUMMATE THE MERGER.
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<PAGE> 94
OWNERSHIP OF PAIRED SHARES
The following table sets forth information as of December , 1997,
regarding the beneficial ownership of Paired Shares by (i) each person known by
the Trust and the Corporation to be the beneficial owner of more than five
percent of the Paired Shares, (ii) each director and executive officer of the
Corporation and (iii) each Trustee and executive officer of the Trust. Each
beneficial owner has sole voting and investment power with respect to all Paired
Shares beneficially owned, except as otherwise set forth in the notes to the
table.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT OF CLASS(1)
- ----------------------------------------------------------------------- ------ -----------
<S> <C> <C>
FMR Corp............................................................... (2) (2)
Starwood Capital Group, L.L.C. and its affiliated entities and Barry S.
Sternlicht........................................................... (3) (3)
Prudential Real Estate Investors....................................... (4) (4)
Ziff Investment Management, L.L.C., Ziff Investor Partnership L.P. II,
their affiliated entities and Daniel H. Stern........................ (5) (5)
Ronald C. Brown........................................................ (6) (7)
Bruce W. Duncan........................................................ (8) (7)
Steven R. Goldman...................................................... (9) (7)
Madison F. Grose....................................................... (10) (7)
Gary M. Mendell........................................................ (11)
Roger S. Pratt......................................................... (12)
Stephen R. Quazzo...................................................... (13) (7)
Jean-Marc Chapus....................................................... (14) (7)
Eric A. Danziger....................................................... (15) (7)
Theodore W. Darnall.................................................... (16) (7)
Jonathan D. Eilian..................................................... (17) (7)
Bruce M. Ford.......................................................... (18) (7)
Graeme W. Henderson.................................................... (19) (7)
Earle F. Jones......................................................... (20) (7)
Michael A. Leven....................................................... (21) (7)
Alan M. Schnaid........................................................ (22) (7)
Daniel W. Yih.......................................................... (23) (7)
All Trustees, Directors and officers as a group........................ (24)
</TABLE>
- -------------------------
(1) Based on the number of Paired Shares outstanding on , 1997.
(2) The business address for FMR Corp. is 82 Devonshire Street, Boston, MA
02109. Based on information contained in Schedule 13F-E dated February 11,
1997 and additional information provided to Starwood Lodging, FMR Corp.
holds 5,103,683 Paired Shares on behalf of various distinct entities. Based
on additional information provided to Starwood Lodging, no one of such
entities, directly or by attribution, holds in excess of 8.0% of the
outstanding Paired Shares.
(3) The business address for Starwood Capital Group, L.L.C. and Mr. Sternlicht
is Three Pickwick Plaza, Suite 250, Greenwich, CT 06830. Based on
information in Amendment No. 2 to Schedule 13D dated December 31, 1996,
filed by Starwood Capital Group, L.L.C., Barry S. Sternlicht, BSS Capital
Partners, L.P., Sternlicht Holdings II, Inc., Harveywood Hotel Investors,
L.P., Starwood Hotel Investors II-L.P., Starwood Opportunity Fund II, L.P.
and Firebird Consolidated Partners, L.P. (collectively, the "Starwood
Partners"), and additional information provided to Starwood Lodging, Mr.
Sternlicht beneficially owns, directly or through entities controlled by
him, 338,182 Paired Shares, some of which are subject to Restricted Stock
Awards, and has either sole or shared power to vote and dispose of such
Paired Shares. Mr. Sternlicht also beneficially owns 794,001 Paired Shares
subject to presently exercisable options. Mr. Sternlicht holds, directly or
through trusts created by him for the benefit of members of his family,
units in the Realty Partnership and the Operating Partnership which are,
subject to the 8.0% Paired Share ownership limit, exchangeable for an
aggregate of 508,120 Paired
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<PAGE> 95
Shares. Starwood Partners hold units in the Realty Partnership and the
Operating Partnership which are, subject to the 8.0% Paired Share ownership
limit, exchangeable for an aggregate of 3,102,492 Paired Shares. Such
Amendment No. 2 to Schedule 13D reports that because of the 8.0% ownership
limit, the Starwood Partners cannot beneficially own more than 8.0% of the
outstanding Paired Shares. The amount beneficially owned and the percent of
class calculated assumes that Starwood Capital Group, L.L.C., its
affiliated entities and Barry Sternlicht exchange units for Paired Shares
to the maximum extent permitted within the ownership limit provision;
provided, however, that prior to receipt of any required Gaming Approval,
Starwood Capital's ownership of Paired Shares may not exceed 4.9% of the
outstanding Paired Shares.
(4) The business address for Prudential Real Estate Investors is 8 Campus
Drive, 4th Floor, Parsippany, NJ 07054. Based on information in Schedule
13D dated February 14, 1997, filed by Prudential Insurance Company of
America ("Prudential"), and additional information provided to Starwood
Lodging, Prudential has sole voting and dispositive power over 2,775,510
Paired Shares beneficially owned by Prudential on behalf of Prudential
Property Investment Separate Account II ("PRISA II") and sole voting and
dispositive power over 4,500 Paired Shares beneficially owned by Prudential
on behalf of Prudential Diversified Investment Strategies. Prudential also
has sole voting and dispositive power over units in the Realty Partnership
and the Operating Partnership beneficially owned by Prudential on behalf of
PRISA II which are, subject to the 8.0% Paired Share ownership limit,
exchangeable for an aggregate of 1,754,037 Paired Shares.
(5) The business address for Ziff Investment Management, L.L.C., Ziff Investors
Partnership, L.P. II and Mr. Stern is 153 East 53rd Street, 43rd Floor, New
York, NY 10022. Based on information in Schedule 13D dated January 10,
1997, filed by Ziff Investment Management, L.L.C. ("ZIM") and Ziff
Investors Partnership, L.P. II ("ZIPII") and after giving effect to the
three-for-two stock split in January 1997, 25,087 Paired Shares are held by
SIV Holdings, L.L.C. ("SIV"), a Delaware limited liability company owned by
ZIPII and ZIM. SIV has sole voting and dispositive power with respect to
these Paired Shares. After giving effect to the three-for-two stock split
in January 1997, ZIPII holds units in the Realty Partnership and the
Operating Partnership which are exchangeable for an aggregate of 2,259,732
Paired Shares. Such Schedule 13D reports that DHS Holdings L.L.C. ("DHS"),
investment general partner of ZIPII may be deemed to control ZIPII and that
Daniel Stern, a Trustee of the Trust, is the majority owner of DHS. Mr.
Stern beneficially owns 510 Paired Shares and 22,500 Paired Shares subject
to presently exercisable options.
(6) Includes 22,500 Paired Shares subject to a Restricted Stock Award and
64,846 Paired Shares subject to presently exercisable options.
(7) Less than 1%.
(8) Includes 22,500 Paired Shares subject to presently exercisable options.
(9) Includes 37,500 Paired Shares subject to a Restricted Stock Award and
66,499 Paired Shares subject to presently exercisable options and units in
the Realty Partnership and the Operating Partnership which are exchangeable
for 22,616 Paired Shares.
(10) Includes 15,000 Paired Shares subject to a Restricted Stock Award, 80,000
Paired Shares subject to presently exercisable options and units in the
Realty Partnership and the Operating Partnership which are exchangeable for
43,004 Paired Shares. Does not include units in the Realty Partnership and
Operating Partnership exchangeable for 27,726 Paired Shares, which are
owned by an irrevocable trust for the benefit of members of Mr. Grose's
family.
(11) Includes 36,078 units in the Realty Partnership and the Operating
Partnership held by Mr. Mendell directly and 505,778 units in the Realty
Partnership and the Operating Partnership held by a trust of which Mr.
Mendell is settlor and over which he exercises some investment control, and
93,756 units of SLC Operating Limited Partnership, all of which are
exchangeable for Paired Shares.
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<PAGE> 96
(12) See Note (4) above. Includes 4,500 Paired Shares subject to presently
exercisable options, 2,775,510 Paired Shares and units in the Realty
Partnership and the Operating Partnership which are held by Prudential on
behalf of PRISA II and which are, subject to the 8.0% Paired Shares
ownership limit, exchangeable for 1,754,037 Paired Shares. By virtue of his
investment control over PRISA II, Mr. Pratt has an indirect pecuniary
interest in these units and Paired Shares. The amount beneficially owned
and the percent of class calculated assumes Mr. Pratt exchanges units for
Paired Shares to the maximum extent permitted within the ownership limit
provision.
(13) Includes 22,500 Paired Shares subject to presently exercisable options,
5,510 Paired Shares held by a trust of which Mr. Quazzo is settlor and over
which he exercises shared investment control and 397 Paired Shares owned by
Mr. Quazzo's wife.
(14) Includes 22,500 Paired Shares subject to presently exercisable options.
(15) Includes 100,222 Paired Shares subject to a Restricted Stock Award and
62,500 Paired Shares subject to presently exercisable options.
(16) Includes 45,283 Paired Shares subject to a Restricted Stock Award and
24,999 Paired Shares subject to presently exercisable options.
(17) Includes 80,000 Paired Shares subject to presently exercisable options.
(18) Includes 22,500 Paired Shares subject to presently exercisable options and
85 Paired Shares owned by Mr. Ford's wife.
(19) Includes 22,500 Paired Shares subject to presently exercisable options.
(20) Includes 18,000 Paired Shares subject to presently exercisable options.
(21) Includes 22,500 Paired Shares subject to presently exercisable options.
(22) Includes 5,500 Paired Shares subject to presently exercisable options.
(23) Includes 22,500 Paired Shares subject to presently exercisable options and
5,000 Paired Shares held by a partnership of which Mr. Yih is a general
partner.
(24) Includes 1,399,846 Paired Shares that may be acquired upon the exercise of
presently exercisable options, and 5,223,121 Paired Shares issuable upon
exchange of units of the Realty Partnership and the Operating Partnership,
subject to the 8.0% Paired Share ownership limit (see Notes (3) and (12)
above).
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<PAGE> 97
OWNERSHIP OF ITT COMMON STOCK
CERTAIN BENEFICIAL OWNERS
The following table shows the beneficial ownership of persons known to ITT
to be the beneficial owners of more than five percent of the ITT Common Stock as
of the most recent available information.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- --------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Bankers Trust New York Corporation............................. 7,728,083 shares(1) 8.9%
280 Park Avenue
New York, New York 10017
FMR Corp....................................................... 13,166,423 shares(2) 11.32%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(1) A February 14, 1997 Schedule 13G filed with the Commission reflects that
Bankers Trust New York Corporation, through its wholly owned subsidiaries
Bankers Trust Company (as Trustee for various trusts and employee benefit
plans, and as investment advisor) and BT Securities Corporation, and its
indirectly wholly owned subsidiary Bankers Trust International PLC,
beneficially owns 7,728,083 shares of ITT Common Stock. Of these shares,
Bankers Trust Company is deemed to have (i) sole power to vote or to direct
the vote with respect to 7,725,383 shares of ITT Common Stock, (ii) shared
power to vote or to direct the vote with respect to 2,700 shares of ITT
Common Stock, (iii) sole power to dispose or to direct the disposition of
1,990,982 shares of ITT Common Stock and (iv) shared power to dispose or to
direct the disposition of 16,505 shares of ITT Common Stock.
(2) A February 14, 1997 Schedule 13G provided to ITT reflects that FMR Corp.
("FMR") beneficially owns 13,166,423 shares of ITT Common Stock. Of such
reported shares, Fidelity Management & Research Company ("Fidelity"), a
wholly owned subsidiary of FMR and an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, is the beneficial owner
of 12,437,559 shares as a result of acting as investment adviser to several
investment companies registered under Section 8 of the Investment Company
Act of 1940. Edward C. Johnson 3d, the Chairman of FMR, FMR, through its
control of Fidelity, and the Fidelity Funds each has sole power to dispose
of the 12,437,559 shares of ITT Common Stock owned by the Fidelity Funds.
Neither FMR nor Edward C. Johnson 3d, Chairman of FMR, has the sole power to
vote or direct the voting of the shares owned directly by the Fidelity
Funds, which power resides with the Funds' Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines established by
the Funds' Boards of Trustees. Fidelity Management Trust Company ("FMTC"), a
wholly owned subsidiary of FMR, and a bank as defined in Section 3(a)(6) of
the Exchange Act, is the beneficial owner of 725,464 shares of ITT Common
Stock or 0.62% of the ITT Common Stock outstanding as a result of its
serving as investment manager of institutional accounts. Edward C. Johnson
3d and FMR, through its control of FMTC, has sole dispositive power over
725,464 shares and sole power to vote or to direct the voting of 513,264
shares, and no power to vote or to direct the voting of 212,000 shares of
ITT Common Stock owned by certain institutional accounts. Members of the
Edward C. Johnson 3d family and trusts for their benefit are the predominant
owners of Class B shares of common stock of FMR, representing approximately
49% of the voting power of FMR. Mr. Johnson 3d owns 12% and Abigail Johnson
owns 24.5% of the aggregate outstanding voting stock of FMR. Mr. Johnson 3d
is Chairman of FMR and Abigail P. Johnson is a Director of FMR. The Johnson
family group and all other Class B stockholders have entered into a
stockholders' voting agreement under which all Class B shares will be voted
in accordance with the majority vote of Class B shares. Accordingly, through
their ownership of voting common stock and the execution of the
stockholders' voting agreement, members of the Johnson family may be deemed,
under the Investment Company Act of 1940, to form a controlling group with
respect to FMR. The number of shares of ITT Common Stock reported includes
3,400 shares owned directly by Edward C. Johnson 3d or in trusts for the
benefit of Edward C. Johnson 3d or any Edward C. Johnson 3d family member
for which Edward C. Johnson 3d serves as trustee. Edward C. Johnson has sole
voting and dispositive power over 400 shares and shared voting and
dispositive power over 3,000 shares.
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<PAGE> 98
DIRECTORS AND OFFICERS
The following table shows as of December , 1997 the beneficial ownership
of shares of ITT Common Stock by each director and nominee, by each of the five
highest compensated executive officers, and by the directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF NATURE PERCENT
OF BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ----------------------------------------------------------------- ---------------- -------
<S> <C> <C>
Bette B. Anderson................................................ 2,811 shares(2) *
Rand V. Araskog.................................................. 1,748,398 shares 1.5%
Nolan D. Archibald............................................... 1,811 shares *
Robert A. Bowman................................................. 550,046 shares *
Robert A. Burnett................................................ 2,981 shares *
Paul G. Kirk, Jr. ............................................... 1,821 shares *
Edward C. Meyer.................................................. 3,311 shares *
Benjamin F. Payton............................................... 1,303 shares *
Vin Weber........................................................ 844 shares *
Margita E. White................................................. 2,811 shares *
Kendrick R. Wilson III........................................... 3,744 shares *
Peter G. Boynton................................................. 66,455 shares *
Ann N. Reese..................................................... 251,068 shares *
Daniel P. Weadock................................................ 396,061 shares *
All directors and executive officers as a group(22).............. 4,283,592 shares 3.7%
</TABLE>
- ---------------
* Less than one percent.
(1) All shares are owned directly except as hereinafter otherwise indicated.
Pursuant to regulations of the Commission, shares (i) receivable by
directors and executive officers upon exercise of employee stock options
exercisable within 60 days after August 31, 1997, and (ii) allocated to the
accounts of certain directors and executive officers under the ITT 401(k)
Retirement Savings Plan at August 31, 1997, are deemed to be beneficially
owned by such directors and executive officers at said date. Of the number
of shares shown above, (i) the following represent shares that may be
acquired upon exercise of employee stock options for the accounts of: Mr.
Araskog, 1,196,617 common shares; Mr. Bowman, 521,653 common shares; Mr.
Boynton, 59,718 common shares; Ms. Reese, 236,544 common shares; Mr.
Weadock, 322,186 common shares; and all present directors and executive
officers as a group, 3,483,949 common shares; and (ii) the following amounts
were allocated under the ITT 401(k) Retirement Savings Plan to the accounts
of: Mr. Araskog, 20,255 common shares; Mr. Bowman, 2,465 common shares; Mr.
Boynton, 137 common shares; Ms. Reese, 1,348 common shares; Mr. Weadock,
52,796 common shares; and all present directors and executive officers as a
group, 114,651 common shares.
(2) An additional 83 shares of ITT Common Stock are owned by Mrs. Anderson's
husband. Mrs. Anderson disclaims beneficial ownership in such shares.
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<PAGE> 99
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ITT AND STOCKHOLDERS AND SHAREHOLDERS OF
STARWOOD LODGING
GENERAL
The Corporation and the Trust are organized under the laws of the State of
Maryland and ITT is incorporated under the laws of the State of Nevada. If the
Merger is consummated, the holders of ITT Common Stock, whose rights as
stockholders are currently governed by the NGCL, the ITT Articles and the ITT
By-laws, will, at the Effective Time, become holders of Paired Shares and their
rights as such will be governed by the Maryland General Corporation Law (the
"MGCL") and Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland (the "Maryland REIT Law"), the Corporation Articles
and the Trust Declaration and the Corporation By-laws and the Trustees'
Regulations. The material differences between the rights of holders of ITT
Common Stock and the rights of holders of Paired Shares, resulting from the
differences in their governing documents and the application of the NGCL or the
MGCL and the Maryland REIT Law thereto, are summarized below. The Maryland REIT
Law does not address many issues that are addressed in the MGCL, e.g., calling
of special meetings of shareholders, shareholder quorum and voting requirements,
fixing of record dates, standards for dividends and other distributions, trustee
conflicts of interest and amendment of bylaws. Many of these matters are
addressed in the Trust Declaration and Trustees' Regulations.
The following summary does not purport to be a complete statement of the
rights of holders of Paired Shares under applicable Maryland law, the
Corporation Articles and the Trust Declaration and the Corporation By-laws and
the Trustees' Regulations or a comprehensive comparison with the rights of the
holders of ITT Common Stock under applicable Nevada law, the ITT Articles and
the ITT By-laws, or a complete description of the specific provisions referred
to herein. This summary contains a list of the material differences but is not
meant to be relied upon as an exhaustive list or a detailed description of the
provisions discussed and is qualified in its entirety by reference to the MGCL,
the Maryland REIT Law and the governing corporate instruments of Starwood
Lodging and to the NGCL and the governing corporate instruments of ITT to which
the holders of ITT Common Stock are referred. Copies of such governing corporate
instruments of Starwood Lodging and ITT are available, without charge, to any
person, including any beneficial owner to whom this Joint Proxy
Statement/Prospectus is delivered by following the instructions listed under
"Incorporation of Certain Documents by Reference."
SPECIAL MEETINGS OF STOCKHOLDERS
STARWOOD LODGING. Under the MGCL, a special meeting of stockholders may be
called by the president, the board of directors or any other person specified in
the corporation's charter or by-laws and must be called upon the written request
of stockholders entitled to cast at least 25% of all the votes entitled to be
cast at the meeting unless the charter or bylaws provide for a greater (but not
more than a majority) or lesser percentage. Under the Corporation By-laws, a
special meeting may be called by the Corporation Board, the President or any two
or more Directors of the Corporation or upon the written request of the holders
of at least 25% of the shares of capital stock outstanding and entitled to vote
at the meeting. Under the Trustees' Regulations, a special meeting may be called
by the President or by the Trust Board or by any two or more Trustees or by one
or more shareholders holding not less than 25% of the outstanding Trust Shares.
ITT. Under the NGCL, special stockholder meetings of a corporation may be
called by its board of directors and by any person or persons authorized to do
so by its articles of incorporation or by-laws. Under the ITT By-laws and the
ITT Articles, a special meeting of stockholders may only be called by the
Chairman of the ITT Board or by a vote of a majority of the ITT Board.
STOCKHOLDER ACTION BY WRITTEN CONSENT
STARWOOD LODGING. Under the MGCL, any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting only if (i) a
unanimous written consent setting forth the action and signed by each
stockholder entitled to vote on such matters and (ii) a written waiver of any
right to dissent
95
<PAGE> 100
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it, are filed with the records of the stockholders meeting. The Maryland
REIT Law does not contain any similar provisions. The Trust Declaration provides
that action by shareholders may be taken without a meeting on written consent
signed by the holders of a majority of all outstanding shares entitled to vote
on the matter, or such larger proportion thereof as would be required for a vote
of shareholders at a meeting.
ITT. Under the NGCL, unless otherwise provided in the articles of
incorporation, any action which may be taken at an annual or special meeting of
stockholders may be taken without a meeting if written consent thereto is signed
by stockholders holding at least a majority of the voting power. The ITT
Articles provide that stockholders may not act by written consent.
STOCKHOLDER NOMINATIONS AND PROPOSALS FOR BUSINESS
STARWOOD LODGING. The Corporation By-laws and the Trustees' Regulations
establish procedures that must be followed for stockholders or shareholders to
nominate individuals to the Corporation Board, or to the Trust Board,
respectively, or to propose business at an annual meeting of stockholders of the
Corporation or shareholders of the Trust.
In order to nominate individuals to the Corporation Board or to the Trust
Board, a stockholder or shareholder must provide timely notice of such
nomination in writing to the Secretary of the Corporation or the Trust, as
applicable. Such notice in each case must set forth (i) the name and address of
the stockholder or shareholder who intends to make the nomination(s) and of the
person or persons to be nominated; (ii) the class and number of Corporation
Shares or Trust Shares, as applicable, that are held of record, beneficially
owned and represented by proxy by such stockholder or shareholder as of the
record date for the meeting (if such date then shall have been made publicly
available) and as of the date of such notice; (iii) a representation that such
stockholder or shareholder intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (iv) a
description of any contract, arrangement or understanding between such
stockholder or shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder or shareholder; (v) such other information
regarding each nominee proposed by such stockholder or shareholder as would be
required to be disclosed in a proxy statement used in a solicitation of proxies
for the election of directors which solicitation was subject to the rules and
regulations of the Commission under Section 14 of the Exchange Act; and (vi) the
consent of each nominee to serve as a Director of the Corporation or Trustee of
the Trust, as applicable, if so elected.
To be timely, a stockholder or shareholder's notice of a nominee for
Director of the Corporation or Trustee of the Trust must be delivered personally
to the Secretary of the Corporation or the Trust, respectively, or have been
mailed to such Secretary and received, at the principal executive offices of the
Corporation or the Trust, as applicable, not less than 50 days nor more than 75
days prior to the meeting; provided, however, that in the event that less than
60 days' notice or prior public disclosure of the date of meeting is given or
made to stockholders or shareholders, to be timely, notice by the stockholder or
shareholder must be so delivered or received not later than the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever occurs first.
In order to properly propose that an item of business come before the
annual meeting of stockholders of the Corporation or shareholders of the Trust,
a stockholder or shareholder must provide timely notice in writing to the
Secretary of the Corporation or the Trust, respectively, which notice must
include (i) a description of each item of business the stockholder or
shareholder proposes to bring before the meeting and the wording of the
proposal, if any, to be submitted for a vote of the stockholders or shareholders
with respect thereto, (ii) the name and address of the stockholder or
shareholder, (iii) the class and number of Corporation Shares or Trust Shares,
as applicable, held of record, owned beneficially and represented by proxy by
such stockholder or shareholder as of the record date for the meeting (if such
date shall then have been publicly disclosed) and as of the date of such notice
and (iv) all other information that would be required to be included in a proxy
statement filed with the Commission if, with respect to any such item of
business, such stockholder or shareholder were a participant in a solicitation
subject to Section 14 of the Exchange Act.
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ITT. The ITT By-laws establish procedures that must be followed for
stockholders to nominate individuals to the ITT Board or to propose business at
the annual meeting of stockholders. The notice of any nomination for election as
a director must set forth the name and address of the person or stockholder who
intends to make the nomination and of the persons to be nominated; a
representation that the stockholder is a holder of record of stock of ITT
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Commission had each nominee been
nominated, or intended to be nominated, by the ITT Board; and the consent of
each nominee to serve as a director if so elected.
To be timely, notice of business to be brought before an annual meeting of
ITT or nominations of candidates for election as ITT directors at an annual
meeting of ITT must be received by the Secretary of ITT not later than 90 days
in advance of the anniversary date for the immediately preceding annual meeting
of ITT (or not more than 10 days after the first public disclosure of the date
of such annual meeting, whichever is earlier). Similarly, notice of nominations
to be brought before a special meeting must be delivered to the Secretary of ITT
no later than the close of business on the seventh day following the day on
which notice of the date of the special meeting of stockholders is given.
CERTAIN EXTRAORDINARY CORPORATE TRANSACTIONS
STARWOOD LODGING. Under the MGCL, the sale, lease, exchange or transfer of
all or substantially all the assets of a corporation not in the ordinary course
of business conducted by it, as well as any merger, consolidation, share
exchange or voluntary dissolution, requires approval by holders of two-thirds of
the shares of the corporation entitled to vote on such matters, unless the
charter provides for a greater or lesser (but not less than a majority)
percentage. Similarly, the Maryland REIT Law requires approval of two-thirds of
all the votes entitled to be cast of a trust to approve a merger, which
requirement may be increased or reduced (but not to less than a majority) by a
trust's declaration of trust. The Corporation Articles and the Trust Declaration
each require the affirmative vote of a majority of all votes entitled to be cast
on such matters to approve a merger or the sale of more than 50% of the assets
of the Trust or of substantially all the assets of the Corporation.
ITT. The NGCL generally requires approval of any merger, consolidation or
sale of substantially all the assets of a corporation at a meeting of
stockholders by vote of the holders of a majority of all outstanding shares
entitled to vote thereon. The ITT Articles do not contain any provisions
regarding such stockholder approval.
LIMITATION ON OWNERSHIP OF CAPITAL STOCK
STARWOOD LODGING. Except for the business combination and control share
acquisition provisions of the MGCL (see "-- Business Combinations Involving
Interested Stockholders" and "-- Control Share Acquisitions"), the MGCL does not
restrict the ability of a person or entity to acquire or to offer to acquire any
amount of the outstanding shares of the capital stock of the Corporation. The
Corporation Articles and the Trust Declaration each provide that as long as the
Trust maintains its REIT status (i) no person shall beneficially own Corporation
Shares or Trust Shares in excess of 8%, by value, vote or number of the
Corporation Shares or Trust Shares, respectively, (ii) any transfer resulting in
beneficial ownership of greater than such 8% value shall be void, ab initio, as
to the Corporation Shares or Trust Shares, as applicable, in excess of such 8%
value, (iii) any transfer resulting in beneficial ownership of Corporation
Shares or Trust Shares by fewer than 100 persons shall be void, ab initio, and
(iv) any transfer resulting in Corporation Shares or Trust Shares being "closely
held" within the meaning of Section 856(h) of the Code shall be void, ab initio,
as to the number of Corporation Shares or Trust Shares that shall cause the
Trust to be "closely held." The Corporation Board and the Trust Board, upon
receipt of a ruling from the Internal Revenue Service or an opinion of tax
counsel, satisfactory to them in their sole and absolute discretion, in each
case to the effect that
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the Trust's status as a REIT will not be jeopardized, may exempt a person from
the 8% ownership limit if the Corporation Board or Trust Board, as applicable,
obtains such representations and undertakings from such person as are reasonably
necessary to ascertain that such person's beneficial ownership of such shares of
capital stock will not then jeopardize the Trust's status as a REIT. See
"Description of Starwood Securities -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares" for a description of such
provisions.
ITT. The ITT Articles provide that (i) all securities of ITT are subject
to redemption by ITT to the extent necessary to prevent the loss or to secure
the reinstatement of any casino gaming license held by ITT or any of its
subsidiaries in any jurisdiction within or without the United States of America,
(ii) all securities of ITT are held subject to the condition that if a holder
thereof is found by a gaming authority in any such jurisdiction to be
disqualified or unsuitable pursuant to any gaming law, such holder will be
required to dispose of all ITT securities held by such holder, and (iii) it will
be unlawful for any such disqualified person to (a) receive payments of interest
or dividends on any of ITT securities, (b) exercise, directly or indirectly, any
rights conferred by any of ITT securities or (c) receive any remuneration in any
form, for services rendered or otherwise, from the subsidiary that holds the
gaming license in such jurisdiction.
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
STARWOOD LODGING. Under the MGCL, certain business combinations, including
a merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities, between a
Maryland corporation or a real estate investment trust formed under the Maryland
REIT Law (a "Maryland REIT") and any person who beneficially owns 10% or more of
the voting power of the corporation's shares or shares of beneficial interest of
the Maryland REIT or an affiliate of the corporation or Maryland REIT 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 stock of the corporation or shares of beneficial interest of the Maryland
REIT (an "Interested Stockholder") or an affiliate of such an Interested
Stockholder are prohibited for five years after the most recent date on which
the Interested Stockholder becomes an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of the
corporation or the board of trustees of a Maryland REIT and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation or Maryland REIT and (ii)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the corporation or Maryland REIT other than shares held by the
Interested Stockholder(s) with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
or Maryland REIT's shareholders receive a minimum price (as defined in the MGCL)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation or board
of trustees of the Maryland REIT prior to the time that the Interested
Stockholder becomes an Interested Stockholder. Each of the Trust and the
Corporation has exempted from the business combination provisions of the MGCL
all business combinations involving any person. As a result, any Interested
Stockholder may be able to enter into business combination with the Trust and
the Corporation that may not be in the best interest of the Trust shareholders
or the Corporation stockholders without compliance by the Corporation or the
Trust with the super majority vote requirements of the MGCL.
ITT. The NGCL restricts the ability of a resident domestic corporation to
engage in any combination with an interested stockholder for three years after
the interested stockholder's date of acquiring the shares that cause such
stockholder to become an interested stockholder unless the combination or the
purchase of shares by the interested stockholder on the interested stockholder's
date of acquiring the shares that cause such stockholder to become an interested
stockholder is approved by the board of directors of the resident domestic
corporation before that date. If the combination was not previously approved,
the interested stockholder may effect a combination after the three-year period
only if such stockholder receives approval from a majority of the disinterested
shares or the offer meets certain fair price criteria. For purposes of the
foregoing provisions, "resident domestic corporation" means a Nevada public
corporation that has 200 or more
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stockholders and "interested stockholder" means any person, other than the
resident domestic corporation or its subsidiaries, who is (a) the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
outstanding voting shares of the resident domestic corporation or (b) an
affiliate or associate of the resident domestic corporation and at any time
within three years immediately before the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
outstanding shares of the resident domestic corporation. The above provisions do
not apply to corporations that so elect in a charter amendment approved by a
majority of the disinterested shares. Such a charter amendment, however, would
not become effective for 18 months after its passage and would apply only to
stock acquisitions occurring after its effective date. The ITT Articles do not
exempt ITT from the restrictions imposed by such provisions of the NGCL.
CONTROL SHARE ACQUISITIONS
STARWOOD LODGING. The MGCL provides that "control shares" of a Maryland
corporation or Maryland REIT acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock or shares of
beneficial interest owned by the acquiror or by officers or directors or
trustees who are employees of the corporation or the Maryland REIT. "Control
shares" are voting shares of stock or voting shares of beneficial interest
which, if aggregated with all other such shares of stock or shares of beneficial
interest previously acquired by the acquiror, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors or trustees within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third; (ii)
one-third or more but less than a majority; or (iii) a majority of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors or the Maryland REIT's board of trustees to call a special meeting
of shareholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation or
Maryland REIT may itself present the question at any shareholders meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as required by statute, then, subject to certain conditions and
limitations, the corporation or Maryland REIT may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. Moreover, unless
the charter or by-laws provide otherwise, if voting rights for control shares
are approved at a shareholders' meeting and the acquiror becomes entitled to
exercise or direct the exercise of a majority or more of all voting power, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation or the declaration of trust or bylaws of the Maryland REIT. The
Trustees' Regulations of the Trust and the By-laws of the Corporation have
exempted from the MGCL all control share acquisitions involving any person.
There can be no assurance that such provisions will not be amended or eliminated
at any time in the future.
ITT. Under the NGCL, an "acquiring person" who acquires a "controlling
interest" in an "issuing corporation" may not exercise voting rights on any
"control shares" unless such voting rights are conferred by
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a majority vote of the disinterested shareholders of the issuing corporation at
a special meeting of such shareholders held upon the request and at the expense
of the acquiring person. In the event that the control shares are accorded full
voting rights and the acquiring person acquires control shares with a majority
or more of all the voting power, any shareholder, other than the acquiring
person, who does not vote in favor of authorizing voting rights for the control
shares is entitled to demand payment for the fair value of his or her shares,
and the corporation must comply with the demand. For purposes of the above
provisions, "acquiring person" means (subject to certain exceptions) any person
who, individually or in association with others, acquires or offers to acquire,
directly or indirectly, a controlling interest in an issuing corporation.
"Controlling interest" means the ownership of outstanding voting shares of an
issuing corporation sufficient to enable the acquiring person, individually or
in association with others, directly or indirectly, to exercise (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
(iii) a majority or more of the voting power of the issuing corporation in the
election of directors, and voting rights must be conferred by a majority of the
disinterested shareholders as each threshold is reached and/or exceeded.
"Control Shares" means those outstanding voting shares of an issuing corporation
which an acquiring person acquires or offers to acquire in an acquisition or
within 90 days immediately preceding the date when the acquiring person became
an acquiring person. "Issuing corporation" means a corporation which is
organized in Nevada, has 200 or more shareholders, at least 100 of whom are
shareholders of record and residents of Nevada, and does business in Nevada
directly or through an affiliated corporation. The above provisions do not apply
if the articles of incorporation or by-laws of the corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person provide that such provisions do not apply. The ITT Articles and the ITT
By-laws do not exclude ITT from the restrictions imposed by such provisions.
REMOVAL OF DIRECTORS OR TRUSTEES
STARWOOD LODGING. The MGCL provides that, unless the charter provides
otherwise, the stockholders of a corporation may remove any director, with or
without cause, by the affirmative vote of a majority of the votes entitled to be
cast for the election of directors. The Corporation Articles provide that a
director may be removed only for cause and only by the affirmative vote of
two-thirds of all the votes entitled to be cast for the election of directors.
The Maryland REIT Law provides that unless the declaration of trust provides
otherwise, the shareholders of a Maryland REIT may remove any trustee, with or
without cause, by the affirmative vote of a majority of all the votes entitled
to be cast for the election of trustees. The Trust Declaration provides that a
trustee may be removed with or without cause by the vote or written consent of
the holders of two-thirds of the outstanding Trust Shares entitled to vote
thereon, or with cause by all remaining Trustees.
ITT. Under the NGCL, directors may be removed from office by a two-thirds
stockholder vote, or by the vote of such larger percentage of shares as may be
provided in the articles of incorporation. A director elected by a voting group,
unless otherwise provided in the articles of incorporation, may only be removed
by a vote of two-thirds of the members of the group or by the vote of such
larger percentage of the group as may be provided in the articles of
incorporation for the removal of directors. The ITT Articles do not contain any
provisions regarding removal of directors.
CONSIDERATION OF OTHER CONSTITUENCIES
STARWOOD LODGING. The MGCL, the Maryland REIT Law, the Corporation
Articles and the Trust Declaration do not contain any provision specifically
relating to the ability of the Corporation Board or the Trust Board to consider
the interests of any constituencies of Starwood Lodging other than their
stockholders and shareholders in considering whether to approve or oppose any
corporate action, including, without limitation, any proposal to acquire another
company by means of a merger, tender offer or similar business combination.
ITT. The NGCL allows directors and officers, in exercising their
respective powers with a view to the interests of the corporation, to consider
the interests of the corporation's employees, suppliers, creditors and
customers; the economy of the state and the nation; the interests of the
community and of society and the long and short-term interests of the company
and its shareholders, including the possibility that these interests may be best
served by the continued independence of the corporation. Directors may resist a
change or potential
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change in control if the directors by a majority vote of a quorum determine that
the change or potential change is opposed to or not in the best interest of the
corporation upon consideration of the interests set forth above or if the board
has reasonable grounds to believe that, within a reasonable time, the debt
created as a result of the change in control would cause the assets of the
corporation or any successor to be less than the liabilities or would render the
corporation or any successor insolvent or would lead to bankruptcy proceedings.
PERSONAL LIABILITY OF DIRECTORS, TRUSTEES AND OFFICERS
STARWOOD LODGING. The MGCL permits a Maryland corporation to include in
its charter a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Corporation
Articles contain such a provision which eliminates such liability to the maximum
extent permitted by the MGCL.
The Maryland REIT Law permits a Maryland REIT to include in its declaration
of trust a provision limiting the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Trust Declaration contains such a
provision which eliminates such liability to the fullest extent permitted by
Maryland law for acts or omissions after June 6, 1988.
The Trust Declaration provides that no Trustee, officer or agent of the
Trust shall be liable or held to any personal liability whatsoever for an
obligation or contract of the Trust. In addition, the Trust Declaration provides
that the provisions of the MGCL which set forth the standard of care required of
directors of corporations organized under the laws of the State of Maryland, and
all other statutory or decisional law which sets forth the standard of care
required of officers, employees and agents for corporations organized under the
laws of the State of Maryland, shall be fully applicable to the Trust, and to
the Trustees, officers, employees and agents of the Trust, as if the Trust were
a corporation organized under the laws of the State of Maryland and its
Trustees, officers, employees and agents were, respectively, directors,
officers, employees and agents of such corporation. Notwithstanding the
foregoing, the Trust Declaration provides that to the fullest extent permitted
by Maryland statutory or decisional law, no Trustee or officer of the Trust
shall be liable to the Trust or its stockholders for money damages arising out
of acts or omissions occurring on or after June 6, 1988; provided, however, that
such provision shall not limit the liability of the Trustees or officers to the
Trust or its shareholders (i) to the extent that it is proved that such person
actually received an improper benefit or profit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) to the extent that a judgment or final adjudication adverse to
such person is entered in a proceeding based on a finding in the proceeding that
such person's action, or failure to act, was the result of active and deliberate
dishonesty which was material to the cause of action adjudicated in the
proceeding.
ITT. The NGCL allows a corporation, through its articles of incorporation,
to limit or eliminate the personal liability of directors to the corporation and
its stockholders for damages for breach of fiduciary duty. However, this
provision of the NGCL excludes any limitation on liability for (i) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (ii) the payment of distributions in violation of the NGCL. The ITT
Articles provide that, to the fullest extent permitted by applicable law, no
director or officer shall be personally liable to ITT or its stockholders for
damages for breach of fiduciary duty as a director or officer, except as limited
by the foregoing provisions of the NGCL.
INDEMNIFICATION OF DIRECTORS, TRUSTEES AND OFFICERS
STARWOOD LODGING. The Corporation Articles and the Trust Declaration
provide that the Corporation and the Trust, respectively, shall indemnify, to
the fullest extent permitted by law, all persons who may be indemnified pursuant
to the MGCL and Maryland REIT Law, respectively. The MGCL requires a corporation
or a Maryland REIT (unless its charter or declaration provides otherwise, which
the Corporation Articles and the Trust Declaration do not) to indemnify a
director, trustee or officer who has been successful,
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on the merits or otherwise, in the defense of any proceeding to which he is made
a party by reason of his service in that capacity. The MGCL permits a
corporation or Maryland REIT to indemnify its present and former directors,
trustees and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director, trustee or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director, trustee or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director, trustee or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation or a Maryland REIT may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or the
Maryland REIT or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation or a
Maryland REIT to advance reasonable expenses to a director, trustee or officer
upon the receipt by the corporation or the Maryland REIT of (a) a written
affirmation by the director, trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the corporation or the Maryland REIT if it shall ultimately be
determined that the standard of conduct was not met.
Starwood Lodging has entered into indemnification agreements with its
directors, trustees and executive officers providing for the maintenance of
directors, trustees and officers liability insurance, subject to certain
conditions, and the indemnification of and advancement of expenses to such
directors, trustees and executive officers.
ITT. The ITT By-laws provide that ITT shall indemnify, to the fullest
extent permitted by law, all persons who may be indemnified pursuant to the
NGCL. The NGCL generally provides that directors and officers as well as other
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation in a derivative action) if they acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action, suit or proceeding, if
they had no reasonable cause to believe their conduct was unlawful. Expenses
incurred by an officer or director (or other employees or agents as deemed
appropriate by the board of directors) in defending civil or criminal
proceedings may be paid by the corporation in advance of the final disposition
of such proceeding upon a receipt of an undertaking by or on behalf of such
person to repay such amount if it is ultimately determined that such person is
not entitled to be indemnified by the corporation. To indemnify a party, the
corporation must determine that the party met the applicable standards of
conduct.
AMENDMENTS TO GOVERNING DOCUMENTS
STARWOOD LODGING. Under the MGCL and Maryland REIT Law, unless otherwise
provided in the charter or declaration of trust, a proposed amendment to the
charter or declaration of trust requires the affirmative vote of two-thirds of
all votes entitled to be cast on the matter. The Corporation Articles and the
Trust Declaration each requires only the affirmative vote of a majority of votes
entitled to be cast on the matter in order to approve an amendment to the
charter or declaration, respectively. The Trust Declaration may also be amended,
without the vote or consent of the holders of Trust Shares, by the Trustees in
order to ensure that the provisions of the Trust Declaration are in compliance
with the REIT Requirements and the Maryland REIT Law.
Under the MGCL, the exclusive power to change the by-laws may be left with
the stockholders, vested in the directors or shared by both groups. The
Corporation By-laws and Trustees' Regulations, respectively, provide that the
Corporation By-laws and the Trustees' Regulations may be amended by the
Corporation Board or the Corporation stockholders and the Trust Board or the
Trust shareholders, respectively.
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ITT. The NGCL permits a corporation to amend its articles or articles of
incorporation in any respect provided the amendment contains only provisions
that would be lawful in an original certificate or articles of incorporation
filed at the time of amendment. To amend articles of incorporation, the board
must adopt a resolution presenting the proposed amendment. In addition, a
majority of the shares entitled to vote, as well as a majority of shares by
class of each class entitled to vote, must approve the amendment to make it
effective. When the substantial rights of a class of shares will be affected by
an amendment, the holders of those shares are entitled to vote as a class even
if the shares are nonvoting shares. When only one or more series in a class of
shares, and not the entire class, will be adversely affected by an amendment,
only the affected series may vote as a class. The ITT Articles provide that
amendments thereto shall be made in accordance with the provision of the NGCL.
The NGCL provides that, subject to the by-laws, if any, adopted by the
stockholders, the directors may make the by-laws of the corporation. The ITT
Articles and the ITT By-laws provide that ITT By-laws may be amended by a
majority vote of the entire ITT Board or by the affirmative vote of the holders
of at least a majority of the outstanding ITT Common Stock.
RIGHTS AND WARRANT PLAN
STARWOOD LODGING. Neither the Corporation nor the Trust has a stockholders
rights plan or similar rights plan.
ITT. On November 1, 1995, ITT Board declared a dividend distribution of
one Right for each outstanding share of ITT Common Stock to stockholders of ITT.
Each Right represents a right to buy one one-thousandth of a share of ITT
preferred stock. The Rights have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire control
of ITT in a manner which causes the Rights to become exercisable, unless the
offer is conditioned upon the Rights being redeemed or the Rights Agreement
being amended. ITT has executed an amendment to the Rights Agreement exempting
the Merger and the related acquisition of ITT Common Stock from the dilutive
effects of the Rights Agreement and the Rights.
APPRAISAL AND DISSENTERS' RIGHTS
STARWOOD LODGING. Under the MGCL, stockholders of a corporation are
entitled to appraisal rights in certain mergers, consolidations or share
exchanges involving such corporation or upon the disposition of all or
substantially all of its assets, as well as when such corporation amends its
charter in a way which alters the contractual rights of any outstanding shares
as expressly set forth in the charter and substantially adversely affects such
stockholders' rights if the right to do so is not reserved in the charter.
However, except with respect to certain transactions involving an Interested
Stockholder, stockholders generally have no appraisal rights with respect to
their shares if (i) the shares are listed on a national securities exchange or
are designated as a national market system security on a interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD"), or (ii)
the shares are that of the successor in the merger, unless (a) the merger alters
the contractual rights of the shares as expressly set forth in the articles of
incorporation or declaration of trust, and the articles of incorporation or
declaration of trust do not reserve the right to do so, or (b) the shares are to
be changed or converted in whole or in part in the merger into something other
than either shares in the successor or cash, scrip, or other rights or interests
arising out of provisions for the treatment of fractional shares in the
successor. The Corporation Articles and the Trust Declaration have no provisions
regarding appraisal or dissenters' rights and Paired Share holders will not have
appraisal rights in connection with the Merger because Starwood Lodging is not a
constituent corporation in the Merger.
ITT. The NGCL provides the stockholders have the right, in some
circumstances, to dissent from certain corporate reorganizations and to instead
demand payment of the fair cash value of their shares. Unless a corporation's
articles of incorporation provides otherwise, dissenters do not have rights of
appraisal with respect to (i) a merger or consolidation by a corporation, the
shares of which are neither listed on a national securities exchange, designated
as a national market system security on an interdealer quotation system by the
NASD nor held by more than 2,000 stockholders, if the stockholders receive cash,
shares in the surviving
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corporation, shares of another corporation that are publicly listed or held by
more than 2,000 stockholders, cash in lieu of fractional shares or any
combination of the above or (ii) stockholders of a corporation surviving a
merger if no vote of the stockholders of the surviving corporation is required
to approve the merger. The ITT Articles have no provisions regarding appraisal
or dissenters' rights and ITT's stockholders will not have appraisal or
dissenters' rights in connection with the Merger.
DESCRIPTION OF STARWOOD SECURITIES
GENERAL
The Trust Declaration 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 million, the Trust Declaration grants the
Trust Board 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, with or
without par value, 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 Trust Declaration or
applicable law and as are specified by the Trust Board in its discretion. As of
September 30, 1997, the Trust Board had not created or authorized any class or
series of Trust Preferred Shares and no Excess Trust Shares were outstanding.
The Corporation Articles 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 one or more additional classes, or one or more series within any
such class, with such rights, preferences, privileges and restrictions as the
Corporation Board may determine, including voting rights, redemption provisions,
dividend rates, liquidation preferences and conversion rights. As of September
30, 1997, no such class or series of Corporation Preferred Shares had been
established and no Excess Corporation Stock was outstanding.
As of the Trust Record Date, Trust Shares were issued and
outstanding and Trust Shares were reserved for issuance. Each
outstanding Trust Share entitles the holder thereof to one vote on all matters
presented to the shareholders of the Trust for a vote. As of the Corporation
Record Date, Corporation Shares were issued and outstanding and
Corporation Shares were reserved for issuance. Each outstanding
Corporation Share entitles the holder thereof to one vote on all matters
presented to the stockholders of the Corporation 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.
PREFERRED SHARES
The authorized Trust Preferred Shares are available for issuance from time
to time in the discretion of the Trust Board without shareholder approval. The
Trust Board has the authority to issue Trust Preferred Shares in series, with
such powers, designations, preferences and relative, participating, optional or
other special rights as the Trust Board may deem appropriate. Such authority
includes, but is not limited to, the power to prescribe, for each such series of
Trust Preferred Shares, the number of shares in that series, the
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dividend rate, the voting rights, conversion privileges, redemption and
liquidation rights, if any, and any other rights, preferences and limitation of
the particular series.
The authorized Corporation Preferred Shares are available for issuance from
time to time in the discretion of the Corporation Board without stockholder
approval. The Corporation Board has the authority to issue authorized
Corporation Preferred Shares in series, with such powers, designations,
preferences and relative, participating, optional or other special rights as the
Corporation Board may deem appropriate. Such authority includes, but is not
limited to, the power to prescribe, for each such series of Corporation
Preferred Shares, the number of shares in that series, the dividend rate, the
voting rights, conversion privileges, redemption and liquidation rights, if any,
and any other rights, preferences and limitation of the particular series.
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 Starwood Boards 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 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.
PAIRED SHARES
Subject to the preferential rights of any other shares or series of shares
of beneficial interest of the Trust (including the Class A EPS and Class B EPS)
or shares of capital stock of the Corporation, and to the provisions of the
Trust Declaration regarding Excess Trust Shares and the Corporation Articles
regarding Excess Corporation Stock, holders of Paired Shares will be entitled to
receive dividends if, as and when authorized and declared by the Trust Board or
the Corporation Board, 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 Shares currently outstanding are listed for trading on the NYSE.
The Trust and the Corporation will apply to the NYSE to list the additional
Paired Shares to be issued pursuant to the Merger Agreement, and the Trust and
the Corporation anticipate that such shares will be so listed.
Subject to the provisions of the Trust Declaration regarding Excess Trust
Shares and the Corporation Articles regarding Excess Corporation Stock, each
outstanding Paired 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 of the
Trust (including the Class A EPS and Class B EPS) or shares of stock of the
Corporation, the holders of such Paired 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 voting shares can
elect all of the trustees or directors then standing before election and the
holders of the remaining shares of beneficial interest, if any, will not be able
to elect any trustees or directors.
Holders of Paired Shares have no conversion, sinking fund or redemption
rights 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 Trust Declaration regarding Excess Shares
and the Corporation Articles regarding Excess Corporation Stock, Paired Shares
will have equal dividend, distribution, liquidation and other rights, and will
have no preference, exchange, or except as expressly required by the Maryland
REIT Law and the MGCL, appraisal rights.
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THE PAIRING AGREEMENT
The Trust and the Corporation have entered into 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 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 Trust Declaration and the Corporation Articles 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 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
Trust Board and the Corporation Board, 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 Starwood Boards to independently determine the
rights, preferences and restrictions of such shares.
TRUST PREFERRED SHARES
Following the December 5, 1997 annual meeting of shareholders of the Trust,
the Trust Board adopted Articles supplementary designating two new classes of
the Trust Preferred Shares -- Class A EPS and Class B EPS.
CLASS A EPS. Under the Articles Supplementary creating the Class A EPS,
shares of Class A EPS will have a par value of $.01 per share and will have the
following rights, designations, preferences, participations and other
limitations and restrictions.
DIVIDEND RIGHTS. The holders of Class A EPS will be entitled (i) to
receive as described below a preferred dividend (a "Class A Preferred Dividend")
based on the payment of any dividend on the Corporation Shares (other than a
dividend or distribution constituting a Class A Adjustment Event as
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described below) or any liquidating distribution in respect of the Corporation
Shares and (ii) to participate on the basis described below in any dividend
(other than a dividend or distribution constituting a Class A Adjustment Event)
paid on the Trust Shares, when and if declared by the Trustees out of assets of
the Trust available for payment (a "Class A Participation Dividend").
Upon the payment of any dividend on the Corporation Shares (other than a
dividend or distribution that constitutes a Class A Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares, a Class A
Preferred Dividend in a corresponding amount will automatically accrue with
respect to the Class A EPS based on the number of Class A Underlying Corporation
Shares (as defined below) for which each share of Class A EPS is then
exchangeable upon exercise of the Class A Exchange Right described below. Each
Class A Preferred Dividend will be cumulative from the date on which it accrues.
No dividend (a "Common Dividend") may be declared on the Trust Shares
unless the Trust Board concurrently declares a Class A Participation Dividend
entitling each share of Class A EPS to receive a dividend equal to the amount of
the Common Dividend declared on each Trust Share multiplied by the number of
Class A Underlying Trust Shares into which each share of Class A EPS is then
convertible upon exercise of the Class A Exchange Right.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Trust, the holders of Class A
EPS will be entitled (i) to receive out of the assets of the Trust legally
available for liquidating distributions to holders of shares of beneficial
interests in the Trust, prior to any distribution or payment to holders of Trust
Shares or any other class or series of shares of beneficial interest in the
Trust ranking junior to the Class A EPS, a liquidating distribution in an amount
equal to the Class A Liquidation Preference described below and (ii) to
participate on the basis described below in any liquidating distribution to
holders of Trust Shares (the "Class A Liquidation Participation Right"). For
such purposes, the consolidation or merger of the Trust 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, shall not be deemed
to constitute a liquidation, dissolution or winding up of the Trust.
The "Class A Liquidation Preference" of a share of Class A EPS as of any
date shall mean the sum of (x) the fair market value as of such date of the
number of Class A Underlying Corporation Shares for which each Class A EPS is
exchangeable as of such date upon exercise of the Class A Exchange Right plus
(y) the amount of any accrued but unpaid Class A Preferred Dividends in respect
of each share of Class A EPS as of such date.
In addition to being entitled to receive the Class A Liquidation Preference
upon any liquidation, dissolution or winding up of the Trust, the holders of
Class A EPS will be entitled to participate, pursuant to the Class A Liquidation
Participation Right, ratably with the holders of Trust Shares in any liquidating
distributions to such holders. For such purpose, each share of Class A EPS shall
be deemed to represent a number of Trust Shares equal to the number of Class A
Underlying Trust Shares (as defined below) for which each share of Class A EPS
is then exchangeable upon exercise of the Class A Exchange Right.
EXCHANGE RIGHTS. Shares of Class A EPS will be exchangeable at any time at
the option of the holder for Paired Shares based on a one-to-one exchange ratio
(subject to adjustment as described below) (the "Class A Exchange Right");
provided that the Trust may instead, at its option, deliver to the holder upon
exercise of the Class A Exchange Right the cash equivalent of some or all of
such Paired Shares based on the average closing price of the Paired Shares on
the NYSE during the preceding five trading days (the "Cash Equivalent"). In
addition, in the event that the delivery by the Trust to the exchanging holder
of the full number of Paired Shares requested to be delivered by such holder
(the "Requested Shares") would result in a violation of either the Ownership
Limit (as defined below under the caption "Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares") or the REIT Requirements, the
Trust may either (x) deliver to such holder the maximum number of Paired Shares
that may be delivered without causing such a violation (the "Delivered Shares",
with the number of Requested Shares in excess of the Delivered Shares being
referred to herein as the "Excess Shares"), together with either the Cash
Equivalent of the Excess Shares or an Exchange Promissory Note (as defined
below) in a principal amount equal to such Cash Equivalent of the Excess Shares
or (y) deliver to such holder the Cash Equivalent of the Requested Shares. If
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the delivery of the full number of Requested Shares would violate either the
Ownership Limit or the REIT Requirements because the exchanging holder, together
with its affiliates, beneficially owns Paired Shares other than through the
ownership of securities directly or indirectly issued pursuant to the
Transaction Agreement, the Trust will have the option (the "Registered Sale
Option"), in lieu of delivering an Exchange Promissory Note in a principal
amount equal to the Cash Equivalent of the Excess Shares, to procure the filing
of a registration statement under the Securities Act, and to publicly offer and
sell pursuant to such registration statement a number of Paired Shares equal to
the number of such Excess Shares, the net proceeds of which sale (after
deducting any applicable underwriting discounts or commissions and the expenses
of such offering) shall be paid to such holder. If the Trust elects to
substitute an Exchange Promissory Note for the Excess Shares or elects the
Registered Sale Option, the exchanging holder will have the right to withdraw
its exchange request. For the purposes of the foregoing, an "Exchange Promissory
Note" means an unsecured promissory note of the Trust with a maturity date 90
days after the date of issuance and bearing interest in an amount equal to the
amount of any dividends paid during the period that such note remains
outstanding on a number of Paired Shares equal to the Excess Shares, which
interest shall be payable on the dates of payment of the corresponding
dividends.
The exchange ratio of shares of Class A EPS for Paired Shares shall be
subject to adjustment from time to time based on the occurrence of stock
dividends, stock splits, reverse stock splits and other similar events in
respect of the Paired Shares ("Class A Adjustment Events"). The number of Paired
Shares for which each share of Class A EPS is exchangeable at any given time is
referred to as the "Class A Underlying Paired Shares", with the Corporation
Shares component of such Class A Underlying Paired Shares being referred to as
the "Class A Underlying Corporation Shares" and the Trust Shares component of
such Class A Underlying Paired Shares being referred to as the "Class A
Underlying Trust Shares". In addition, in the event any capital reorganization
or reclassification of the Trust Shares or the Corporation Shares, or
consolidation or merger of the Trust or the Corporation with another
corporation, trust or other entity, or the sale, transfer, or lease of all or
substantially all of the assets of the Trust or the Corporation to another
person, is effected in such a way that holders of Trust Shares or Corporation
Shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for Trust Shares or Corporation Shares, then, as a
condition of such reorganization, reclassification, consolidation, merger, sale,
transfer or lease, the Class A Exchange Right shall become exercisable, to the
extent provided above, for the kind and amount of stock, securities or other
assets which such holders would have owned or been entitled to receive
immediately after the transaction if such holders had exchanged their Class A
EPS for the Class A Underlying Paired Shares immediately prior to the effective
date of such transaction.
If there are any accrued but undeclared Class A Preferred Dividends on any
Class A EPS being exchanged pursuant to any exercise of the Class A Exchange
Right, the number of Paired Shares to be delivered pursuant to such exercise
shall be increased by a number of Paired Shares equal to the amount of such
accrued but undeclared Class A Preferred Dividends divided by the average
closing price of the Paired Shares on the NYSE during the five trading days
preceding the date of delivery of the applicable Class A Exchange Notice.
VOTING RIGHTS. Except as required by law, the holders of Class A EPS shall
be entitled to vote on any matter on which the holders of Trust Shares are
entitled to vote. Each shares of Class A EPS held of record on the record date
for the determination of holders of Trust Shares entitled to vote on such matter
(or, if no record date is established, on the date such vote is taken) shall
entitle the holder thereof to cast a number of votes equal to the number of
Class A Underlying Trust Shares at such time.
CLASS B EPS. Under the proposed Articles Supplementary creating the Class
B EPS, shares of Class B EPS will have a par value of $.01 per share and will
have the following rights, designations, preferences, participations and other
limitations and restrictions:
DIVIDEND RIGHTS. The holders of Class B EPS will be entitled (i) to
receive as described below a preferred dividend (a "Class B Preferred Dividend")
based on the payment of any dividend on the Corporation Shares (other than a
dividend or distribution constituting a Class A Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares and (ii) to
participate on the basis described
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above in any dividend (other than a dividend or distribution constituting a
Class A Adjustment Event) paid on the Trust Shares, when and if declared by the
Trustees out of assets of the Trust available for payment (a "Class B
Participation Dividend").
Upon the payment of any dividend on the Corporation Shares (other than a
dividend or distribution that constitutes a Class A Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares, a Class B
Preferred Dividend will automatically accrue with respect to the Class B EPS
based on the number of Class B Underlying Corporation Shares (as defined below)
for which each share of Class B EPS is then indirectly exchangeable. Each Class
B Preferred Dividend will be cumulative from the date on which it accrues.
No Common Dividend may be declared on the Trust Shares unless the Trust
Board concurrently declares a Class B Participation Dividend entitling each
share of Class B EPS to receive a dividend equal to the amount of the Common
Dividend declared on each Trust Share multiplied by the number of Class B
Underlying Trust Shares (as defined below) for which each share of Class B EPS
is then indirectly exchangeable.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Trust, the holders of Class B
EPS will be entitled (i) to receive out of the assets of the Trust legally
available for liquidating distributions to holders of shares of beneficial
interest in the Trust, prior to any distribution or payment to holders of Trust
Shares or any other class or series of shares of beneficial interest in the
Trust ranking junior to the Class B EPS, a liquidating distribution in an amount
equal to the Class B Liquidation Preference described below and (ii) to
participate on the basis described below in any liquidating distribution to
holders of Trust Shares (the "Class B Liquidation Participation Right").
The "Class B Liquidation Preference" of a share of Class B EPS as of any
date shall mean the sum of (x) $38.50 plus (y) the amount of any accrued but
unpaid Class B Preferred Dividends in respect of each share of Class B EPS as of
such date.
In addition to being entitled to receive the Class B Liquidation Preference
upon any liquidation, dissolution or winding up of the Trust, the holders of
Class B EPS will be entitled to participate, pursuant to the Class B Liquidation
Participation Right, ratably with the holders of Trust Shares in any liquidating
distributions to such holders. For such purpose, each share of Class B EPS shall
be deemed to represent a number of Trust Shares equal to the number of Class B
Underlying Trust Shares for which each share of Class B EPS is then indirectly
exchangeable.
EXCHANGE AND REDEMPTION RIGHTS. Exchange and Redemption of Class B EPS at
the Option of the Holders. Each share of Class B EPS will be exchangeable at
any time from and after the first anniversary of the date of issuance of the
Class B EPS through the date that is two business days after the Cross-Over Date
(as defined below), at the option of the holder, for one share of Class A EPS,
subject to adjustment in the event of a Class B Adjustment Event or as otherwise
set forth below (the "Class B Exchange Right").
At any time and from time to time beginning on the Cross-Over Date, a
holder of Class B EPS may require that the Trust either (x) redeem such shares
of Class B EPS for a cash redemption price equal to the Class B EPS Liquidation
Preference as of the date notice of such exchange is made or (y) convert each
such share of Class B EPS into a number of shares of Class A EPS (the
"Redemption Number of Shares") equal to the quotient obtained by dividing (i)
the Class B Liquidation Preference as of the date notice of such exchange is
made by (ii) the Underlying Paired Share Value (as defined below) of one share
of Class A EPS (the "Class B Redemption Right"). Prior to the first anniversary
of the Cross-Over Date, an exchanging holder may elect whether to receive the
cash redemption price specified above or the Redemption Number of Shares,
whereas with respect to an exchange notice given on or after the first
anniversary of the Cross-Over Date, the Trust will have the right to elect
whether to deliver the cash redemption price or the Redemption Number of Shares.
Redemption or Exchange at the Option of the Trust. At any time and from
time to time after the Cross-Over Date, the Trust, at its option, will have the
right (the "Trust Redemption Right") to (i) redeem the Class B EPS, in whole or
in part, for cash at a redemption price equal to the Class B Liquidation
Preference as
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of the date of such Trust Redemption Notice or (ii) exchange the Class B EPS, in
whole or in part, for a number of shares of Class A EPS equal to the Redemption
Number of Shares; provided, however, that prior to the first anniversary of the
Cross-Over Date, the Trust must redeem such shares of Class B EPS for the cash
redemption price rather than exchanging such shares for shares of Class A EPS.
The following definitions apply for the purposes hereof:
"Cross-Over Date" means the fifth anniversary of the Westin Merger, subject
to extension as described below under the caption "Special Default Rights".
"Underlying Paired Share Value" as of a given date means the product of (A)
the average closing price of the Paired Shares on the NYSE during the five
trading days preceding such date multiplied by (B) the number of Paired Shares
for which each share of Class A EPS is then exchangeable upon exercise of the
Class A Exchange Right.
On or prior to the Cross-Over Date, the exchange ratio of shares of Class B
EPS for shares of Class A EPS shall be subject to adjustment from time to time
based on the occurrence of stock dividends, stock splits, reverse stock splits
and other similar events in respect of the Class A EPS ("Class B Adjustment
Events"). The Paired Shares for which each share of Class A EPS is indirectly
exchangeable at any given time (assuming both (i) the exercise of the Class B
Exchange Right and (ii) the concurrent exercise of the Class A Exchange Right in
respect of the shares of Class A EPS issuable upon exercise of such Class B
Exchange Right) are referred to as the "Class B Underlying Paired Shares", with
the Corporation Shares component of such Class B Underlying Paired Shares being
referred to as the "Class B Underlying Corporation Shares" and the Trust Shares
component of such Class B Underlying Paired Shares being referred to as the
"Class B Underlying Trust Shares". In addition, in the event of the occurrence
of any capital reorganization or reclassification of the Class A EPS, or
consolidation or merger of the Trust with another corporation, trust or other
entity, or the sale, transfer or lease of all or substantially all of the assets
of the Trust to another person, is effected in such a way that holders of Class
A EPS will be entitled to receive stock, securities or other assets with respect
to or in exchange for Class A EPS, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or lease, the Class B
Exchange Right and the Trust Redemption Right shall be modified so that, upon
exercise thereof, the Class B EPS will be exchanged for the kind and amount of
stock, securities or other assets which the holders of such Class B EPS would
have owned or been entitled to receive immediately after the transaction if such
holders had exchanged their Class B EPS into the shares of Class A EPS
immediately prior to the effective date of such transaction, subject to further
adjustment upon the occurrence of the events described above.
If there are any accrued but undeclared Class B Preferred Dividends in
respect of the shares of Class B EPS subject to an exchange request, the number
of shares of Class A EPS issuable pursuant to such exchange shall be increased
by a number of shares equal to (i) the amount of such accrued but undeclared
dividends divided by (ii) the product of (A) the average closing price of the
Paired Shares on the NYSE during the five trading days preceding the date of
delivery of such Class A Exchange Notice multiplied by (B) the number of Paired
Shares for which each share of Class A EPS is then exchangeable upon exercise of
the Class A Exchange Right.
SPECIAL DEFAULT RIGHTS. In the event that the Trust defaults in its
obligations with respect to any valid exercise of the Class B Exchange Right,
the Class B Redemption Right or the Trust Redemption Right and such default is
not cured within 30 days (an "Uncured Default"), then: (i) the holders of the
Class B EPS will have the right to designate two additional Trustees for the
Trust (such persons to be designated by the holders of a majority of the
outstanding shares of Class B EPS), (ii) the dividend rate on the Class B EPS
will be increased as described below, (iii) the holders of Class B EPS will have
registration rights similar to those set forth in the Registration Rights
Agreement entered into pursuant to the Transaction Agreement and (iv) the
Cross-Over Date will be extended by a number of days equal to the number of days
during which such Uncured Default remains uncured. Upon the occurrence and
during the continuation of any Uncured Default, cumulative dividends ("Default
Rate Dividends") shall accrue on the $38.50 stated value of the Class B EPS at a
rate per annum equal to LIBOR plus 4% and will be payable quarterly; provided
that if at any time when there are accrued but unpaid Default Rate Dividends, a
Class B Preferred Dividend or Class B
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Participation Dividend would have become payable pursuant to the normal dividend
rights of the Class B EPS described above that would exceed the amount of such
accrued but unpaid Default Rate Dividends, the holders of the Class B EPS shall
be entitled to receive such Class B Preferred Dividend or Class B Participation
Dividend in lieu of such Default Rate Dividends, and the accrued amount of such
Default Rate Dividends shall be reset to zero.
PUT AGREEMENT ALTERNATIVE. The Trust may elect, in its sole discretion, to
furnish at the closing of the transactions contemplated in the Transaction
Agreement to each person entitled to receive shares of Class B EPS pursuant to
such agreement, a duly executed put agreement containing economic terms no less
favorable to the holders of Class B EPS than the Class B Redemption Right
(except that such put rights shall expire two business days prior to the
expiration date of the Class B Redemption Right). The put agreement shall
provide such holders with put rights that are divisible and transferrable
together with the Class B EPS. The counterparty to the put agreement shall be
Morgan Stanley Dean Witter Discover & Co. Incorporated or Bear Stearns & Co.,
Inc. (or another acceptable counterparty), with the Trust bearing all costs of
obtaining such put agreement. In the event that the Trust elects to deliver such
a put agreement, the consequences of an Uncured Default described above under
the caption "Special Default Rights" shall not apply.
VOTING RIGHTS. Except as required by law, the holders of Class B EPS shall
be entitled to vote on any matter on which the holders of Trust Shares are
entitled to vote. Each share of Class B EPS held of record on the record date
for the determination of holders of Trust Shares entitled to vote on such matter
(or, if no record date is established, on the date such vote is taken) shall
entitle the holder thereof to cast a number of votes equal to the number of
Class B Underlying Trust Shares at such time.
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF SHARES
The Trust Declaration and the Corporation Articles provide that, subject to
certain exceptions specified in the Trust Declaration and the Corporation
Articles, 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 of the Trust or the Corporation, whether measured by vote, value
or number of shares (the "Ownership Limit") (other than for shareholders who
owned in excess of 8.0% as of January 31, 1995 (the date the reorganization of
Starwood Lodging (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 Shares they held on
such date) of the outstanding Paired Shares or Preferred Shares which may be
issued, or any combination thereof. The Trust Board and the Corporation Board
may waive the Ownership Limit if evidence satisfactory to the Trust Board and
the Corporation Board 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 Trust Board and the Corporation Board
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 shares of the Trust or stock of the Corporation and continued
holding or ownership of Shares of the Trust or stock of the Corporation
constitutes, under the Trust Declaration and the Corporation Articles, a
continuous representation of compliance with the Ownership Limit.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of Paired Shares or Preferred Shares in
violation of the Ownership Limit, such transfer with respect to that number of
shares that would be owned by the transferee in excess of the Ownership Limit
would be deemed void ab initio and such Paired Shares or Preferred Shares would
automatically be exchanged for Excess Shares or Excess Preferred Stock,
respectively (collectively, "Excess Stock"), authorized by the Trust Declaration
and the Corporation Articles, according to rules set forth in the Trust
Declaration and the Corporation Articles, to the extent necessary to ensure that
the purported transfer or other event does not result in ownership of Paired
Shares or Preferred Shares or Excess Stock in violation of the Ownership Limit.
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.
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Any Excess Trust Shares and Excess Corporation Stock which may be issued
will be "paired" in the same manner that the Trust Shares and the Corporation
Shares are currently paired. Excess Stock is not Treasury stock but rather
continues as issued and outstanding capital stock of the Trust and the
Corporation. While outstanding, Excess Stock will be held in trust. The trustees
of such trusts shall be appointed by the Trust and the Corporation and shall be
independent of the Trust, the Corporation and the holder of Excess Stock. The
beneficiary of such trust shall be one or more charitable organizations selected
by the trustee. If, after the purported transfer or other event resulting in an
exchange of Paired 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 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 Shares
or Preferred Shares will not violate the Ownership Limit, at which time the
Excess Stock will be automatically exchanged for the same number of Paired
Shares or Preferred Shares of the same type and class as the Paired Shares or
Preferred Shares for which the Excess Stock was originally exchanged. The Trust
Declaration and the Corporation Articles 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 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 Trust Declaration and the Corporation Articles 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 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 Trust Board
and the Corporation Board, in their sole discretion, but no lower than the
lowest market price of such stock (based on the market price of the Paired
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 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 Trust Board
and the Corporation Board determine that a violative transfer has been made.
The Ownership Limit 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
Limit would require an amendment to the Trust Declaration and the Corporation
Articles. Amendments to the Trust Declaration and to the Corporation Articles
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 Limit require two-thirds approval. In addition to
preserving the Trust's status as a REIT, the Ownership Limit may have the effect
of delaying, deferring, or preventing a change in control of the Trust and the
Corporation without the approval of the Trust Board and the Corporation Board.
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 Shares, Preferred
Shares or Excess Stock must file an affidavit with the Trust and the Corporation
containing the information specified in the Trust Declaration and the
Corporation Articles 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 Trust Board or the Corporation Board
deems necessary to comply with the provisions of the
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Trust Declaration and the Corporation Articles or the Code applicable to a REIT
or to comply with the requirements of any taxing authority or governmental
agency.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lazard Freres, of which Mr. Kendrick R. Wilson III is a Managing Director,
performed various investment banking services for ITT and its subsidiaries in
1996. Lazard Freres is serving as ITT's co-financial advisor in connection with
the Hilton Offer. Mr. Wilson receives a percentage of Lazard Freres' income,
including a percentage of any income under ITT's retention of Lazard Freres.
A By-law of ITT provides for mandatory indemnification of ITT directors and
officers (including payment of legal fees) to the fullest extent permitted by
applicable law. The By-law also provides that ITT may maintain insurance to
indemnify its directors and officers against liabilities whether or not ITT
would be permitted to indemnify them. This type of insurance, as well as
policies under which ITT may be reimbursed for amounts paid in indemnification
of its directors and officers, are in force. The premiums thereon, which
aggregate $1,164,755 for a twelve-month period, are paid by ITT. As authorized
by such By-law, ITT has entered into indemnification agreements with its
directors pursuant to which ITT agrees to indemnify them against all expenses,
liabilities or losses incurred by the directors in their capacity as such: (i)
to the fullest extent permitted by applicable law; (ii) as provided in the
By-laws of ITT as in effect on the date of such agreement; and (iii) in the
event ITT does not maintain the aforementioned insurance or comparable coverage,
to the full extent provided in the applicable policies as in effect on January
1, 1997 (ITT's obligations described in (ii) and (iii) being subject to certain
exceptions). Contractual rights under such indemnification agreements are
believed to provide the directors more protection than the indemnification By-
law which is subject to change.
LEGAL MATTERS
The validity of the Paired Shares to be issued in connection with the
Merger will be passed upon by Sidley & Austin, counsel to Starwood Lodging.
Sidley & Austin will rely on the opinion of Ballard Spahr Andrews & Ingersoll as
to certain matters of Maryland law. Lawyers of Sidley & Austin participating in
this transaction on behalf of such firm own or hold options to purchase an
aggregate of approximately Paired Shares.
Sidley & Austin, counsel for Starwood Lodging, will pass on certain Federal
income tax consequences of the Merger for Starwood Lodging and the stockholders
and shareholders of Starwood Lodging and Cravath, Swaine & Moore, counsel for
ITT, will pass on certain Federal income tax consequences of the Merger for the
ITT stockholders.
EXPERTS
The separate and combined consolidated financial statements and financial
statement schedules of Starwood Lodging Trust and Starwood Lodging Corporation
as of December 31, 1996 and 1995 and for each of the two years in the period
ended December 31, 1996 appearing in the Company's Joint Annual Report on Form
10-K for the year ended December 31, 1996, the combined financial statements of
Flatley Hotels as of December 31, 1996, and for the year then ended, appearing
in the Company's Joint Current Report on Form 8-K, dated September 10, 1997, and
the consolidated financial statements of Westport Holdings, L.L.C. as of January
2, 1997, and for the year then ended, appearing in the Company's Joint Current
Report on Form 8-K dated February 10, 1997, incorporated by reference in this
Prospectus, have been audited by Coopers & Lybrand, L.L.P., independent
accountants, as stated in their reports also incorporated by reference herein.
Such financial statements and financial statement schedules have been
incorporated by reference herein in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
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The separate and combined financial statements and financial statement
schedules of Starwood Lodging Trust and Starwood Lodging Corporation for the
year ended December 31, 1994, incorporated by reference in this Prospectus, have
been audited by Deloitte & Touche LLP, independent accountants, 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 appearing in the
Company's Joint Current Report on Form 8-K dated February 10, 1997 incorporated
by reference in this Prospectus, 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 combined financial statements of W&S Hotel LLC appearing in the
Company's Joint Current Report on Form 8-K dated September 10, 1997,
incorporated by reference in this Prospectus, 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.
The consolidated financial statements of ITT as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
appearing in the ITT Form 10-K for the year ended December 31, 1996, have been
audited by Arthur Andersen LLP, independent accountants, as set forth in their
report thereon set forth therein and incorporated herein by reference. Such
financial statements have been incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETINGS
STARWOOD LODGING
Stockholder proposals to be considered for inclusion in the proxy
soliciting material for the 1998 Annual Meeting of Shareholders of the Trust or
the 1998 Annual Meeting of Stockholders of the Corporation must be received by
the Corporation not later than August 7, 1998.
Pursuant to Section 4A of Article I and Section 13 of Article III of the
Trust Regulations and Section 7 of Article II and Section 1A of Article III of
the Corporation By-laws, a shareholder of the Trust or a stockholder of the
Corporation who intends at an annual meeting of shareholders or stockholders to
nominate one or more individuals for election at such meeting as a Trustee or
Director, or to present to a meeting of shareholders or stockholders one or more
other items of business, must notify the Trust or the Corporation of the same
not more than 75 days nor less than 50 days before the date of the meeting (or,
if less than 60 days' advance notice or prior public disclosure of the meeting
date is provided, within 10 days after such notice is mailed or such prior
public disclosure of the meeting date is provided, whichever occurs first). A
copy of the Trust Regulations or the Corporation Bylaws, as the case may be,
which documents set forth the information that must be included in any such
notice, will be furnished without charge to any owner of Paired Shares upon
written or oral request made to Shareholder Relations, Starwood Lodging Trust,
2231 E. Camelback Road, Suite 410, Phoenix, Arizona 85016, telephone number:
(602) 852-3900, or Shareholder Relations, Starwood Lodging Corporation, 2231 E.
Camelback Road, Suite 400, Phoenix, Arizona 85016, telephone number: (602)
852-3900.
ITT
Proposals submitted by stockholders for inclusion in ITT's proxy statement
for its 1998 annual meeting must be received by ITT no later than the close of
business on January 1, 1998. Proposals should be addressed to Secretary, ITT
Corporation, 1330 Avenue of the Americas, New York, New York 10019-5490.
Proposals must comply with all of the requirements of Rule 14a-8 under the
Exchange Act as well as the requirements set forth in ITT's By-laws. A copy of
ITT's By-laws may be obtained from the Secretary of ITT upon request.
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The name "Starwood Lodging Trust" is the designation of Starwood Lodging
Trust and its Trustees (as Trustees but not personally) under a Declaration of
Trust dated August 25, 1969, as amended and restated, and all persons dealing
with Starwood Lodging Trust must look solely to Starwood Lodging Trust's
property for the enforcement of any claims against Starwood Lodging Trust, as
the Trustees, officers, agents and security holders of Starwood Lodging Trust
assume no personal obligations of Starwood Lodging Trust, and their respective
properties shall not be subject to claims of any person relating to such
obligation.
By Order of the Board of Trustees
STARWOOD LODGING TRUST
December , 1997
Sherwin L. Samuels
Secretary
By Order of the Board of Directors
STARWOOD LODGING CORPORATION
December , 1997
Nir E. Margalit
Secretary
By Order of the Board of Directors
ITT CORPORATION
December , 1997
Richard S. Ward
Executive Vice President, General
Counsel and Corporate Secretary
No person is authorized to give any information or to make any
representations with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained herein. Any information or
representations with respect to such matters not contained herein must not be
relied upon as having been authorized by the Trust, the Corporation or ITT. This
Joint Proxy Statement/Prospectus does not constitute the solicitation of a proxy
in any jurisdiction to or from any person to whom it is unlawful to make such
solicitation in such jurisdiction. The delivery of this Joint Proxy
Statement/Prospectus shall not, under any circumstances, create any implication
that there has been no change in the affairs of the Trust, the Corporation or
ITT since the date hereof or that the information in this Joint Proxy
Statement/Prospectus is correct as of any time subsequent to the date hereof.
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ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
STARWOOD LODGING CORPORATION,
CHESS ACQUISITION CORP.,
STARWOOD LODGING TRUST
AND
ITT CORPORATION
DATED AS OF NOVEMBER 12, 1997
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
Section 1.1 The Merger............................................................... 1
Section 1.2 Effective Time........................................................... 1
Section 1.3 Effects of the Merger.................................................... 2
Section 1.4 Charter and By-laws; Directors........................................... 2
Section 1.5 Conversion of Securities................................................. 2
Section 1.6 Election of Stock or Cash................................................ 3
Section 1.7 Proration................................................................ 4
Section 1.8 Parent Companies to Make Cash and Certificates Available; Transfer Taxes;
Withholding.............................................................. 5
Section 1.9 Dividends................................................................ 6
Section 1.10 No Fractional Securities................................................. 7
Section 1.11 Return of Exchange Fund.................................................. 7
Section 1.12 Adjustment of Exchange Ratio............................................. 7
Section 1.13 No Further Ownership Rights in Company Common Stock...................... 7
Section 1.14 Closing of Company Transfer Books........................................ 7
Section 1.15 Lost Certificates........................................................ 8
Section 1.16 Further Assurances....................................................... 8
Section 1.17 Closing.................................................................. 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PARENT COMPANIES AND SUB
Section 2.1 Organization, Standing and Power......................................... 8
Section 2.2 Capital Structure........................................................ 9
Section 2.3 Authority................................................................ 10
Section 2.4 Consents and Approvals; No Violation..................................... 10
Section 2.5 SEC Documents and Other Reports.......................................... 12
Section 2.6 Registration Statement and Joint Proxy Statement......................... 12
Section 2.7 Absence of Certain Changes or Events..................................... 12
Section 2.8 Permits and Compliance................................................... 12
Section 2.9 Tax Matters.............................................................. 13
Section 2.10 Actions and Proceedings.................................................. 14
Section 2.11 Compliance with Worker Safety and Environmental Laws..................... 14
Section 2.12 Liabilities.............................................................. 15
Section 2.13 Intellectual Property.................................................... 15
Section 2.14 Opinion of Financial Advisor............................................. 15
Section 2.15 Required Vote of Parent and Trust Stockholders........................... 15
Section 2.16 REIT Status.............................................................. 15
Section 2.17 Brokers.................................................................. 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power......................................... 16
Section 3.2 Capital Structure........................................................ 16
Section 3.3 Authority................................................................ 17
Section 3.4 Consents and Approvals; No Violation..................................... 17
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Section 3.5 SEC Documents and Other Reports.......................................... 18
Section 3.6 Registration Statement and Joint Proxy Statement......................... 18
Section 3.7 Absence of Certain Changes or Events..................................... 18
Section 3.8 Permits and Compliance................................................... 18
Section 3.9 Tax Matters.............................................................. 19
Section 3.10 Actions and Proceedings.................................................. 20
Section 3.11 Certain Agreements....................................................... 20
Section 3.12 ERISA.................................................................... 20
Section 3.13 Compliance with Worker Safety and Environmental Laws..................... 22
Section 3.14 Liabilities.............................................................. 22
Section 3.15 Intellectual Property.................................................... 22
Section 3.16 Rights Agreement......................................................... 22
Section 3.17 Parachute Payments to Disqualified Individuals........................... 23
Section 3.18 Opinion of Financial Advisor............................................. 23
Section 3.19 State Takeover Statutes.................................................. 23
Section 3.20 Required Vote of Company Stockholders.................................... 23
Section 3.21 Brokers.................................................................. 23
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger.................... 23
Section 4.2 Conduct of Business by the Parent Companies Pending the Merger........... 25
Section 4.3 No Solicitation.......................................................... 26
Section 4.4 Third Party Standstill Agreements........................................ 27
Section 4.5 Pre-Merger Transactions.................................................. 27
Section 4.6 Post-Merger Transactions................................................. 28
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholders Meetings.................................................... 28
Section 5.2 Filings; Other Actions................................................... 28
Section 5.3 Comfort Letters.......................................................... 29
Section 5.4 Access to Information.................................................... 29
Section 5.5 Compliance with the Securities Act....................................... 30
Section 5.6 Stock Exchange Listings.................................................. 30
Section 5.7 Fees and Expenses........................................................ 30
Section 5.8 Company Stock Options.................................................... 31
Section 5.9 Reasonable Efforts....................................................... 31
Section 5.10 Public Announcements..................................................... 32
Section 5.11 Transfer and Gains Tax................................................... 32
Section 5.12 State Takeover Laws...................................................... 32
Section 5.13 Indemnification; Directors and Officers Insurance........................ 32
Section 5.14 Notification of Certain Matters.......................................... 33
Section 5.15 Employees................................................................ 33
Section 5.16 Rights Agreement......................................................... 34
Section 5.17 Regulatory Matters....................................................... 34
Section 5.18 New Jersey Trust......................................................... 34
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ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger............... 35
Section 6.2 Conditions to Obligation of the Company to Effect the Merger............. 36
Section 6.3 Conditions to Obligations of Parent, Sub and Trust to Effect the
Merger................................................................... 36
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination.............................................................. 38
Section 7.2 Effect of Termination.................................................... 38
Section 7.3 Amendment................................................................ 39
Section 7.4 Waiver................................................................... 39
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties........................... 39
Section 8.2 Notices.................................................................. 39
Section 8.3 Interpretation........................................................... 40
Section 8.4 Counterparts............................................................. 40
Section 8.5 Entire Agreement; No Third-Party Beneficiaries........................... 40
Section 8.6 Governing Law............................................................ 40
Section 8.7 Assignment............................................................... 40
Section 8.8 Severability............................................................. 40
Section 8.9 Enforcement of this Agreement............................................ 41
Section 8.10 Trust.................................................................... 41
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of November 12,
1997 (this "Agreement"), among Starwood Lodging Corporation, a Maryland
corporation ("Parent"), Chess Acquisition Corp., a Nevada corporation and a
controlled subsidiary of Parent ("Sub"), Starwood Lodging Trust, a Maryland real
estate investment trust ("Trust" and, together with Parent, the "Parent
Companies") and ITT Corporation, a Nevada corporation (the "Company") (Sub and
the Company being hereinafter collectively referred to as the "Constituent
Corporations").
WITNESSETH:
WHEREAS Parent, Sub, Trust and the Company are parties to that certain
Agreement and Plan of Merger dated as of October 19, 1997 (the "Original Merger
Agreement");
WHEREAS Parent, Sub, Trust and the Company wish to amend the Original
Merger Agreement to increase the consideration to be received by stockholders of
ITT in the Merger (as defined below) and to make certain other changes to the
Original Merger Agreement;
WHEREAS the respective Boards of Directors of Parent, Sub, Trust and the
Company have approved the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Common Stock, no par value, of the
Company ("Company Common Stock"), not owned by Parent, the Company or their
respective wholly owned subsidiaries will be converted into shares of common
stock, par value $.01 per share, of Parent ("Parent Common Stock"), and trust
shares, par value $.01 per share, of Trust ("Trust Shares" and, when paired with
shares of Parent Common Stock pursuant to the Pairing Agreement dated as of June
28, 1980, as amended from time to time, between Parent and Trust, "Paired
Shares"), and cash;
WHEREAS the respective Boards of Directors or Trustees, as the case may be,
of each of the Parent Companies and the Company have determined that the Merger
is in furtherance of and consistent with their respective long-term business
strategies and is in the best interest of their respective stockholders or
shareholders, as the case may be; and
WHEREAS the parties to this Agreement intend that the Merger shall be
treated as a taxable acquisition of all the outstanding shares of Company Common
Stock by Parent and the Trust, respectively, in proportion to the relative
percentages of Sub capital stock they own immediately prior to the consummation
of the Merger.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
The Original Merger Agreement is hereby amended and restated to read in its
entirety as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Nevada General Corporation Law (the "NGCL"),
Sub shall be merged with and into the Company at the Effective Time (as defined
in Section 1.2). Following the Merger, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the NGCL.
Section 1.2 Effective Time. The Merger shall become effective when Articles
of Merger (the "Articles of Merger"), executed in accordance with the relevant
provisions of the NGCL, are filed with the Secretary of State of the State of
Nevada; provided, however, that, upon mutual consent of the Constituent
Corporations, the Articles of Merger may provide for a later date of
effectiveness of the Merger not more than 30 days after the date the Articles of
Merger are filed. When used in this Agreement, the term "Effective Time" shall
mean the date and time at which the Articles of Merger are accepted for record
or such later time established by the
1
<PAGE> 125
Articles of Merger. The filing of the Articles of Merger shall be made on the
date of the Closing (as defined in Section 1.17).
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 92A.250 of the NGCL.
Section 1.4 Charter and By-laws; Directors. (a) At the Effective Time, the
Articles of Incorporation of Sub, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law; provided, however, that the Articles of Incorporation of Sub
shall include provisions substantially identical to ARTICLE SEVENTH and ARTICLE
NINTH of the Restated Articles of Incorporation, as amended, of the Company
existing as of the date of this Agreement; and provided further that at the
Effective Time Article I of the Articles of Incorporation of Sub shall be
amended to read in its entirety as follows: "The name of the corporation is ITT
Corporation." At the Effective Time, the By-laws of Sub, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or in the
Articles of Incorporation; provided, however, that the By-laws of Sub shall
include provisions substantially identical to Section 4 of the Amended and
Restated By-laws of the Company existing on the date of this Agreement.
(b) The directors of Sub at the Effective Time shall be the directors
of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and
qualified, as the case may be.
Section 1.5 Conversion of Securities. As of the Effective Time, by virtue
of the Merger and without any action on the part of Sub, the Company or the
holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, no par value,
of Sub shall be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving
Corporation.
(b) All shares of Company Common Stock that are held in the treasury
of the Company and shares of Company Common Stock owned by Parent, Trust or
Sub (together, in each case, with the associated Right (as defined in
Section 3.2)) shall be cancelled and no cash, capital stock of Parent or
Trust or other consideration shall be delivered in exchange therefor. All
shares of Company Common Stock that are held by any wholly owned Subsidiary
(as defined in Section 2.1) of the Company, Parent, Sub or the Trust
(together, in each case, with the associated Right) shall be converted into
validly issued, fully paid and nonassessable shares of common stock, no par
value, of the Surviving Corporation.
(c) Each share of Company Common Stock (including restricted shares of
Company Common Stock issued under Company Plans (as defined in Section
3.12(d)) issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled or converted into shares of the
Surviving Corporation in accordance with Section 1.5(b)), together with the
associated Right, which share under the terms of Section 1.7 is to be
converted into cash, shall be converted into the right to receive $85.00 in
cash, without interest (except to the extent specified in Section 1.5(f)).
(d) Except as otherwise provided in Section 1.7 and subject to
Sections 1.10 and 1.12, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to
be cancelled or converted into shares of the Surviving Corporation in
accordance with Section 1.5(b) or converted into the right to receive cash
pursuant to Sections 1.5(c) and 1.7), together with the associated Right,
shall be converted into the right to receive the Exchange Ratio (as defined
below) of validly issued, fully paid and nonassessable Paired Shares. The
"Exchange Ratio" shall be a number equal to the quotient, rounded to the
nearest thousandth, or if there shall not be a nearest thousandth, the next
higher thousandth, of (x) $85.00 divided by (y) the Market Price (as
defined below) of Paired Shares on the fifth New York Stock Exchange, Inc.
("NYSE") trading day prior to the date of the Company Stockholder Meeting
(as defined in Section 5.1); provided, however, that in no event shall the
Exchange Ratio be (A) greater than an amount equal to $85.00 divided by
$53.263 or (B) less than an amount equal to $85.00 divided by $61.263. The
"Market Price" of a Paired Share on
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any date means the average of the Average Prices (as defined below) for the
20 NYSE trading days (the "Averaging Period") randomly selected by a
neutral independent accounting firm appointed by mutual agreement of the
Trust and the Company from the 30 consecutive NYSE trading days immediately
preceding such date. The "Average Price" for any date means the average of
the daily high and low prices per Paired Share as reported on the NYSE
Composite Transactions reporting system (as published in The Wall Street
Journal or, if not published therein, in another authoritative source
mutually selected by the Company and Parent).
(e) All such shares of Company Common Stock (other than shares to be
cancelled in accordance with Section 1.5(b)), and the associated Rights,
when so converted as provided in Section 1.5(c) or (d), shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist and each holder of a Certificate (as defined in Section
1.6(c)) theretofore representing any such shares (and the associated
Rights) shall cease to have any rights with respect thereto, except the
right to receive, upon the surrender of such Certificate in accordance with
Section 1.8, (A) any dividends and other distributions in accordance with
Section 1.9, (B) certificates representing the Paired Shares into which
such shares (and the associated Rights) are converted pursuant to Section
1.5(d), (C) cash into which such shares are converted pursuant to Section
1.5(c) and cash payable pursuant to Section 1.5(f) and (D) any cash,
without interest, in lieu of fractional Paired Shares to be issued or paid
in consideration therefor upon the surrender of such certificate in
accordance with Sections 1.8 and 1.10.
(f) If (but only if) the Closing occurs after January 31, 1998, then
each holder of Company Common Stock issued and outstanding immediately
prior to the Effective Time that is entitled under Section 1.5(c) and (d)
to receive either cash or Paired Shares shall in addition be entitled to
receive cash in an amount per share of Company Common Stock equal to (i)
$85.00 times (ii) 7% per annum accrued from and including January 31, 1998,
to but excluding the date of Closing (without compounding).
Section 1.6 Election of Stock or Cash. Each holder of shares of Company
Common Stock (other than holders of shares to be cancelled as set forth in
Section 1.5(b)) shall have the right to submit a request specifying the number
of shares of Company Common Stock which such holder desires to have converted
into the right to receive Paired Shares in the Merger and the number which such
holder desires to have converted into the right to receive cash in accordance
with the following procedures:
(a) Each holder of shares of Company Common Stock may specify in a
request made in accordance with the provisions of this Section 1.6 (an
"Election") (i) the number of such shares which such holder desires to have
converted into the right to receive cash in the Merger (a "Cash Election")
and (ii) the number of such shares which such holder desires to have
converted into Paired Shares in the Merger (a "Stock Election").
(b) The Parent Companies shall authorize such person or persons as
shall be acceptable to the Parent Companies and the Company to receive
Elections and to act as Exchange Agent hereunder (the "Exchange Agent").
(c) The Parent Companies and the Company shall prepare, for use by
stockholders of the Company in surrendering certificates (the
"Certificates") representing shares of Company Common Stock, a form (the
"Form of Election") pursuant to which each holder of Company Common Stock
may make Elections. The Form of Election shall be mailed to stockholders of
record of the Company as of the record date for the Company Stockholder
Meeting and shall accompany the Joint Proxy Statement (as defined in
Section 2.6).
(d) The Company shall use all reasonable efforts to make the Form of
Election available to all persons who become stockholders of record of the
Company during the period between such record date and the business day
prior to the date of the Company Stockholder Meeting.
(e) An Election shall have been properly made only if the Exchange
Agent shall have received, by 5:00 p.m., New York City time, on the
business day (such time on such day being referred to herein as the
"Election Date") preceding the date of the Company Stockholder Meeting, a
Form of Election
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properly completed and signed and accompanied by the Certificate or
Certificates representing the shares of Company Common Stock (and
associated Rights) to which such Form of Election relates (or by an
appropriate guarantee of delivery of such Certificate or Certificates as
set forth in such Form of Election from a member of any registered national
securities exchange or of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or
correspondent in the United States, provided such Certificate or
Certificates are in fact delivered by the time set forth in such guarantee
of delivery).
(f) Any holder of record of shares of Company Common Stock may at any
time prior to the Election Date change such holder's Election by written
notice received by the Exchange Agent at or prior to the Election Date
accompanied by a properly completed Form of Election. The Parent Companies
and the Company shall have the right in their sole discretion and by mutual
agreement to permit changes in Elections after the Election Date.
(g) Any holder of record of shares of Company Common Stock may at any
time prior to the Election Date revoke such holder's Election by written
notice received by the Exchange Agent at or prior to the Election Date or
by withdrawal prior to the Election Date of such holder's Certificates
previously deposited with the Exchange Agent. Any revocation of an Election
may be withdrawn by notice of such withdrawal delivered at or prior to the
Election Date. Any stockholder of the Company who shall have deposited
Certificates with the Exchange Agent shall have the right to withdraw such
Certificates by written notice received by the Exchange Agent and thereby
revoke such holder's Election as of the Election Date at any time after the
expiration of the period of 60 days following the Election Date if the
Merger shall not have been consummated prior thereto. The Parent Companies
shall obtain from the Exchange Agent an agreement to return all Forms of
Election and accompanying Certificates to the stockholders submitting the
same in the event this Agreement shall be terminated in accordance with its
terms.
(h) The Parent Companies and the Company by mutual agreement shall
have the right to make rules, not inconsistent with the terms of this
Agreement, governing the validity of Forms of Election, the manner and
extent to which Elections are to be taken into account in making the
determinations prescribed by Section 1.7, the issuance and delivery of
certificates for Paired Shares into which shares of Company Common Stock
are converted in the Merger and the payment for shares of Company Common
Stock converted into the right to receive cash in the Merger.
Section 1.7 Proration. The determination of whether shares of Company
Common Stock (other than shares to be cancelled or converted into shares of the
Surviving Corporation as set forth in Section 1.5(b)), and the associated
Rights, shall be converted in the Merger into the Exchange Ratio of Paired
Shares or the right to receive $85.00 in cash shall be made as set forth in this
Section 1.7.
(a) As is more fully set forth below, the aggregate number of shares
of Company Common Stock to be converted in the Merger into the right to
receive cash shall not (i) exceed 30% or (ii) be less than 18%, in either
case of all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time.
(b) If Cash Elections are received for a number of shares of Company
Common Stock which is more than 30% of the total number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time, each Non-Electing Share (as defined in Section 1.7(f)) and
each share of Company Common Stock for which a Stock Election has been
received (in each case, together with the associated Right) shall be
converted in the Merger into the Exchange Ratio of Paired Shares and the
shares of Company Common Stock for which Cash Elections have been received
(and the associated Rights) shall be converted in the Merger into right to
receive cash and the Exchange Ratio of Paired Shares in the following
manner: the largest whole number of shares of Company Common Stock (and the
associated Rights) covered by each Cash Election which is not in excess of
the number of shares of Company Common Stock covered by such Cash Election
multiplied by a fraction the numerator of which shall be a number equal to
30% of the number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time and the denominator shall be the
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aggregate number of shares of Company Common Stock covered by all Cash
Elections, shall be converted into the right to receive $85.00 per share in
cash, without interest (except to the extent specified in Section 1.5(f)).
The balance of the shares of Company Common Stock covered by Cash Elections
(together with the associated Rights) shall be converted into the right to
receive the Exchange Ratio of Paired Shares.
(c) If Stock Elections are received for a number of shares of Company
Common Stock which is more than 82% of the total number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time, each Non-Electing Share and each share of Company Common
Stock for which a Cash Election has been received (in each case, together
with the associated Right) shall be converted in the Merger into the right
to receive $85.00 in cash, without interest (except to the extent specified
in Section 1.5(f)), and the shares of Company Common Stock for which Stock
Elections have been received shall be converted in the Merger into the
Exchange Ratio of Paired Shares and the right to receive cash in the
following manner: the largest whole number of shares of Company Common
Stock (and associated Rights) covered by each Stock Election which is not
in excess of the number of shares of Company Common Stock covered by such
Stock Election multiplied by a fraction the numerator of which shall be a
number equal to 82% of the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time and the denominator
of which shall be the aggregate number of shares of Company Common Stock
covered by all Stock Elections, shall be converted into the right to
receive the Exchange Ratio of Paired Shares. The balance of the shares of
Company Common Stock covered by Stock Elections (together with the
associated Rights) shall be converted into the right to receive $85.00 per
share in cash, without interest (except to the extent specified in Section
1.5(f)).
(d) If Cash Elections are received for a number of shares of Company
Common Stock which is greater than or equal to 18%, but less than or equal
to 30%, the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time, each share of Company
Common Stock covered by a Cash Election shall be converted in the Merger
into the right to receive $85.00 in cash, without interest (except to the
extent specified in Section 1.5(f)), and each share of Company Common Stock
covered by a Stock Election shall be converted in the Merger into the
Exchange Ratio of Paired Shares.
(e) If Non-Electing Shares are not converted under either Section
1.7(b) or Section 1.7(c), the Exchange Agent shall determine by lot (or by
such other method as is deemed reasonable by the Parent Companies) which of
such Non-Electing Shares shall be converted in the Merger into the right to
receive $85.00 in cash per share, without interest (except to the extent
specified in Section 1.5(f)); provided, however, that such selection by lot
(or by such other method) will cease when the sum of the shares converted
in such manner, plus the number of shares of Company Common Stock covered
by Cash Elections is equal to such percentage, not less than 18% nor more
than 30%, as shall be specified by the Parent Companies in writing to the
Exchange Agent prior to the Effective Time, of the total number of shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time. Each Non-Electing Share not so converted into cash shall be
converted into the right to receive the Exchange Ratio of Paired Shares.
(f) For the purpose of this Section 1.7, outstanding shares of Company
Common Stock (other than shares owned by Parent, Sub, Trust or the Company
or any of their respective wholly owned Subsidiaries) as to which an
Election is not in effect at the Election Date and shares as to which an
Election has been withdrawn after the 60-day period following the Election
Date shall be called "Non-Electing Shares". If the Parent Companies and the
Company shall determine for any reason that any Election was not properly
made with respect to shares of Company Common Stock, such Election shall be
deemed to be ineffective and shares of Company Common Stock covered by such
Election shall, for purposes hereof, be deemed to be Non-Electing Shares.
Section 1.8 Parent Companies to Make Cash and Certificates Available;
Transfer Taxes; Withholding. (a) As soon as practicable after the Effective
Time, the Parent Companies shall deposit with the
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Exchange Agent, in trust for the holders of shares of Company Common Stock
converted in the Merger, certificates representing the Paired Shares issuable
and the cash then payable pursuant to Sections 1.5, 1.7, 1.9 and 1.10 (such cash
and Paired Shares, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"). The Exchange
Agent shall invest any cash included in the Exchange Fund as directed by the
Parent Companies, on a daily basis. Any interest or other income resulting from
such investments shall be paid to the Parent Companies. As soon as practicable
after the Effective Time, the Exchange Agent shall distribute to each holder of
shares of Company Common Stock converted into the right to receive cash or
Paired Shares pursuant to Section 1.5, 1.7, 1.9 and 1.10, upon surrender to the
Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Certificates for cancellation, a check for the amount
of cash to which such holder is entitled under such sections and certificates
representing Paired Shares to which such holder is entitled under such sections.
As soon as practicable after the Effective Time, the Exchange Agent shall mail
to each holder of record of a Certificate or Certificates whose shares were
converted pursuant to this Article I (other than any holder who previously
surrendered all its Certificates with a Form of Election or pursuant to a
guarantee of delivery set forth in a Form of Election) (A) a letter of
transmittal in form reasonably acceptable to the Company and the Parent
Companies (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon actual delivery of the
Certificates to the Exchange Agent) and (B) instructions for use in effecting
the surrender of the Certificates.
(b) Upon surrender for cancellation to the Exchange Agent of a
Certificate, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole Paired Shares
issuable and the cash payable to such holder pursuant to Sections 1.5, 1.7,
1.9 and 1.10 of this Agreement. Each Paired Share into which a share of
Company Common Stock shall be converted shall be deemed to have been issued
at the Effective Time. All Paired Shares shall be issued directly by the
Trust and Parent and no Paired Shares shall at any time be held by the
Surviving Corporation. If any certificate representing Paired Shares or
cash or other property is to be issued or delivered in a name other than
that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such Paired Shares in a name other than that
of the registered holder of the Certificate surrendered, or shall establish
to the satisfaction of the Exchange Agent that such tax has been paid or is
not applicable. The Parent Companies or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock
such amounts as the Parent Companies or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or under any
provision of state, local or foreign tax law. To the extent that amounts
are so withheld by the Parent Companies or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by the Parent
Companies or the Exchange Agent.
Section 1.9 Dividends. No dividends or other distributions that are
declared on or after the Effective Time on the Paired Shares, or are payable to
the holders of record thereof on or after the Effective Time, will be paid to
any person entitled by reason of the Merger to receive a certificate
representing Paired Shares until such person surrenders the related Certificate
or Certificates, as provided in this Article I. Subject to the effect of
applicable law, there shall be paid to each record holder of a new certificate
representing such Paired Shares: (i) at the time of such surrender or as
promptly as practicable thereafter, the amount, if any, of any dividends or
other distributions theretofore paid with respect to the Paired Shares
represented by such new certificate and having a record date on or after the
Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount,
if any, of any dividends or other distributions payable with respect to such
Paired Shares and having a record date on or after the Effective Time but prior
to such surrender and a payment date on or subsequent to such surrender. In no
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event shall the person entitled to receive such dividends or other distributions
be entitled to receive interest on such dividends or other distributions.
Section 1.10 No Fractional Securities. No certificates or scrip
representing fractional Paired Shares shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Parent or Trust
dividend or other distribution or stock split shall relate to any fractional
share, and no fractional share shall entitle the owner thereof to vote or to any
other rights of a security holder of Parent or Trust. In lieu of any such
fractional share, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a Paired Share upon surrender of Certificates for
exchange pursuant to this Article I will be paid an amount in cash (without
interest, except pursuant to Section 1.5(f)), rounded to the nearest cent,
determined by multiplying (i) the average of the per share closing prices on the
NYSE of a Paired Share (as reported in the NYSE Composite Transactions) during
the five consecutive trading days ending on the trading day immediately prior to
the date of the Effective Time by (ii) the fractional interest to which such
holder would otherwise be entitled. As promptly as practicable after the
determination of the amount of cash to be paid to holders of fractional share
interests, the Exchange Agent shall so notify the Parent Companies, and the
Parent Companies shall deposit such amount with the Exchange Agent and shall
cause the Exchange Agent to forward payments to such holders of fractional share
interests subject to and in accordance with the terms of this Article I. For
purposes of paying such cash in lieu of fractional shares, all Certificates
surrendered for exchange by a Company stockholder shall be aggregated, and no
such Company stockholder will receive cash in lieu of fractional shares in an
amount equal to or greater than the value of one full Paired Share with respect
to such Certificates surrendered.
Section 1.11 Return of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the former stockholders of the Company for one
year after the Effective Time shall be delivered to the Parent Companies and any
such former stockholders who have not theretofore complied with this Article I
shall thereafter look only to the Parent Companies for payment of their claim
for Paired Shares and/or cash into which such shares of Company Common Stock are
convertible, any cash in lieu of fractional shares of Parent Common Stock and
any dividends or distributions with respect to Paired Shares. None of Parent,
Trust or Surviving Corporation shall be liable to any former holder of Company
Common Stock for any such Paired Shares, cash and dividends and distributions
held in the Exchange Fund which is delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
Section 1.12 Adjustment of Exchange Ratio. In the event that, prior to the
Effective Time, Parent or Trust effects any reclassification, stock split or
stock dividend with respect to Parent Common Stock or Trust Shares, any change
or conversion of Parent Common Stock or Trust Shares into other securities or
any other dividend or distribution with respect to the Paired Shares, other than
(i) dividends contemplated by Sections 4.5(c) and (d) and (ii) dividends in the
aggregate not to exceed the greater of (a) the current rate of the Parent
Companies' dividends (together with any increases in such rate in the ordinary
course) and (b) the Trust's "real estate investment taxable income" (as such
term is defined for purposes of the Code) without regard to any net capital
gains or the deduction for dividends paid, appropriate and proportionate
adjustments, if any, shall be made to the Exchange Ratio, and all references to
the Exchange Ratio in this Agreement shall be deemed to be to the exchange Ratio
as so adjusted.
Section 1.13 No Further Ownership Rights in Company Common Stock. All
Paired Shares and cash issued or paid upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash or other
property paid pursuant to Sections 1.9 and 1.10) shall be deemed to have been
issued in full satisfaction of all rights pertaining to the shares of Company
Common Stock and associated Rights represented by such Certificates, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such shares of Company Common Stock
in accordance with the terms of this Agreement or prior to the date of this
Agreement and which remain unpaid at the Effective Time.
Section 1.14 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
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Corporation, the Exchange Agent or the Parent, such Certificates shall be
cancelled and exchanged as provided in this Article I.
Section 1.15 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Parent Companies or the Exchange Agent, the posting by such person of a
bond, in such reasonable amount as the Parent Companies or the Exchange Agent
may direct (but consistent with the practices the Parent Companies apply to
their own respective stockholders) as indemnity against any claim that may be
made against them with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Paired
Shares and/or cash or other property payable pursuant to this Article I.
Section 1.16 Further Assurances. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.17 Closing. The closing of the Merger (the "Closing") and all
actions contemplated by this Agreement to occur at the Closing shall take place
at the offices of Sidley & Austin, 875 Third Avenue, New York, New York, at
10:00 a.m., local time, on a date to be specified by the parties, which (subject
to fulfillment or waiver of the conditions set forth in Article VI) shall be no
later than the second business day following the day on which the last of the
conditions set forth in Article VI shall have been fulfilled or waived, or at
such other time and place as Parent and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT COMPANIES AND SUB
Each of the Parent Companies and Sub represents and warrants to the Company
as follows:
Section 2.1 Organization, Standing and Power. Each of the Parent Companies
and Sub is a real estate investment trust or a corporation, as the case may be,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to carry
on its business as now being conducted. Each Subsidiary of each of the Parent
Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized and has the requisite
corporate (in the case of a Subsidiary that is a corporation) or other power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power
or authority, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect (as hereinafter
defined) on the Parent Companies. The Parent Companies and each of their
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Parent Companies.
For all purposes of this Agreement, any reference to any state of facts,
event, change or effect having a "Material Adverse Effect" on or with respect to
the Parent Companies or the Company, as the case may be,
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means such state of facts, event, change or effect which has had, or would
reasonably be expected to have, a material adverse effect on the business,
properties, results of operations, financial condition or prospects of the
Parent Companies and their Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, as the case may be. For all purposes of this
Agreement, "Subsidiary" means any corporation, partnership, limited liability
company, joint venture or other legal entity of which the Parent Companies or
the Company, as the case may be (either alone or through or together with any
other Subsidiary), (i) owns, directly or indirectly, more than 50% of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation, partnership, limited liability company, joint venture or other
legal entity or (ii) is a general partner, trustee or other entity performing
similar functions.
Section 2.2 Capital Structure. At the date hereof, the authorized capital
stock of Parent consists of 100,000,000 shares of Parent Common Stock, and the
authorized capital stock of Trust consists of 100,000,000 Trust Shares,
20,000,000 excess trust shares, par value $.01 per share ("Excess Trust
Shares"), and 5,000,000 excess preferred shares, par value $.01 per share
("Excess Preferred Shares"). At the close of business on October 17, 1997,
51,302,015 shares of Parent Common Stock and 51,302,015 Trust Shares were issued
and outstanding. As of October 17, 1997, 62,978,381 units of SLT Realty Limited
Partnership ("SLT Units") and 63,232,722 units of SLC Operating Limited
Partnership ("SLC Units") were outstanding. As of October 17, 1997, the Trust
beneficially owned 51,302,015 SLT Units and Parent and its subsidiaries
beneficially owned 51,302,015 SLC Units and the remaining issued and outstanding
SLT Units and SLC Units were owned by the persons and in the quantities set
forth in Section 2.2 of the Parent Letter. All the outstanding SLT Units and SLC
Units have been duly authorized and are validly issued, fully paid and
nonassessable. The capital stock of Sub consists of 100,000 shares of Common
Stock, no par value, of which as of the date of this Agreement, 1,000 shares of
Common Stock were issued and outstanding, of which, as of the date of the
Agreement, 910 shares were owned directly by Parent and 90 shares were owned
directly by Trust, and 10,000 shares of Preferred Stock, no par value, of which
as of the date of this Agreement, no shares were issued and outstanding.
Immediately prior to the Effective Time, the Trust will acquire an appropriate
amount of Common Stock of the Sub. At the close of business on October 17, 1997,
none of the Parent Companies had any shares or units reserved for issuance,
except for Trust Shares and shares of Parent Common Stock reserved for issuance
upon the exchange of the SLT Units and the SLC Units, respectively, and except
that, as of October 17, 1997, there were 5,908,313 shares of Parent Common Stock
and 5,908,313 Trust Shares reserved for issuance pursuant to the Incentive and
Non-Qualified Shares Option Plan (1986) of the Trust, the Corporation Stock
Non-Qualified Stock Option Plan (1986) of the Trust, the Stock Option Plan
(1986) of the Corporation, the Trust Shares Option Plan (1986) of the
Corporation, the 1995 Share Option Plan of the Trust, and the 1995 Share Option
Plan of the Corporation (collectively, the "Parent Stock Plans"). Except as set
forth above, at the close of business on October 17, 1997, no shares of capital
stock or other voting securities of the Parent Companies were issued, reserved
for issuance or outstanding. All the outstanding shares of Parent Common Stock
and Trust Shares are validly issued, fully paid and nonassessable and free of
preemptive rights. All shares of Parent Common Stock and Trust Shares issuable
in exchange for Company Common Stock at the Effective Time in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid and nonassessable and free of preemptive rights and will be paired with
each other in the same ratio as all other shares of Parent Common Stock and
Trust Shares are paired with each other, as such ratio may change from time to
time. As of the date of this Agreement, except as set forth in Section 2.2 of
the letter dated the date hereof and delivered on the date hereof by the Parent
Companies to the Company, which letter relates to this Agreement and is
designated therein as the Parent Letter (the "Parent Letter"), and except for
(a) this Agreement, (b) stock options issued pursuant to the Parent Stock Plans
covering not in excess of 5,908,313 Trust Shares and 5,908,313 shares of Parent
Common Stock (collectively, the "Parent Stock Options"), (c) 11,930,707 Trust
Shares and 11,930,707 shares of Parent Common Stock issuable upon the exchange
of SLT Units and SLC Units, respectively, (d) the Transaction Agreement dated as
of September 8, 1997 (the "Westin Transaction Agreement"), among the Parent
Companies, WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital
Corporation, Juergen Bartels, W&S Hotel L.L.C., Westin Hotels & Resorts
Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp., Westin St. John Hotel
Company, Inc., W&S Denver Corp., W&S Atlanta Corp., SLT
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Realty Limited Partnership and SLC Operating Limited Partnership, and (e) Paired
Shares issuable pursuant to the Forward Purchase Contract dated as of October
13, 1997 (the "Forward Purchase Contract") with an affiliate of Union Bank of
Switzerland, there are no options, warrants, calls, rights or agreements to
which the Parent Companies or any of their Subsidiaries is a party or by which
any of them is bound obligating the Parent Companies or any of their
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Parent Companies or any of their
Subsidiaries or obligating the Parent Companies or any of their Subsidiaries to
grant, extend or enter into any such option, warrant, call, right or agreement.
Each outstanding share of capital stock of each Subsidiary of the Parent
Companies that is a corporation is duly authorized, validly issued, fully paid
and nonassessable and, except as disclosed in the Parent SEC Documents (as
defined in Section 2.5) filed prior to the date of this Agreement, each such
share is owned by the Parent Companies or another Subsidiary of the Parent
Companies, free and clear of all security interests, liens, claims, pledges,
mortgages, options, rights of first refusal, agreements, limitations on voting
rights, charges and other encumbrances of any nature whatsoever (each, a
"Lien"). As of the date of this Agreement, none of the Parent Companies has
outstanding any bonds, debentures, notes or other indebtedness of Parent having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders or shareholders of the
Parent Companies may vote. As of the date of this Agreement, there are no
outstanding contractual obligations of the Parent Companies or any of their
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Parent Companies or any of their Subsidiaries. Except as set forth
in Section 2.2 of the Parent Letter, Exhibit 21 to the Annual Report on Form
10-K of the Parent Companies for the year ended December 31, 1996 (the "Parent
Annual Report"), as filed with the Securities and Exchange Commission (the
"SEC"), is a true, accurate and correct statement in all material respects of
all the information required to be set forth therein by the rules and
regulations of the SEC.
Section 2.3 Authority. The Boards of Directors or Trustees, as the case may
be, of the Parent Companies and Sub have duly approved and adopted this
Agreement. The Board of Directors or Trustees, as the case may be, of each of
the Parent Companies has respectively declared advisable an amendment to
Parent's Articles of Incorporation and Trust's Declaration of Trust to (i)
increase the number of authorized shares of Parent Common Stock to 1,000,000,000
and the number of authorized Trust Shares to 1,000,000,000, respectively, and
(ii) include any provisions required by, or deemed advisable under, any Gaming
Laws (the "Charter Amendments"). The Board of Directors or Trustees, as the case
may be, of each of the Parent Companies has resolved to recommend the approval
by their respective stockholders or shareholders, as applicable, of the
respective Charter Amendments and the respective issuance of Parent Common Stock
and Trust Shares, in connection with the Merger as contemplated by this
Agreement (the "Share Issuances"). Each of the Parent Companies and Sub has all
requisite power and authority to enter into this Agreement and, subject to
approval by the stockholders or shareholders, as applicable, of Parent and Trust
of the respective Charter Amendments and Share Issuances, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Parent Companies and Sub and the consummation by the Parent Companies and
Sub of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Parent Companies and Sub, subject to
approval by the stockholders or shareholders, as applicable, of Parent and Trust
of the respective Charter Amendments and Share Issuances. This Agreement has
been duly executed and delivered by each of the Parent Companies and Sub and
(assuming the valid authorization, execution and delivery of this Agreement by
the Company and the validity and binding effect of this Agreement on the
Company) constitutes the valid and binding obligation of the Parent Companies
and Sub enforceable against each of them in accordance with its terms. The
Charter Amendments, the Share Issuances and the filing of a joint registration
statement on Form S-4 with the SEC by the Parent Companies under the Securities
Act of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), for the purpose of registering the Paired
Shares to be issued in connection with the Merger as contemplated by this
Agreement (together with any amendments or supplements thereto, whether prior to
or after the effective date thereof, the "Registration Statement") have been
duly authorized by Parent's Board of Directors and Trust's Board of Trustees.
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.4 have been obtained and all filings and obligations
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described in this Section 2.4 have been made, and except as set forth in Section
2.4 of the Parent Letter, the execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, result in any violation of, or default or loss
of a material benefit (with or without notice or lapse of time, or both) under,
or give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien upon any of the
properties, assets or operations of the Parent Companies or any of their
Subsidiaries under, any provision of (i) the Declaration of Trust, articles of
incorporation, Trust Regulations or by-laws, as applicable, of the Parent
Companies, (ii) any provision of the comparable charter or organization
documents of any Subsidiary of the Parent Companies, (iii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Parent
Companies or any of their Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Parent Companies
or any of their Subsidiaries or any of their respective properties, assets or
operations, other than, in the case of clauses (ii), (iii) or (iv), any such
violations, defaults, losses, rights or Liens that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Parent Companies, materially impair the ability of the Parent Companies or
Sub to perform their respective obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or approval of, any domestic
(federal or state), foreign or supranational court, commission, governmental
body, regulatory agency, authority or tribunal (a "Governmental Entity") is
required by or with respect to the Parent Companies or any of their Subsidiaries
in connection with the execution and delivery of this Agreement by the Parent
Companies or Sub or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except (i) in connection, or
in compliance, with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act and the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), (ii) the filing of the
Articles of Merger with the Secretary of State of the State of Nevada and
appropriate documents with the relevant authorities of other states in which the
Parent Companies or any of their Subsidiaries are qualified to do business,
(iii) such filings and consents as may be required under any environmental,
health or public or worker safety law or regulation specified in Section 2.4 of
the Parent Letter pertaining to any notification, disclosure or required
approval triggered by the Merger or by the transactions contemplated by this
Agreement, (iv) such filings as may be required in connection with the taxes
described in Section 5.11, (v) applicable requirements, if any, of state
securities or "blue sky" laws ("Blue Sky Laws") and the NYSE, (vi) as may be
required under foreign laws, (vii) such filings as may be required under the
rules of the NYSE in connection with the Charter Amendments, (viii) filings with
and approvals by any regulatory authority with jurisdiction over the Company's
gaming operations required under any Federal, state, local or foreign statute,
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, decree, injunction or other authorization governing or relating to the
current or contemplated casino and gaming activities and operations of the
Company, including the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, the Nevada Gaming Control Act and the rules
and regulations promulgated thereunder, the Mississippi Gaming Control Act and
the rules and regulations promulgated thereunder, the Clark County governmental
authorities and the rules and regulations promulgated thereby, the Indiana
Gaming Control Act and the rules and regulations promulgated thereunder, the
Nova Scotia Gaming Control Act and the rules and regulations promulgated
thereunder, and the Ontario-Gaming Control Act and the rules and regulations
promulgated thereunder (collectively, the "Gaming Laws"), (ix) filings with and
approvals of state educational regulatory authorities, nongovernmental
accrediting commissions and the U.S. Department of Education and, if required,
with the Federal Communications Commission, (x) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (a) as may be
required under the laws of any foreign country in which the Company or any of
its subsidiaries conducts any business or owns any property or assets or (b) as
are set forth in Section 2.4 of the Parent Letter, and (xi) such other consents,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Parent
Companies, materially impair the ability of the Parent Companies or Sub to
perform their respective obligations hereunder or prevent the consummation of
any of the transactions contemplated hereby.
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Section 2.5 SEC Documents and Other Reports. The Parent Companies have
filed all required documents with the SEC since January 1, 1996 (the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Parent Companies included in
the Parent SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles (except, in
the case of the unaudited statements, as permitted by Regulation S-X of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented the consolidated
financial position of Trust and Parent and their consolidated Subsidiaries as of
the respective dates thereof and the consolidated results of their operations
and their consolidated cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and to any
other adjustments described therein). Except as disclosed in the Parent SEC
Documents or as required by generally accepted accounting principles, the Parent
Companies have not, since December 31, 1996, made any change in the accounting
practices or policies applied in the preparation of their financial statements.
Section 2.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by the Parent Companies or Sub for inclusion or
incorporation by reference in the Registration Statement or the joint proxy
statement/prospectus included therein (together with any amendments or
supplements thereto, the "Joint Proxy Statement") relating to the Stockholder
Meetings (as defined in Section 5.1) will (i) in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Joint Proxy Statement, at the
time of the mailing of the Joint Proxy Statement and at the time of each of the
Stockholder Meetings, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event with
respect to the Parent Companies, their respective officers and directors or any
of their Subsidiaries shall occur that is required to be described in the Joint
Proxy Statement or the Registration Statement, such event shall be so described,
and an appropriate amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of Parent and the
Company. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act, and the Joint Proxy
Statement will comply (with respect to the Parent Companies) as to form in all
material respects with the provisions of the Exchange Act.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Documents filed prior to the date of this Agreement, since
December 31, 1996, (a) the Parent Companies and their Subsidiaries have not
sustained any loss or interference with their business or properties from fire,
flood, windstorm, accident or other calamity (whether or not covered by
insurance) that, individually or in the aggregate, has had, or would reasonably
be expected to have, a Material Adverse Effect on the Parent Companies, (b)
there have not been any events, changes or developments that, individually or in
the aggregate, have had or would reasonably be expected to have, a Material
Adverse Effect on the Parent Companies or (c) there has not been any split,
combination or reclassification of any of the capital stock of Parent or Trust
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of such capital stock,
except as contemplated by this Agreement. The approximate aggregate amount of
indebtedness of the Parent Companies and their respective Subsidiaries as of
September 30, 1997, is set forth in Section 2.7 of the Parent Letter.
Section 2.8 Permits and Compliance. Each of the Parent Companies and their
respective Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions,
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consents, certificates, approvals and orders of any Governmental Entity
necessary for the Parent Companies or any of their Subsidiaries to own, lease
and operate its properties or to carry on its business as it is now being
conducted (the "Parent Permits"), except where the failure to have any of the
Parent Permits, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies, and, as of the date of this Agreement, no suspension or cancellation
of any of the Parent Permits is pending or, to the Knowledge of the Parent
Companies (as hereinafter defined), threatened, except where the suspension or
cancellation of any of the Parent Permits, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Parent Companies. None of the Parent Companies or any of their
Subsidiaries is in violation of (A) their respective charter, by-laws or other
organizational documents, (B) any applicable law, ordinance, administrative or
governmental rule or regulation or (C) any order, decree or judgment of any
Governmental Entity having jurisdiction over the Parent Companies or any of
their Subsidiaries, except, in the case of clauses (A), (B) and (C), for any
violations that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. Except as disclosed in the Parent SEC Documents filed prior to the
date of this Agreement, as of the date hereof, there is no contract or agreement
that is material to the business, properties, results of operations or financial
condition of the Parent Companies and their Subsidiaries, taken as a whole.
Except as set forth in the Parent SEC Documents or Section 2.8 of the Parent
Letter, prior to the date of this Agreement, no event of default or event that,
but for the giving of notice or the lapse of time or both, would constitute an
event of default exists or, upon the consummation by the Parent Companies of the
transactions contemplated by this Agreement, will exist under any indenture,
mortgage, loan agreement, note or other agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
lease, license or other agreement or instrument to which the Parent Companies or
any of their Subsidiaries is a party or by which the Parent Companies or any
such Subsidiary is bound or to which any of the properties, assets or operations
of the Parent Companies or any such Subsidiary is subject, other than any
defaults that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. For purposes of this Agreement, the term "Knowledge" when used with
respect to the Parent Companies means the actual knowledge of the individuals
identified in Section 2.8 of the Parent Letter.
Section 2.9 Tax Matters. Except as otherwise set forth in Section 2.9 of
the Parent Letter, (i) the Parent Companies and each of their respective
Subsidiaries have timely filed all federal, state, local, foreign and provincial
income and Franchise Tax Returns and all other material Tax Returns required to
have been filed or appropriate extensions therefor have been properly obtained,
and such Tax Returns are, true, correct and complete, except to the extent that
any failure to so file or any failure to be true, correct and compete,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Parent Companies; (ii) all
Taxes required to have been paid by the Parent Companies and each of their
respective Subsidiaries have been timely paid or extensions for payment have
been properly obtained, except to the extent that any failure to pay any such
Taxes or to properly obtain an extension for such payment, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Parent Companies; (iii) the Parent Companies and
each of their respective Subsidiaries have complied in all material respects
with all rules and regulations relating to the withholding of Taxes except to
the extent that any failure to comply with such rules and regulations,
individually in the aggregate, has not had, and would not reasonably be expected
to have, a Material Adverse Effect on the Parent Companies; (iv) none of the
Parent Companies or any of their respective Subsidiaries has waived in writing
any statute of limitations in respect of its federal, state, local, foreign or
provincial income or franchise Taxes and no deficiency with respect to any Taxes
has been proposed, asserted or assessed against any of the Parent Companies or
any of their respective Subsidiaries, except to the extent that any such waiver
or deficiency, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies; (v) all Federal income Tax Returns referred to in clause (i) for all
years through 1993 have been examined by and settled with the Internal Revenue
Service or the period for assessment of Taxes in respect of which such Tax
returns were required to be filed has expired; (vi) no material issues that have
been raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently pending;
(vii) all material deficiencies
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asserted or material assessments made as a result of any examination of any Tax
Returns referred to in clause (i) by any taxing authority have been paid in
full; (viii) the most recent financial statements contained in the Parent SEC
Documents reflect an adequate reserve for all Taxes payable by the Parent
Companies and their respective Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements; and (ix) there are no
material liens for Taxes (other than for current Taxes not yet due and payable)
on the assets of the Parent Companies or any of their respective Subsidiaries.
For purposes of this Agreement: (i) "Taxes" means any federal, state, local,
foreign or provincial income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or add on
minimum, ad valorem, value-added, transfer or excise tax, or other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty imposed by any Governmental
Entity, and (ii) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
Section 2.10 Actions and Proceedings. Except as set forth in the Parent SEC
Documents filed prior to the date of this Agreement, there are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving the Parent Companies or any of their Subsidiaries, or
against or involving any of the directors, officers or employees of the Parent
Companies or any of their Subsidiaries, as such, any of its or their properties,
assets or business or any employee benefit plan of the Parent Companies (a
"Parent Plan") that, individually or in the aggregate, have had, or would
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. As of the date of this Agreement, there are no actions, suits or
claims or legal, administrative or arbitrative proceedings or investigations
pending or, to the Knowledge of the Parent Companies, threatened against or
involving the Parent Companies or any of their Subsidiaries or any of their
directors, officers or employees, as such, or any of its or their properties,
assets or business or any Parent Plan that, individually or in the aggregate,
have had, or would reasonably be expected to have, a Material Adverse Effect on
the Parent Companies. As of the date hereof, there are no actions, suits, labor
disputes or other litigation, legal or administrative proceedings or
governmental investigations pending or, to the Knowledge of the Parent
Companies, threatened against or affecting the Parent Companies or any of their
Subsidiaries or any of their officers, directors or employees, as such, or any
of their properties, assets or business relating to the transactions
contemplated by this Agreement.
Section 2.11 Compliance with Worker Safety and Environmental Laws. (a)
Except as set forth in Section 2.11 of the Parent Letter, the properties, assets
and operations of the Parent Companies and their respective Subsidiaries are in
compliance with all applicable federal, state, local, regional and foreign laws,
rules and regulations, orders, decrees, common law, judgments, permits and
licenses relating to public and worker health and safety (collectively, "Worker
Safety Laws") and the protection, regulation and clean-up of the indoor and
outdoor environment and activities or conditions related thereto, including,
without limitation, those relating to the generation, handling, disposal,
transportation or release of hazardous or toxic materials, substances, wastes,
pollutants and contaminants including, without limitation, asbestos, petroleum,
radon and polychlorinated biphenyls (collectively, "Environmental Laws"), except
for any violations that, individually or in the aggregate, has not had, or would
not reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. With respect to such properties, assets and operations, including any
previously owned, leased or operated properties, assets or operations, there are
no past, present or reasonably anticipated future events, conditions,
circumstances, activities, practices, incidents, actions or plans of the Parent
Companies or any of their respective Subsidiaries that may interfere with or
prevent compliance or continued compliance with applicable Worker Safety Laws
and Environmental Laws, other than any such interference or prevention that,
individually or in the aggregate, has not had, or would not reasonably be
expected to have, a Material Adverse Effect on the Parent Companies.
(b) The Parent Companies and their respective Subsidiaries have not
caused or permitted any property, asset, operation, including any
previously owned property, asset or operation, to use, generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer or
process hazardous or toxic materials, substances, wastes, pollutants or
contaminants, except in material compliance with all Environmental Laws and
Worker Safety Laws, other than any such activity that, individually or in
the
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aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Parent Companies. The Parent Companies and
their respective Subsidiaries have not reported to any Governmental Entity
any material violation of an Environmental Law or any release, discharge or
emission of any hazardous or toxic materials, substances, wastes,
pollutants or contaminants, other than any such violation, release,
discharge or emission that, individually or in the aggregate, has not had,
and would not reasonably be expected to have, a Material Adverse Effect on
the Parent Companies. The Parent Companies have no Knowledge of any
pending, threatened or anticipated claims or liabilities under CERCLA, 42
U.S.C. Section 9601 et seq., RCRA, 42 U.S.C. Section 6901 et seq., or
equivalent state law provisions and no Knowledge that any current or former
property, asset or operation is identified or currently proposed for the
National Priorities List at 40 CFR Section 300, Appendix B, or the CERCLIS
or equivalent state lists or hazardous substances release sites.
Section 2.12 Liabilities. Except as set forth in the Parent SEC Documents
filed prior to the date hereof, the Parent Companies and their Subsidiaries have
no liabilities, absolute or contingent, other than liabilities that,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Parent Companies.
Section 2.13 Intellectual Property. The Parent Companies and their
Subsidiaries own or have the right to use all patents, patent rights,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary intellectual property rights (collectively, "Intellectual Property
Rights") as are necessary in connection with the business of the Parent
Companies and their Subsidiaries, taken as a whole, except where the failure to
have such Intellectual Property Rights, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Parent Companies. Neither the Parent Companies nor any of their
respective Subsidiaries has infringed any Intellectual Property Rights of any
third party other than any infringements that, individually or in the aggregate,
have not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Parent Companies.
Section 2.14 Opinion of Financial Advisor. The Parent Companies have
received the written opinion of Bear Stearns & Co. Inc. dated November 12, 1997,
to the effect that, as of dated November 12, 1997, the consideration to be paid
by the Parent Companies in the Merger is fair to the Parent Companies from a
financial point of view.
Section 2.15 Required Vote of Parent and Trust Stockholders. The
affirmative votes of the holders of a majority of the outstanding shares of
Parent Common Stock and of the outstanding Trust Shares are required to approve
the respective Charter Amendments of Trust and Parent. The affirmative vote of a
majority of the votes cast on each Share Issuance is required to approve such
Share Issuance; provided, that the total votes cast on each such proposal
represent a majority of the outstanding shares of Parent Common Stock or Trust
Shares, as applicable. No other vote of the stockholders or shareholders of the
Parent Companies is required by law, the organization documents of the Parent
Companies or otherwise in order for the Parent Companies to consummate the
Merger and the transactions contemplated hereby.
Section 2.16 REIT Status. The Trust is a "real estate investment trust" for
federal income tax purposes and is not subject to Section 269B(a)(3) of the Code
by reason of Section 136(c) of the Deficit Reduction Act of 1984. The
consummation of the transactions contemplated by this Agreement will not cause
the Trust to cease to qualify as a "real estate investment trust" for federal
income tax purposes and will not cause the Trust to become subject to Section
269B(a)(3) of the Code.
Section 2.17 Brokers. No broker, investment banker or other person, other
than Bear Stearns & Co. Inc., Starwood Capital Group L.L.C. and Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, the fees and expenses of which will be
paid by the Parent Companies (subject to Section 5.7), is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Parent Companies.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Parent Companies and Sub
as follows:
Section 3.1 Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has the requisite corporate power and authority to carry on
its business as now being conducted. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or authority,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company. The Company and each
of its Subsidiaries are duly qualified to do business, and are in good standing,
in each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Company.
Section 3.2 Capital Structure. At the date hereof, the authorized capital
stock of the Company consists of 200,000,000 shares of Company Common Stock and
50,000,000 shares of Preferred Stock, no par value per share ("Company Preferred
Stock"). At the close of business on October 17, 1997, (i) 118,259,684 shares of
Company Common Stock were issued and outstanding, (ii) 1,123,526 shares of
Company Common Stock were held in the treasury of the Company or by its
Subsidiaries, (iii) 133,399 shares of Company Common Stock were reserved for
issuance pursuant to the Company's 1996 Restricted Stock Plan for Non-Employee
Directors, as amended, and the Company's 1995 Incentive Stock Plan, as amended
(collectively, the "Company Stock Plans"), and (iv) no shares of Company Common
Stock were reserved in connection with the Rights Agreement (as hereinafter
defined). Except as set forth above, at the close of business on October 17,
1997, no shares of capital stock or other voting securities of the Company were
issued, reserved for issuance or outstanding. All the outstanding shares of
Company Common Stock were validly issued, fully paid and nonassessable and free
of preemptive rights. As of the date of this Agreement, except for (a) stock
options issued pursuant to the Company Stock Plans covering not in excess of
8,718,231 shares of Company Common Stock (collectively, the "Company Stock
Options"),(b) the rights to purchase shares of Series A Participating Cumulative
Preferred Stock (the "Rights"), issued pursuant to the Rights Agreement dated as
of November 1, 1995 (the "Rights Agreement"), between the Company and The Bank
of New York, as Rights Agent, and (c) rights existing under an Investment
Agreement dated as of July 15, 1997 (the "CDRV Investment Agreement"), between
the Company and CDRV Acquisition, L.L.C., there are no options, warrants, calls,
rights or agreements to which the Company or any of its Subsidiaries is a party
or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right or agreement. Except
as set forth in Section 3.2 of the letter dated the date hereof and delivered on
the date hereof by the Company to Parent, which letter relates to this Agreement
and is designated therein as the Company Letter (the "Company Letter"), each
outstanding share of capital stock of each Subsidiary of the Company that is a
corporation is duly authorized, validly issued, fully paid and nonassessable
and, except as disclosed in the Company SEC Documents (as defined in Section
3.5) filed prior to the date of this Agreement, each such share is owned by the
Company or another Subsidiary of the Company, free and clear of all Liens. As of
the date of this Agreement, the Company does not have outstanding any bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Except (x)
pursuant to an agreement dated as of July 15, 1997 between the Company and
BellSouth Corporation, (y) to the extent that Article Ninth of the Restated
Articles of Incorporation of the Company or any comparable provision of the
articles of incorporation of any Subsidiary of the Company required under any
Gaming Laws could be construed as a contractual obligation or (z) with respect
to the withholding of exercise price or withholding taxes under any stock option
plan, as of the date of this Agreement, there are no
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outstanding contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries. Exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as filed with the SEC (the
"Company Annual Report"), is a true, accurate and correct statement in all
material respects of all the information required to be set forth therein by the
rules and regulations of the SEC.
Section 3.3 Authority. The Board of Directors of the Company has duly
approved and adopted this Agreement, and has resolved to recommend the approval
of this Agreement by the Company's stockholders and directed that this Agreement
be submitted to the Company's stockholders for approval. The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to approval by the stockholders of the Company of this Agreement, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to approval of this
Agreement by the stockholders of the Company. This Agreement has been duly
executed and delivered by the Company and (assuming the valid authorization,
execution and delivery of this Agreement by Parent, Trust and Sub and the
validity and binding effect of this Agreement on Parent, Trust and Sub)
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. The filing of the Joint Proxy
Statement with the SEC has been duly authorized by the Company's Board of
Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 have been obtained and all filings and obligations described in this Section
3.4 have been made, and except as set forth in Section 3.4 of the Company
Letter, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default or the loss
of a material benefit (with or without notice or lapse of time, or both) under,
or give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien, upon any of the
properties, assets or operations of the Company or any of its Subsidiaries under
any provision of (i) the Restated Articles of Incorporation, as amended, or the
Amended and Restated By-Laws of the Company, (ii) any provision of the
comparable charter or organization documents of any Subsidiary of the Company,
(iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its Subsidiaries or any of their respective properties, assets or operations,
other than, in the case of clauses (ii), (iii) or (iv), any such violations,
defaults, losses, rights or Liens that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or is necessary for the consummation of the Merger and
the other transactions contemplated by this Agreement, except (i) in connection,
or in compliance, with the provisions of the HSR Act, the Securities Act and the
Exchange Act, (ii) the filing of the Articles of Merger with the Secretary of
State of the State of Nevada and appropriate documents with the relevant
authorities of other states in which the Company or any of its Subsidiaries is
qualified to do business, (iii) such filings and consents as may be required
under any environmental, health or public or worker safety law or regulation
specified in Section 3.4 of the Company Letter pertaining to any notification,
disclosure or required approval triggered by the Merger or by the transactions
contemplated by this Agreement, (iv) such filings as may be required in
connection with the taxes described in Section 5.11, (v) applicable
requirements, if any, of Blue Sky Laws and the NYSE, (vi) as may be required
under foreign laws, (vii) filings with and approvals in respect of the Gaming
Laws, (viii) filings with and approvals of state educational regulatory
authorities, non-governmental accrediting commissions and the U.S. Department of
Education and, if required, with the Federal Communications Commission, (ix)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth in Section 3.4 of the Company Letter,
and (x) such other consents, orders, authorizations, registrations, declarations
and filings the
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failure of which to be obtained or made, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 3.5 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1996 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the
Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles (except, in
the case of the unaudited statements, as permitted by Regulation S-X of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by generally accepted accounting principles, the Company has not,
since December 31, 1996, made any change in the accounting practices or policies
applied in the preparation of its financial statements.
Section 3.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Joint Proxy Statement will (i) in
the case of the Registration Statement, at the time it becomes effective and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) in the case of the Joint
Proxy Statement, at the time of the mailing of the Joint Proxy Statement and at
the time of each of the Stockholder Meetings, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur that is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Parent and the Company. The Joint Proxy Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement since
December 31, 1996, (a) the Company and its Subsidiaries have not sustained any
loss or interference with their business or properties from fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance)
that, individually or in the aggregate, has had, or would reasonably be expected
to have, a Material Adverse Effect on the Company and (b)(i) there has been no
change in the capital stock of the Company (except for the issuance of shares of
the Company Common Stock pursuant to Company Stock Plans) and no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its stock and (ii) there have not been any events, changes or developments that,
individually or in the aggregate, have had or would reasonably be expected to
have a Material Adverse Effect on the Company. The aggregate amount of
indebtedness of the Company and its Subsidiaries as of September 30, 1997, is
set forth in Section 3.7 of the Company Letter.
Section 3.8 Permits and Compliance. Except as set forth in Section 3.8 of
the Company Letter, each of the Company and its Subsidiaries is in possession of
all franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for the Company or any of its Subsidiaries to own, lease and
operate its properties or to carry on its business as it is now being conducted
(the "Company Permits"), except where the failure to have any of the
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Company Permits, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company, and,
as of the date of this Agreement, no suspension or cancellation of any of the
Company Permits is pending or, to the Knowledge of the Company (as hereinafter
defined), threatened, except where the suspension or cancellation of any of the
Company Permits, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company.
Neither the Company nor any of its Subsidiaries is in violation of (A) its
charter, by-laws or other organizational documents, (B) any applicable law,
ordinance, administrative or governmental rule or regulation or (C) any order,
decree or judgment of any Governmental Entity having jurisdiction over the
Company or any of its Subsidiaries, except, in the case of clauses (A), (B) and
(C), for any violations that, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Company. Except as disclosed in the Company SEC Documents filed prior to the
date of this Agreement, as of the date hereof, there is no contract or agreement
that is material to the business, properties, results of operations or financial
condition of the Company and its Subsidiaries, taken as a whole. Except as set
forth in the Company SEC Documents or Section 3.8 of the Company Letter, prior
to the date of this Agreement, no event of default or event that, but for the
giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement, will exist under any indenture, mortgage, loan
agreement, note or other agreement or instrument for borrowed money, any
guarantee of any agreement or instrument for borrowed money or any lease,
license or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any such Subsidiary is bound
or to which any of the properties, assets or operations of the Company or any
such Subsidiary is subject, other than any defaults that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company. For purposes of this Agreement, the term
"Knowledge" when used with respect to the Company means the actual knowledge of
the individuals identified in Section 3.8 of the Company Letter.
Section 3.9 Tax Matters. Except as otherwise set forth in Section 3.9 of
the Company Letter, (i) the Company and each of its Subsidiaries have timely
filed all federal, state, local, foreign and provincial income and Franchise Tax
Returns and all other material Tax Returns required to have been filed or
appropriate extensions therefor have been properly obtained, and such Tax
Returns are true, correct and complete, except to the extent that any failure to
so file or any failure to be true, correct and complete, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect on the Company; (ii) all Taxes required to have been paid by the
Company and each of its Subsidiaries have been timely paid or extensions for
payment have been properly obtained, except to the extent that any failure to
pay any such Taxes or to properly obtain an extension for such payment,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company; (iii) the Company
and each of its Subsidiaries have complied in all material respects with all
rules and regulations relating to the withholding of Taxes except to the extent
that any failure to comply with such rules and regulations, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company; (iv) neither the Company nor any of its
Subsidiaries has waived in writing any statute of limitations in respect of its
federal, state, local, foreign or provincial income or franchise Taxes and no
deficiency with respect to any Taxes has been proposed, asserted or assessed
against the Company or any of its Subsidiaries, except the extent that any such
waiver to deficiency, individually or in the aggregate has not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Company;
(v) all Federal income Tax Returns referred to in clause (i) for all years
through 1989 have been examined by and settled with the Internal Revenue Service
or the period for assessment of the Taxes in respect of which such Tax Returns
were required to be filed has expired; (vi) no material issues that have been
raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently pending;
and (vii) all material deficiencies asserted or material assessments made as a
result of any examination of any Tax Returns referred to in clause (i) by any
taxing authority have been paid in full; (viii) the most recent financial
statements contained in the Company SEC Documents reflect an adequate reserve
for all Taxes payable by the Company and its Subsidiaries for all taxable
periods and portions thereof through the date of such financial statements; and
(ix) there are no
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material liens for Taxes (other than for current Taxes not yet due and payable)
on the assets of the Company or any of its Subsidiaries.
Section 3.10 Actions and Proceedings. Except as set forth in the Company
SEC Documents filed prior to the date of this Agreement, there are no
outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving the Company or any of its Subsidiaries,
or against or involving any of the directors, officers or employees of the
Company or any of its Subsidiaries, as such, any of its or their properties,
assets or business or any Company Plan (as hereinafter defined) that,
individually or in the aggregate, have had, or would reasonably be expected to
have, a Material Adverse Effect on the Company. Except as set forth in Section
3.10 of the Company Letter or in the Company SEC Documents filed prior to the
date hereof, as of the date of this Agreement, there are no actions, suits or
claims or legal, administrative or arbitrative proceedings or investigations
pending or, to the Knowledge of the Company, threatened against or involving the
Company or any of its Subsidiaries or any of its or their directors, officers or
employees as such, or any of its or their properties, assets or business or any
Company Plan that, individually or in the aggregate, have had, or would
reasonably be expected to have, a Material Adverse Effect on the Company. Except
as set forth in Section 3.10 of the Company Letter or in the Company SEC
Documents filed prior to the date hereof, as of the date hereof, there are no
actions, suits, labor disputes or other litigation, legal or administrative
proceedings or governmental investigations pending or, to the Knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of its or their officers, directors or employees, as such, or any of its
or their properties, assets or business relating to the transactions
contemplated by this Agreement.
Section 3.11 Certain Agreements. Except as set forth in the Company SEC
Documents filed prior to the date hereof or as listed on Section 3.11 of the
Company Letter, neither the Company nor any of its Subsidiaries is a party to
any oral or written agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. No holder of any option to purchase shares of Company Common Stock,
or shares of Company Common Stock granted in connection with the performance of
services for the Company or its Subsidiaries, is or will be entitled to receive
cash from the Company or any Subsidiary in lieu of or in exchange for such
option or shares as a result of the transactions contemplated by this Agreement
(subject to Section 5.8).
Section 3.12 ERISA. (a) Section 3.12 (a) of the Company Letter contains a
list of each Company Plan (as hereinafter defined) maintained by the Company and
each material Company Plan maintained by a Subsidiary of the Company. To the
extent applicable, with respect to each Company Plan, the Company has made, or
will as soon as practicable after the date hereof, make available to Parent a
true and correct copy of (i) the most recent annual report (Form 5500) filed
with the IRS, (ii) such Company Plan and all amendments thereto, (iii) each
trust agreement, insurance contract or administration agreement relating to such
Company Plan, (iv) the most recent summary plan description for each Company
Plan for which a summary plan description is required, (v) the most recent
actuarial report or valuation relating to a Company Plan subject to Title IV of
ERISA, (vi) the most recent determination letter, if any, issued by the IRS with
respect to any Company Plan intended to be qualified under Section 401(a) of the
Code, (vii) any request for a determination currently pending before the IRS and
(viii) all correspondence with the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation relating to any outstanding controversy. Except as
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, (i) each Company Plan complies with
ERISA, the Code and all other applicable statutes and governmental rules and
regulations, (ii) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred within the past three years with respect to any Company Plan
which is likely to result in liability to the Company, (iii) neither the Company
nor any of its ERISA Affiliates (as hereinafter defined) has withdrawn from any
Company Multiemployer Plan (as hereinafter defined) at any time within the past
six years or instituted, or is currently considering taking, any action to do
so, and (iv) no action has been taken, or is currently being considered, to
terminate any Company Plan subject to Title IV of ERISA.
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(b) There has been no failure to make any contribution or pay any
amount due to any Company Plan as required by Section 412 of the Code,
Section 302 of ERISA, or the terms of any such Plan, and no Company Plan,
nor any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
(c) With respect to the Company Plans, no event has occurred and, to
the Knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any ERISA Affiliate
would be subject to any liability under the terms of such Company Plans,
ERISA, the Code or any other applicable law which has had, or would
reasonably be expected to have, a Material Adverse Effect on the Company.
Except as listed on Section 3.12(c) of the Company Letter, all Company
Plans that are intended to be qualified under Section 401(a) of the Code
have been determined by the IRS to be so qualified, or a timely application
for such determination is now pending or will be filed on a timely basis
and, except as listed on Section 3.12(c) of the Company Letter, to the
Knowledge of the Company there is no reason why any Company Plan is not so
qualified in operation. Neither the Company nor any of its ERISA Affiliates
has been notified by any Company Multiemployer Plan that such Company
Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Company
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA. Neither the Company nor any of its ERISA Affiliates
has any liability or obligation under any welfare plan to provide life
insurance or medical benefits after termination of employment to any
employee or dependent other than as required by (i) Part 6 of Title I of
ERISA or as disclosed in Section 3.12(c) of the Company Letter or (ii) the
laws of a jurisdiction outside the United States.
(d) As used herein, (i) "Company Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Company Multiemployer
Plan)), a "welfare plan" (as defined in Section 3(1) of ERISA), or any
material bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established or maintained or contributed to by
the Company or any of its ERISA Affiliates or as to which the Company or
any of its ERISA Affiliates or otherwise may have any liability, (ii)
"Company Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which the Company or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may have any
liability, and (iii) with respect to any person, "ERISA Affiliate" means
any trade or business (whether or not incorporated) which is under common
control or would be considered a single employer with such person pursuant
to Section 414(b), (c), (m) or (o) of the Code and the regulations
promulgated under those sections or pursuant to Section 4001(b) of ERISA
and the regulations promulgated thereunder.
(e) Section 3.12(e) of the Company Letter contains a list of each
Company Ex-U.S. Pension Plan and the Company has made, or as soon as
practicable after the date hereof will make, available to Parent a copy of
any written plan document. Except as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company, each such plan has been maintained in all material respects in
compliance with all applicable laws, orders and regulations, and the fair
market value of the assets of each such plan which is intended to be a
funded Company plan or arrangement equals or exceeds the value of the
accrued benefits. "Company Ex-U.S. Pension Plan" shall mean any arrangement
(other than a Company Plan) providing retirement pension benefits that is
established or maintained by the Company or any Subsidiary exclusively for
the benefit of employees who are or were employed outside the United
States.
(f) Section 3.12(f) of the Company Letter contains a list, as of the
date of this Agreement, of all (i) severance and employment agreements with
officers of the Company and each ERISA Affiliate, (ii) severance programs
and formal policies of the Company with or relating to its employees and
(iii) plans, programs, agreements and other arrangements of the Company
with or relating to its employees which contain change of control or
similar provisions, in each case involving a severance or employment
agreement or arrangement with an individual officer or employee, only to
the extent such agreement or arrangement provides for minimum annual
payments in excess of $150,000. The Company
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has provided to the Parent a true and complete copy of each of the
foregoing or will provide such a copy as soon as practical after the date
hereof.
Section 3.13 Compliance with Worker Safety and Environmental Laws. (a)
Except as set forth in Section 3.13 of the Company Letter, the properties,
assets and operations of the Company and its Subsidiaries are in compliance with
all applicable federal, state, local, regional and foreign laws, rules and
regulations, orders, decrees, common law, judgments, permits and licenses
relating to public and worker health and safety (collectively, "Worker Safety
Laws") and the protection, regulation and clean-up of the indoor and outdoor
environment and activities or conditions related thereto, including, without
limitation, those relating to the generation, handling, disposal, transportation
or release of hazardous or toxic materials, substances, wastes, pollutants and
contaminants including, without limitation, asbestos, petroleum, radon and
polychlorinated biphenyls (collectively, "Environmental Laws"), except for any
violations that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company. With
respect to such properties, assets and operations, including any previously
owned, leased or operated properties, assets or operations, there are no past,
present or reasonably anticipated future events, conditions, circumstances,
activities, practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Worker Safety Laws and Environmental Laws, other than
any such interference or prevention that, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Company.
(b) The Company and its Subsidiaries have not caused or permitted any
property, asset, operation, including any previously owned property, asset
or operation, to use, generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer or process hazardous or toxic materials,
substances, wastes, pollutants or contaminants, except in material
compliance with all Environmental Laws and Worker Safety Laws, other than
any such activity that, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Company. The Company and its Subsidiaries have not reported to any
Governmental Entity any material violation of an Environmental Law or any
release, discharge or emission of any hazardous or toxic materials,
substances, wastes, pollutants or contaminants, other than any such
violation, release, discharge or emission that, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company. The Company has no Knowledge of any
pending, threatened or anticipated claims or liabilities under CERCLA, 42
U.S.C. Section 9601 et seq., RCRA, 42 U.S.C. Section 6901 et seq., or
equivalent state law provisions and no Knowledge that any current or former
property, asset or operation is identified or currently proposed for the
National Priorities List at 40 CFR Section 300, Appendix B, or the CERCLIS
or equivalent state lists or hazardous substances release sites.
Section 3.14 Liabilities. Except as set forth in Section 3.14 of the
Company Letter or in the Company SEC Documents filed prior to the date hereof,
the Company and its Subsidiaries have no liabilities, absolute or contingent,
other than liabilities that, individually or in the aggregate, have not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Company.
Section 3.15 Intellectual Property. The Company and its Subsidiaries own or
have the right to use all Intellectual Property Rights as are necessary in
connection with the business of the Company and its Subsidiaries, taken as a
whole, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries has infringed any Intellectual Property Rights of
any third party other than any infringements that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company.
Section 3.16 Rights Agreement. The Company has taken all necessary action
to (i) render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement and (ii) ensure that (y) neither Parent nor any
of its affiliates is an Acquiring Person (as defined in the Rights Agreement)
and (z) a Distribution Date (as defined in the Rights Agreement) does not occur
by reason of the announcement
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or consummation of the Merger or the consummation of any of the other
transactions contemplated by this Agreement.
Section 3.17 Parachute Payments to Disqualified Individuals. The estimated
"excess parachute payments" (as such term is defined in Section 280G(a) of the
Code) payable to all employees of the Company and its Subsidiaries who (i) are
"disqualified individuals" under Section 280G of the Code and (ii) are not
covered in the report prepared by Towers Perrin as of October 18, 1997 and
delivered to the Parent Companies prior to or on the date hereof will not exceed
$5,000,000, assuming for this purpose that no such employee's employment is
terminated in connection with the transactions contemplated under this
Agreement.
Section 3.18 Opinion of Financial Advisor. The Company has received the
written opinion of Lazard Freres & Co. LLC, dated November 12, 1997, to the
effect that, as of November 12, 1997, the consideration to be paid by the Parent
Companies in the Merger is fair to the Company's stockholders from a financial
point of view.
Section 3.19 State Takeover Statutes. The Board of Directors of the Company
has, to the extent such statutes are applicable, taken (or, with respect to
Sections 78.378 to 78.3793 of the NGCL, will take prior to the Effective Time)
all action necessary to exempt the Parent Companies, their respective
Subsidiaries and affiliates, the Merger, this Agreement and the transactions
contemplated hereby from Sections 78.378 to 78.3793 and Sections 78.411 to
78.444 of the NGCL or to satisfy the requirements thereof. To the Knowledge of
the Company, no other state takeover statutes are applicable to the Merger, this
Agreement or the transactions contemplated hereby.
Section 3.20 Required Vote of Company Stockholders. The affirmative vote of
the holders of a majority of the outstanding shares of Company Common Stock is
required to approve this Agreement. No other vote of the stockholders of the
Company is required by law, the Restated Articles of Incorporation, as amended,
or the Amended and Restated By-laws of the Company or otherwise in order for the
Company to consummate the Merger and the transactions contemplated hereby.
Section 3.21 Brokers. No broker, investment banker or other person, other
than Goldman, Sachs & Co., Lazard Freres & Co. LLC and Gleacher NatWest Inc.,
the fees and expenses of which will be paid by the Company (as reflected in
agreements between such firms and the Company, copies of which have been
furnished to Parent), is entitled to any broker's, finder's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. Except
as contemplated by Section 4.5 or as set forth in Section 4.1 of the Company
Letter, during the period from the date of this Agreement to the Effective Time,
the Company shall, and shall cause each of its Subsidiaries to, carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, licensors,
lessors and others having business dealings with it to the end that its goodwill
and ongoing business shall be unimpaired at the Effective Time. Except as
otherwise expressly permitted by this Agreement and as set forth in Section 4.2
of the Company Letter, the Company shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Parent:
(a) except as set forth in Section 4.5, (i) declare, set aside or pay
any dividends on, or make any other actual, constructive or deemed
distributions in respect of, any of its capital stock, or otherwise make
any payments to its stockholders in their capacity as such (other than
dividends and other distributions by direct or indirect wholly owned
Subsidiaries), (ii) other than in the case of any direct or indirect wholly
owned Subsidiary, split, combine or reclassify any of its capital stock or
issue or authorize the issuance of
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any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its Subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(b) except as set forth in Section 4.5, issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of its capital stock, any other
voting securities or equity equivalent or any securities convertible into,
or any rights, warrants or options to acquire any such shares, voting
securities, equity equivalent or convertible securities, other than the
issuance of shares of Company Common Stock (and associated Rights) upon the
exercise of employee stock options pursuant to the Company Stock Plans
outstanding on the date of this Agreement in accordance with their current
terms;
(c) amend its articles or certificate of incorporation or by-laws or
other comparable organizational documents;
(d) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or (ii) any assets that
are, individually or in the aggregate material to the Company and its
Subsidiaries taken as a whole, other than transactions that are in the
ordinary course of business consistent with past practice and not material
to the Company and its Subsidiaries taken as a whole;
(e) except as set forth in Section 4.5, sell, lease, license, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of, or
agree to sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of, any of its assets, other than
transactions that are in the ordinary course of business consistent with
past practice and not material to the Company and its Subsidiaries taken as
a whole;
(f) except as set forth in Section 4.5, incur any indebtedness for
borrowed money, guarantee any such indebtedness, issue or sell any debt
securities or warrants or other rights to acquire any debt securities,
guarantee any debt securities or make any loans, advances or capital
contributions to, or other investments in, any other person, or enter into
any arrangement having the economic effect of any of the foregoing, other
than (i) indebtedness incurred in the ordinary course of business
consistent with past practice and (ii) indebtedness, loans, advances,
capital contributions and investments between the Company and any of its
wholly owned Subsidiaries or between any of such wholly owned Subsidiaries;
(g) alter (through merger, liquidation, reorganization, restructuring
or in any other fashion) the corporate structure or ownership of the
Company or any Subsidiary;
(h) except as required under any collective bargaining agreement or
under Section 5.8, enter into or adopt any new, or amend any existing,
severance plan, agreement or arrangement or enter into any new or amend any
existing Company Plan or employment or consulting agreement, other than as
required by law or as set forth in Section 4.1(h) of the Company Letter,
except that the Company or its Subsidiaries may enter into (a) employment
agreements if such agreements (i) are no longer than one year in duration
and (ii) provide for an annual base salary of less than $150,000, and (b)
consulting agreements in the ordinary course of business that are
terminable on no more than 90 days' notice without penalty, and the Company
or its Subsidiaries may amend any Company Plan or other plan, program,
policy or arrangement if such amendment will result in not more than a de
minimus additional cost to the Company or its Subsidiaries;
(i) except (1) as permitted under Section 4.1(h), (2) as permitted
under Section 5.15 or (3) to the extent required by written employment
agreements existing on the date of this Agreement, increase the
compensation payable or to become payable to its officers or employees,
except for (i) increases in the ordinary course of business consistent with
past practice in salaries or wages of employees of the Company or any of
its Subsidiaries and (ii) except to the extent required under the terms of
any applicable incentive plan, the payment of annual incentive bonuses for
1997 which are not in the
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aggregate in excess of two times the target bonus for 1997 established for
1997 prior to the date of this Agreement;
(j) grant or award any stock options, restricted stock, performance
shares, stock appreciation rights or other equity-based incentive awards,
other than an award which (i) is made to a management employee or
non-employee director who would be eligible to receive such award under the
terms of the Company Stock Plans as applied consistently with past practice
and (ii) is made on terms substantially the same as the terms of awards
previously awarded under such plan;
(k) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken
by generally accepted accounting principles);
(l) except as disclosed in the Company's capital expenditure plan
which has been disclosed to Parent or for maintenance capital expenditures
in the ordinary course of business consistent with past practice, make or
agree to make any new capital expenditure or expenditures which,
individually, is in excess of $5,000,000 or, in the aggregate, are in
excess of $50,000,000;
(m) except as permitted by Section 4.5, pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Company SEC Documents or incurred in the ordinary course of business
consistent with past practice;
(n) settle or compromise any material federal, state, local or foreign
tax liability;
(o) authorize, recommend, propose or announce an intention to do any
of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.2 Conduct of Business by the Parent Companies Pending the
Merger. Except as contemplated by Section 4.5 or as set forth in Section 4.2 of
the Parent Letter, during the period from the date of this Agreement to the
Effective Time, the Parent Companies shall, and shall cause each of their
respective Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
keep available the services of their respective current officers and employees
and preserve their respective relationships with customers, suppliers,
licensors, lessors and others having business dealings with them to the end that
their goodwill and ongoing business shall be unimpaired at the Effective Time.
Except as otherwise expressly permitted by this Agreement and as set forth in
Section 4.2 of the Parent Letter, the Parent Companies shall not, and shall not
permit any of their respective Subsidiaries to, without the prior written
consent of the Company:
(a) except as contemplated by Section 4.5, (i) declare, set aside or
pay any dividends on, or make any other actual, constructive or deemed
distributions in respect of, any of its capital stock, or otherwise make
any payments to its stockholders or shareholders, as applicable, in their
capacity as such (other than (A) dividends in the aggregate amount not to
exceed the greater of (a) the current rate of the Parent Companies
dividends and (b) the Trust's "real estate investment taxable income" (as
such term is defined for purposes of the Code) without regard to any net
capital gains or the deduction for dividends paid (provided that this
Section 4.2(a) shall not be deemed to restrict any increases in the
dividend rate of the Parent Companies in the ordinary course consistent
with past practice) and (B) dividends and other distributions by direct,
indirect or wholly owned Subsidiaries) or (ii) other than in the case of
any Subsidiary, split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for Paired Shares;
(b) in the case of the Parent Companies only, except as set forth in
Section 4.5, amend its articles or certificate of incorporation or
declaration of trust, other than in connection with the respective Charter
Amendments;
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(c) take or omit any action that would reasonably be expected to cause
the Trust to cease to qualify as a "real estate investment trust" for
federal income tax purposes or that would reasonably be expected to cause
the Trust to become subject to Section 269B(a)(3) of the Code; or
(d) authorize, recommend, propose or announce an intention to do any
of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Notwithstanding anything contained herein to the contrary and except as
permitted by Section 4.5(c), neither Trust nor Parent shall declare, set aside
or pay any cash dividend or make any cash distribution or otherwise make any
payments in cash to its stockholders or shareholders, as applicable, having a
record date for the determination of the stockholders or shareholders entitled
to such dividend, distribution or other payment occurring during the period from
and including the first day of the Averaging Period through and including the
fourth trading day after the last day of the Averaging Period.
Section 4.3 No Solicitation. (a) The Company shall not, nor shall it permit
any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant, agent or
other advisor or representative of the Company or any of its Subsidiaries to,
(i) solicit, initiate, or encourage the submission of, any takeover proposal,
(ii) except to the extent permitted by paragraph (b), enter into any agreement
with respect to any takeover proposal or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
takeover proposal; provided, however, that prior to the Company Stockholders'
Meeting (as defined in Section 5.1), to the extent required by the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by a majority of the disinterested members thereof based on the advice of
outside counsel, the Company may, in response to unsolicited requests therefor,
participate in discussions or negotiations with, or furnish information pursuant
to an appropriate confidentiality agreement to, any person. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer, director or employee of or any investment
banker, attorney, accountant, agent or other advisor or representative of the
Company or any of its Subsidiaries, whether or not such person is purporting to
act on behalf of the Company or otherwise, shall be deemed to be a breach of
this paragraph by the Company. For all purposes of this Agreement, "takeover
proposal" means any proposal, other than a proposal by Parent or Trust for a
merger, consolidation, share exchange, business combination or other similar
transaction involving the Company or any of its Significant Subsidiaries or any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of the Company), other than a proposal or offer by Parent or Trust
to acquire in any manner, directly or indirectly, an equity interest in, any
voting securities of, or a substantial portion of the assets of, the Company or
any of its Significant Subsidiaries. The Company immediately shall cease and
cause to be terminated all existing discussions or negotiations with any persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, any takeover proposal. As used herein, a "Significant Subsidiary" means
any Subsidiary that would constitute a "significant subsidiary" within the
meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Parent, Trust or Sub, the approval or recommendation by
the Board of Directors of the Company or any such committee of this
Agreement or the Merger or (ii) approve or recommend, or propose to approve
or recommend, any takeover proposal. Notwithstanding the foregoing, the
Board of Directors of the Company, to the extent required by the fiduciary
obligations thereof, as determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel, may
approve or recommend (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) a superior
proposal. For all purposes of this Agreement, "superior proposal" means a
bona fide written proposal made by a third party to acquire the Company
pursuant to a tender or exchange offer, a merger, a share exchange, a sale
of all or substantially all its assets or otherwise on terms which a
majority of the disinterested members of the Board of Directors of the
Company determines in their good faith judgment (based on the opinion, with
only customary qualifications, of independent financial advisors that the
value of the consideration provided for in such proposal exceeds the value
of the consideration provided for in
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the Merger) to be more favorable to the Company and its stockholders than
the Merger and for which financing, to the extent required, is then fully
committed or which, in the good faith judgment of a majority of such
disinterested members (based on the advice of independent financial
advisors), is reasonably capable of being financed by such third party. If,
to the extent permitted by this Section 4.2(b), the Board of Directors of
the Company approves or recommends a superior proposal, the Company may
take appropriate action to render the Rights inapplicable to such superior
proposal.
(c) The Company shall immediately advise Parent orally and in writing
of any takeover proposal or any inquiry with respect to or which could
reasonably be expected to lead to any takeover proposal, the material terms
and conditions of such takeover proposal or inquiry and the identity of the
person making any such takeover proposal or inquiry. The Company will keep
Parent fully informed of the status and details of any such takeover
proposal or inquiry. The Parent Companies shall waive any applicable
confidentiality provisions to the extent necessary to allow the Company
solely to explain the terms of this transaction to persons making takeover
proposals.
Section 4.4 Third Party Standstill Agreements. Except to the extent
reasonably required in connection with the Company's obligations under Section
4.5(a) and permitted pursuant to that letter agreement dated as of November 6,
1997, among the Company, the Parent Companies and Sub, during the period from
the date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill or similar agreement to which the Company or any of its Subsidiaries
is a party (other than any involving Parent or Trust) unless a majority of the
disinterested members of the Board of Directors of the Company determines in
their good faith judgment based on the advice of outside counsel that failure to
take such action would violate the fiduciary obligations of such Board under
applicable law. Subject to the foregoing, during such period, the Company agrees
to enforce, to the fullest extent permitted under applicable law, the provisions
of any such agreements, including, but not limited to, obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States or any state thereof
having jurisdiction.
Section 4.5 Pre-Merger Transactions.
(a) The Company shall use reasonable efforts to enter into agreements
to sell assets of the Company as agreed from time to time between the
Company and Parent on terms acceptable to the Company and shall permit the
Parent Companies and their financial and legal advisors to participate in
such process; provided, however, that such agreements may provide at the
Company's election that any such sale or disposition shall not be
consummated until after the Effective Time and may provide at the Company's
election that such agreements are terminable by the Company if this
Agreement is terminated for any reason; provided further, however, that
neither the Company nor any of its Subsidiaries shall enter into a
definitive agreement with respect to any such sale without the prior
approval of both Parent Companies and the Board of Directors of the
Company.
(b) The Company shall not implement the Comprehensive Plan (as such
term is defined in the Definitive Proxy Statement on Schedule 14A filed
with the SEC on October 9, 1997 (the "Proxy Statement")), including,
without limitation, consummating the Tender Offers (as such term is defined
in the Proxy Statement); provided, however, that the Company shall be
permitted to pay the Termination Fee and Purchaser's Expenses (each as
defined in the CDRV Investment Agreement) and any other payments pursuant
to the CDRV Investment Agreement.
(c) Prior to the Effective Time, Trust may declare a dividend not to
exceed $1.5 billion, payable to its shareholders of record as of such time
and payable in property other than cash which property may subsequent to
such payment (but in any event not later than one day after the Effective
Time) be acquired by Parent in exchange for shares of Parent's capital
stock, and Parent may acquire all or any portion of such property in such
manner. In connection with the foregoing, the Pairing Agreement dated as of
June 28, 1980 between Parent and Trust may be amended to permit and
facilitate such transactions. In the event that Parent fails to exercise
its right, in whole or in part, to acquire such property prior to the
Effective Time or within one day thereafter, the Exchange Ratio shall be
equitably adjusted. The Parent Companies agree that in effecting
transactions contemplated by this Section 4.5(c), the stockholders of
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the Company shall be treated on a fair and equitable basis (including in
respect of the consideration payable in the Merger).
(d) The Company acknowledges and agrees that, prior to the Effective
Time, the Parent Companies and their Subsidiaries are obligated under the
Westin Transaction Agreement to use all reasonable efforts to consummate
the transactions contemplated thereby, including debt and equity financings
and certain restructurings and share issuances related thereto, the payment
of dividends on such share issuances, increases in stock option and similar
employee benefit plans and the increases in authorized capital of the
Parent Companies, all of which shall be deemed to be consistent with the
Parent Companies' obligations under Section 4.2. The Company and the Parent
Companies further acknowledge and agree that, prior to the Effective Time,
the Parent Companies shall have paid a fee to certain investment banks in
connection with the transactions contemplated by the Westin Transaction
Agreement, and such fee shall have been paid in the type and amount of
consideration previously discussed by and among the parties to this
Agreement.
Section 4.6 Post-Merger Transactions. Promptly after the consummation of
the Merger, the Trust shall dispose of any shares of common stock of the
Surviving Corporation received by the Trust in connection with the Merger.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholders Meetings. The Company, Parent and Trust each
shall, as soon as practicable following the date of this Agreement, duly call,
give notice of, convene and hold, a meeting of its stockholders or shareholders
(respectively, the "Company Stockholder Meeting", the "Parent Stockholder
Meeting", the "Trust Shareholder Meeting" and, collectively, the "Stockholder
Meetings") for the purpose of considering the approval of this Agreement (in the
case of the Company) and the respective Charter Amendments and the Share
Issuances (in the case of Parent and Trust). The Company, Parent and Trust will,
through their respective Boards of Directors or Trustees, as the case may be,
recommend to their respective stockholders or shareholders, as applicable,
approval of such matters and shall not withdraw such recommendation except to
the extent that the Board of Directors of the Company shall have withdrawn or
modified its approval or recommendation of this Agreement of the Merger as
permitted by Section 4.3(b). Without limiting the generality of the foregoing,
the Company agrees that its obligations pursuant to the first sentence of this
Section 5.1 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any takeover proposal. The
Company, Parent and Trust shall coordinate and cooperate with respect to the
timing of such meetings and shall use all reasonable efforts to hold such
meetings on the same day. At the Parent Stockholder Meeting and the Trust
Shareholder Meeting, the Parent Companies shall cause to be submitted to their
respective shareholders or stockholders, as applicable, a proposal to amend
Parent's Articles of Incorporation and Trust's Declaration of Trust to include a
provision substantially similar to ARTICLE NINTH of Restated Articles of
Incorporation, as amended, of the Company.
Section 5.2 Filings; Other Actions. (a) The Company, Parent and Trust shall
promptly prepare and file with the SEC the Joint Proxy Statement and the Parent
Companies shall prepare and file with the SEC the Registration Statement, in
which the Joint Proxy Statement will be included as a prospectus. Each of
Parent, Trust and the Company shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, each of Parent, Trust and
the Company shall mail the Joint Proxy Statement to its respective stockholders
or shareholders. Parent and Trust shall also take any action (other than
qualifying to do business in any jurisdiction in which they are currently not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Paired Shares in the Merger and upon the
exercise of the Substitute Options (as defined in Section 5.8), and the Company
shall furnish all information concerning the Company and the holders of Company
Common Stock as may be reasonably requested in connection with any such action,
including information relating to the number of Paired Shares required to be
registered.
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(b) Each party hereto agrees, subject to applicable laws relating to
the exchange of information, promptly to furnish the other parties hereto
with copies of written communications (and memoranda setting forth the
substance of all oral communications) received by such party, or any of its
subsidiaries, affiliates or associates (as such terms are defined in Rule
12b-2 under the Exchange Act as in effect on the date hereof), from, or
delivered by any of the foregoing to, any Governmental Entity in respect of
the transactions contemplated hereby.
(c) Each of the Company, Parent and Trust will promptly, and in any
event within fifteen business days after execution and delivery of this
Agreement, make all filings or submissions as are required under the HSR
Act. Each of the Company, Parent and Trust will promptly furnish to the
other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submissions
necessary under the HSR Act. Without limiting the generality of the
foregoing, each of the Company, Parent and Trust will promptly notify the
other of the receipt and content of any inquiries or requests for
additional information made by any Governmental Entity in connection
therewith and will promptly (i) comply with any such inquiry or request and
(ii) provide the other with a description of the information provided to
any Governmental Entity with respect to any such inquiry or request. In
addition, each of the Company, Parent and Trust will keep the other
apprised of the status of any such inquiry or request.
Section 5.3 Comfort Letters. (a) The Company shall use all reasonable
efforts to cause to be delivered to Parent "comfort" letters of Arthur Andersen
LLP, the Company's independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to Parent, Trust and the Company, in form and substance reasonably
satisfactory to Parent and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
(b) Parent and Trust shall use all reasonable efforts to cause to be
delivered to the Company "comfort" letters of Coopers & Lybrand L.L.P.,
Parent's and Trust's independent public accountants, dated the date on
which the Registration Statement shall become effective and as of the
Effective Time, and addressed to the Company, Parent and Trust, in form and
substance reasonably satisfactory to the Company and reasonably customary
in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by
this Agreement.
Section 5.4 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to the Parent Companies or to
the Company or any of their Subsidiaries, each of the Parent Companies and
the Company shall, and shall cause each of its Subsidiaries to, afford to
the accountants, counsel, financial advisors and other representatives of
the other party hereto reasonable access to, and permit them to make such
inspections as they may reasonably require of, during normal business hours
during the period from the date of this Agreement through the Effective
Time, all their respective properties, books, Tax Returns, contracts,
commitments and records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of such
independent accountants) and, during such period, each of the Parent
Companies and the Company shall, and shall cause each of its Subsidiaries
to, furnish promptly to the other (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii)
all other information concerning its business, properties and personnel as
the other may reasonably request. Notwithstanding the first sentence of
this Section 5.4, neither the Company nor any of its accountants, counsel,
financial advisors or other representatives shall have access to any
information relating to the matters described in Section 5.4 of the Parent
Letter. Notwithstanding the first sentence of this Section 5.4, neither the
Parent Companies nor any of their respective accountants, counsel,
financial advisors or other representatives shall have access to any
information relating to the matters described in Section 5.4 of the Company
Letter. No investigation pursuant to this Section 5.4 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto. All information
obtained by Parent or the Company pursuant to this Section 5.4 shall be
kept confidential in accordance with the Confidentiality Agreement dated
October 6, 1997 among the Parent Companies and the Company.
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Section 5.5 Compliance with the Securities Act. Within 30 days following
the date of this Agreement, the Company shall cause to be prepared and delivered
to Parent a list (reasonably satisfactory to counsel for Parent) identifying all
persons who, at the time of the Company Stockholder Meeting, in the Company's
reasonable judgment may be deemed to be "affiliates" of the Company as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). The Company shall use all reasonable efforts to cause
each person who is identified as a Rule 145 Affiliate in such list to deliver to
Parent on or prior to the Effective Time a written agreement in substantially
the form of Exhibit 5.5 hereto, executed by such person.
Section 5.6 Stock Exchange Listings. Parent shall use all reasonable
efforts to list on the NYSE, upon official notice of issuance, the Paired Shares
to be issued in connection with the Merger.
Section 5.7 Fees and Expenses. (a) Except as provided in Section 5.7(b) and
(c), whether or not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
including the fees and disbursements of counsel, financial advisors and
accountants, shall be paid by the party incurring such costs and expenses,
except that expenses incurred in connection with printing and mailing the Joint
Proxy Statement and the Registration Statement shall be borne equally by Parent
and the Company.
(b) Provided that none of Parent, Sub or Trust is in material breach
of their representations, warranties and agreements under this Agreement,
(i) if this Agreement is terminated by the Board of Directors of the
Company pursuant to Section 7.1(g), (ii) if this Agreement is terminated by
the Parent Companies pursuant to Section 7.1(b), (iii) if this Agreement is
terminated by the Parent Companies pursuant to Section 7.1(f) or (iv) if
(A) after the date of this Agreement, (x) any person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) shall have made or
indicated an intention to make or amend or modify (whether or not subject
to conditions) a takeover proposal or (y) it shall have been publicly
disclosed or Parent shall have otherwise learned that any person or "group"
has beneficial ownership (determined for the purpose of this paragraph as
set forth in Rule 13d-3 promulgated under the Exchange Act) of more than
15% of the outstanding shares of Company Common Stock or (z) Parent has the
right to terminate this Agreement under Section 7.1(f) because the Board of
Directors of the Company shall or shall resolve to take an action referred
to therein and (B) the stockholders of the Company do not approve the
Merger at the Company Stockholders Meeting called for such purpose pursuant
to Section 5.1 or this Agreement is terminated pursuant to Section 7.1(d)
prior to the Company Stockholders Meeting being held, then the Company
shall pay to Parent $225,000,000 (the "Termination Fee") in same-day funds,
plus (notwithstanding paragraph (a) of this Section 5.7) all the Expenses
(as defined below), on the date of such termination, in the case of clause
(i), (ii) or (iii), or on the date of the Company Stockholders Meeting or
such termination, as the case may be, in the case of clause (iv); provided,
however, that in the event the date of such termination, in the case of
clause (i), (ii), (iii) or (iv), is prior to November 21, 1997, then the
amount of the Termination Fee shall be deemed to be $195,000,000.
(c) If this Agreement is terminated for any reason (other than by the
Company pursuant to Section 7.1(b)), then the Company shall
(notwithstanding paragraph (a) of this Section 5.7), on the date of such
termination, pay to Parent the cash amount necessary to permit Parent fully
to reimburse itself, Sub and Trust and their affiliates for all
out-of-pocket fees and expenses incurred at any time prior to such
termination by any of them or on their behalf in connection with the
Merger, the preparation of this Agreement and the transactions contemplated
by this Agreement (including any currency or interest rate hedging
activities in connection with the transactions contemplated hereby),
including (x) all fees and expenses of counsel, investment banking firms,
financial advisors (regardless of whether such financial advisors are
affiliates of the Parent Companies), accountants, experts and consultants
to Parent, Sub and Trust or any of their affiliates and (y) all fees and
expenses payable to banks, investment banking firms and other financial
institutions and their respective counsel, accountants and agents in
connection with arranging or providing financing) (fees and expenses under
clause (y) collectively, "Financing Fees", and the fees and expenses
contemplated by this paragraph (c), collectively, but subject to the next
succeeding proviso, the "Expenses"); provided, however, that the aggregate
amount of
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Expenses, other than Financing Fees and all fees and expenses of counsel in
connection with any litigation, shall not exceed $25,000,000.
(d) The Company acknowledges that the agreements contained in
paragraphs (b) and (c) of this Section 5.7 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Parent, Sub and Trust would not enter into this
Agreement; accordingly, if the Company fails to pay promptly any amount due
pursuant to this Section 5.7 and, in order to obtain such payment, Parent,
Sub or Trust commences a suit that results in a judgment against the
Company for any such amount, the Company shall pay to Parent, Sub or Trust
its cost and expenses (including attorneys' fees) in connection with such
suit, together with interest on the amount of the fee at the prime or base
rate of Citibank, N.A. from the date such payment was due under this
Agreement.
Section 5.8 Company Stock Options. (a) As of the Effective Time, each
Company Stock Option (and related stock appreciation right ("SAR")) that is
outstanding immediately prior to the Effective Time pursuant to the Company's
stock option plans (other than any "stock purchase plan" within the meaning of
Section 423 of the Code) in effect on the date hereof (the "Stock Plans") shall
be assumed by Parent and become and represent a fully exercisable option (and
related SAR) to purchase the number of Paired Shares (a "Substitute Option")
(decreased to the nearest full share) determined by multiplying (i) the number
of shares of Company Common Stock subject to such Company Stock Option
immediately prior to the Effective Time by (ii) the Exchange Ratio, at an
exercise price per Paired Share (rounded up to the nearest tenth of a cent)
equal to the difference between (A) the exercise price per share of Company
Common Stock immediately prior to the Effective Time divided by the Exchange
Ratio and (B) the amount, if any, payable per share of Company Common Stock
pursuant to Section 1.5(f) divided by the Exchange Ratio. Parent shall pay cash
to holders of Company Stock Options in lieu of issuing fractional Paired Shares
upon the exercise of Substitute Options. As of the Effective Time, each
Substitute Option shall be subject to the same terms and conditions as were
applicable immediately prior to the Effective Time under the related Company
Stock Option and Stock Plan under which it was granted, including those
providing for the accelerated exercisability and other special rights arising
upon an "Acceleration Event" in accordance with the terms of such Stock Plan.
The Company agrees to use all reasonable efforts to obtain any necessary
consents of holders of Company Stock Options and take such other actions as may
be necessary to effect this Section 5.8. The accelerated lapse of restrictions
and other special rights with respect to shares of restricted Company Common
Stock issued under the Stock Plans shall also be preserved following the
Effective Time in accordance with the terms of the Stock Plans.
(b) In respect of each Company Stock Option (and related SAR) as
converted into a Substitute Option pursuant to Section 5.8(a) and assumed
by Parent, and the shares of Parent Common Stock underlying such option,
Parent shall file and keep current a registration statement on Form S-8 (or
a post-effective amendment to a Registration Statement on Form S-8) or
other appropriate form for as long as such options remain outstanding.
(c) The provisions of this Section 5.8 are intended to be for the
benefit of, and shall be enforceable by, each person who is or has been an
employee of the Company or any of its subsidiaries and is a holder of
Employee Stock Options or SARS, and such employee's heirs and personal
representatives and shall be binding on all successors and assigns of the
Parent Companies.
Section 5.9 Reasonable Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, unless, to the extent permitted by
Section 4.3, the Board of Directors of the Company approves or recommends a
superior proposal, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including, but not limited to: (i) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from all Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity (including those in connection
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with the HSR Act, state takeover statutes and Gaming Laws), (ii) the obtaining
of all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
with respect to the Merger or this Agreement vacated or reversed, and (iv) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement.
(b) The Company shall use all reasonable efforts not to take any
action that, in any such case, might reasonably be expected to (i) cause
any of its representations or warranties contained in this Agreement that
is qualified as to materiality to be untrue, (ii) cause any of its
representations or warranties contained in this Agreement that is not so
qualified to be untrue in any material respect, (iii) result in a breach of
any covenant made by it in this Agreement, (iv) result directly or
indirectly in any of the conditions to the Merger set forth in Article VI
not being satisfied or (v) impair the ability of the parties to consummate
the Merger at the earliest practicable time (regardless of whether such
action would otherwise be permitted or not prohibited hereunder).
Section 5.10 Public Announcements. The Parent Companies and the Company
will not issue any press release with respect to the transactions contemplated
by this Agreement or otherwise issue any written public statements with respect
to such transactions without prior consultation with each other party, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange.
Section 5.11 Transfer and Gains Tax. The Parent Companies will pay any
Federal, state, local, foreign or provincial tax which is attributable to the
transfer of the beneficial ownership of the Company's or its Subsidiaries' real
property, if any (collectively, the "Gains Taxes"), any penalties or interest
with respect to the Gains Taxes, payable in connection with the consummation of
the Merger, (except as otherwise provided in Section 1.8) any Federal, state,
local, foreign or provincial tax which is attributable to the transfer of
Company Common Stock or Paired Shares pursuant to the terms of this Agreement
(collectively, "Stock Transfer Taxes") and any penalties or interest with
respect to any such Stock Transfer Taxes. The Company and the Parent Companies
agree to cooperate with the other in the filing of any returns with respect to
the Gains Taxes, including supplying in a timely manner a complete list of all
real property interests held by the Company and its Subsidiaries and any
information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the real
property of the Company and its Subsidiaries shall be agreed to between Parent
and the Company. The stockholders of the Company shall be deemed to have agreed
to be bound by the allocation established pursuant to this Section 5.11 in the
preparation of any return with respect to the Gains Taxes.
Section 5.12 State Takeover Laws. If any "fair price", "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent, Trust and the Company and their respective Boards of Directors or
Trustees, as the case may be, shall use all reasonable efforts to grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and shall otherwise act to minimize the effects of any such
statute or regulation on the transactions contemplated hereby.
Section 5.13 Indemnification; Directors and Officers Insurance. (a) The
Parent Companies agree that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of the Company
and its subsidiaries as provided in their respective articles or certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of the Company shall survive the Merger and shall
continue in full force and effect in accordance with their terms for a period of
not less than six years from the Effective Time and the obligations of the
Company in connection therewith shall be assumed by the Parent Companies. Parent
shall provide, or shall cause the Surviving Corporation to provide, the
Company's current directors and officers an insurance and indemnification policy
(including any fiduciary liability policy) that provides
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coverage with respect to any claims made during the six-year period following
the Effective Time for events occurring prior to the Effective Time (the "D&O
Insurance") that is substantially similar to the Company's existing policies or,
if substantially equivalent insurance coverage is unavailable, the best
available coverage; provided, however, that the Surviving Corporation shall not
be required to pay an annual premium for the D&O Insurance in excess of 150
percent of the last annual premium paid prior to the date hereof (which premium
the Company represents and warrants to be approximately $1.4 million in the
aggregate), but if such annual premium would but for this proviso exceed such
amount, then Parent shall purchase as much coverage as possible for such amount.
(b) The provisions of this Section 5.13 are intended to be for the
benefit of, and shall be enforceable by, each person who is or has been a
director or officer of the Company or a subsidiary of the Company, and such
director's or officer's heirs and personal representatives and shall be
binding on all successors and assigns of the Parent Companies.
Section 5.14 Notification of Certain Matters. The Parent Companies shall
use all reasonable efforts to give prompt notice to the Company, and the Company
shall use all reasonable efforts to give prompt notice to the Parent Companies,
of: (i) the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which it is aware and which would be reasonably likely to cause
(x) any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all material
respects, (ii) any failure of any of the Parent Companies or the Company, as the
case may be, to comply in a timely manner with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder or (iii)
any event, change or development that, individually or in the aggregate, has
had, or would reasonably be expected to have, a Material Adverse Effect on the
Parent Companies or the Company, as the case may be; provided, however, that the
delivery of any notice pursuant to this Section 5.14 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 5.15 Employees. (a) Comparable Benefits. Except as provided in
Section 5.8, for not less than one year following the Effective Time, the Parent
Companies shall maintain, or shall cause the Company and its Subsidiaries to
maintain, compensation and employee benefits plans and arrangements for
employees of the Company and its Subsidiaries ("Affected Employees") that are,
in the aggregate, no less favorable than as provided under the compensation
arrangements and Company Plans as in effect on the date hereof. Without limiting
the generality of the foregoing, for not less than one year following the
Effective Time (or such longer period as may be required under the applicable
Company Plan), the Parent Companies shall provide, or cause the Company and its
Subsidiaries to provide, severance pay and benefits to each Affected Employee as
of the Effective Time that are no less favorable than under the Company Plans
and current practices of the Company as in effect as of the date of this
Agreement. Notwithstanding the foregoing, the Parent Companies shall have the
right (i) following the Effective Time to transfer to one or more employee
benefit plans maintained by the Parent Companies any employee of the Company or
any Subsidiary who becomes an employee of the Parent Companies or any of their
respective Subsidiaries and (ii) in the good faith exercise of it managerial
discretion, to terminate the employment of any employee. Nothing in this
Agreement shall be construed as granting to any employee any rights of
continuing employment.
(b) Honoring Company Plans and Accrued Vacation. Parent Companies
shall, or shall cause the Company to, honor all Company Plans and other
contractual commitments in effect immediately prior to the Effective Time
between the Company or its Subsidiaries and Affected Employees or former
employees of the Company or its Subsidiaries. Without limiting the
generality or the foregoing, Parent Companies shall honor all vacation,
holiday, sickness and personal days accrued by Affected Employees and, to
the extent applicable, former employees of the Company and its Subsidiaries
("Former Employees") as of the Effective Time.
(c) Participation in Benefit Plans. Employees and, to the extent
applicable, Former Employees shall be given credit for all service with the
Company and its Subsidiaries (or service credited by the Company or such
Subsidiaries) under all employee benefit plans and arrangements currently
maintained by the Parent Companies or any of their respective Subsidiaries
in which they are or become participants
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for purposes of eligibility, vesting, level of participant contributions
and benefit accruals (but subject to an offset, if necessary, to avoid
duplication of benefits) to the same extent as if rendered to the Parent
Companies or any of their respective Subsidiaries. The Parent Companies
shall cause to be waived any pre-existing condition limitation under their
welfare plans that might otherwise apply to an Affected Employee or, to the
extent applicable, a Former Employee. The Parent Companies agree to
recognize (or cause to be recognized) the dollar amount of all expenses
incurred by Affected Employees or, to the extent applicable, Former
Employees, during the calendar year in which the Effective Time occurs for
purposes of satisfying the calendar year deductions and co-payment
limitations for such year under the relevant benefit plans of the Parent
Companies and their respective Subsidiaries.
Section 5.16 Rights Agreement. (a) The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section 3.16)
requested in writing by Parent (including redeeming the Rights immediately prior
to the Effective Time of the Merger or amending the Rights Agreement) in order
to render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement. Except as requested in writing by Parent or as
permitted by Section 5.16(b), prior to the Company Stockholders Meeting, the
Board of Directors of the Company shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or, except as specifically permitted by
Section 5.16(b), make any determination under, the Rights Agreement (including a
redemption of the Rights).
(b) If, to the extent permitted by Section 4.3(b), the Board of
Directors of the Company approves or recommends a superior proposal, the
Company may take appropriate action under the Rights Agreement solely in
order to render the Rights inapplicable to such superior proposal;
provided, however, that the foregoing shall not permit the Company to make
any determination under, or take any action with respect to, the Rights
Agreement in order to render the Rights applicable to the Merger or any of
the other transaction contemplated by this Agreement or to redeem the
Rights.
Section 5.17. Regulatory Matters. In connection with subsection (i) of the
first sentence of Section 5.9(a) and without limiting the generality of Section
5.9, the Parent Companies shall, and shall cause their respective subsidiaries
to (and shall use all reasonable efforts to cause their respective affiliates
other than subsidiaries to), if it is necessary to obtain any regulatory
approval for this Agreement or the transactions contemplated hereby,
disassociate themselves from any person or persons deemed, or reasonably likely
to be deemed, unacceptable by a Governmental Entity with authority to administer
Gaming Laws and, in the case of any such person who is a nominee to serve as a
director or trustee of a Parent Company or any subsidiary of a Parent Company,
the Parent Companies shall, and shall cause the relevant subsidiary or
subsidiaries to, replace any such director nominee with a suitable substitute
nominee. In connection with subsection (i) of the first sentence of Section
5.9(a), the Parent Companies agree that they shall use all reasonable efforts to
cause the trust arrangements described in either clause (x) or (y) of Section
6.1(c)(iii) to be in full force and effect and further agree that, if the
requisite approvals are obtained from the New Jersey Casino Control Commission,
they will place shares of Company Common Stock or shares of common stock of the
Surviving Corporation, as applicable, in trust as contemplated by such clauses.
Section 5.18. New Jersey Trust. In connection with the application for
qualification and licensing by the Parent Companies with the New Jersey Casino
Control Commission pursuant to the New Jersey Casino Control Act and the rules
and regulations promulgated thereunder, if requested by the Parent Companies
(for the purpose of permitting the Parent Companies to hold directly (and not in
trust) the shares of Company Common Stock to be acquired pursuant to the Merger
while the Parent Companies' application for qualification and licensing is
pending with the New Jersey Casino Control Commission), the Company shall
execute and deliver a trust agreement prepared by the Parent Companies and
reasonably acceptable to the Company and the New Jersey Casino Control
Commission and complying with the requirements of the New Jersey Casino Control
Act and the rules and regulations promulgated thereunder.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the fulfillment (or waiver by such party) at or prior to the Effective Time of
the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved
by the requisite vote of share holders of the Company in accordance with
applicable law and the Restated Articles of Incorporation, as amended, and
Amended and Restated By-laws of the Company, and the respective Charter
Amendments and Share Issuances shall have been duly approved by the
requisite vote of the stockholders or shareholders, as applicable, of each
of Parent and Trust in accordance with applicable rules of the NYSE,
applicable law and the Articles of Incorporation and By-laws of Parent and
Declaration of Trust and Trust Regulations of the Trust.
(b) Stock Exchange Listings. The Paired Shares issuable in the Merger
and pursuant to the Substitute Options shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(c) HSR and Other Approvals. (i) The waiting period (and any
extension thereof) applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(ii) All consents, approvals, orders or authorizations of or
registrations, declarations or filings with any Governmental Entity,
which the failure to obtain, make or occur would reasonably be expected
to have a Material Adverse Effect on the Company (assuming the Merger
had taken place), shall have been obtained, shall have been made or
shall have occurred, and shall be in full force and effect.
(iii) All consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, (A) any Governmental Entity
with jurisdiction in respect of Gaming Laws (other than New Jersey), (B)
the Federal Communications Commission and (C) state educational
authorities, non-governmental educational accrediting commissions and
the U.S. Department of Education (in the case of this clause (C)
required to be made or obtained prior to consummation of the Merger), in
each case, required or necessary in connection with the Merger and this
Agreement and the transactions contemplated by this Agreement (including
the changes in the composition of the Board of Directors of the Company)
shall have been obtained and shall be in full force and effect, and in
the case of the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, either, at the option of the Parent
Companies, (x) as contemplated by Section 5.17, all shares of the common
stock of Sub shall have been deposited in trust with a trustee qualified
and otherwise acceptable to the New Jersey Casino Control Commission and
the transactions and arrangements contemplated by Section 5.17 shall be
in full force and effect or (y) (1) the New Jersey Casino Control
Commission shall have approved a form of trust agreement in form and
substance reasonably satisfactory to the Parent Companies (including in
respect of control by the Parent Companies of the Company and its
subsidiaries) in respect of a trust arrangement for the shares of
Company Common Stock to be acquired pursuant to the Merger or shares of
the common stock of the Surviving Corporation pending final
qualification of the Parent Companies to hold a casino license under the
New Jersey Casino Control Act and the rules and regulations thereunder,
(2) a trustee qualified and otherwise acceptable to the New Jersey
Casino Control Commission and the Parent Companies in respect of such
trust arrangement for the shares of Company Common Stock to be acquired
pursuant to the Merger or shares of the common stock of the Surviving
Corporation shall have been appointed or designated and (3) the
directors of Sub shall have been qualified on a permanent or temporary
basis to serve as directors of a company (including the Company) that
either directly, or through its subsidiaries, holds a casino license
under the New Jersey Casino Control Act and the rules and regulations
thereunder.
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(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall
have been initiated or, to the Knowledge of the Parent Companies or the
Company, threatened by the SEC. All necessary state securities or blue sky
authorizations shall have been received.
(e) No Order. No court or other Governmental Entity having
jurisdiction over the Company, Parent or Trust, or any of their respective
Subsidiaries, shall (after the date of this Agreement) have enacted,
issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of
making the Merger or any of the transactions contemplated hereby illegal;
provided, however, that each of the parties shall have used all reasonable
efforts to prevent and to appeal as promptly as possible any such law,
rule, regulation, executive order, decree, injunction or other order
(f) Change in Tax Laws. There shall not have been any Federal
legislative or regulatory change that would cause the Trust to cease to
qualify as a "real estate investment trust" for federal income tax purposes
or that would cause the Trust to become subject to Section 269B(a)(3) of
the Code.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment (or waiver by the Company) at or prior to the Effective Time of
the following additional condition:
(a) Performance of Obligations; Representations and Warranties. Each
of Parent, Sub and Trust shall have performed in all material respects each
of its agreements contained in this Agreement required to be performed at
or prior to the Effective Time, each of the representations and warranties
of Parent, Sub and Trust contained in this Agreement that is qualified as
to materiality shall be true and correct at and as of the Effective Time as
if made at and as of such time (other than representations and warranties
which address matters only as of a certain date, which shall be true and
correct as of such certain date) and each of the representations and
warranties that is not so qualified shall be true and correct in all
material respects at and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date, which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by this Agreement, and the Company shall have received
certificates signed on behalf of each of Parent, Sub and Trust by its Chief
Executive Officer and its Chief Financial Officer to such effect.
(b) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or
before any court or governmental authority, agency or tribunal, domestic or
foreign, in each case that has a significant likelihood of success
challenging the acquisition by any of the Parent Companies of any shares of
Company Common Stock, seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement
or seeking to obtain from Parent, Trust or Sub any damages that are
material in relation to the Company, the Parent Companies and their
Subsidiaries taken as a whole.
(c) Tax Opinion. On the Closing Date, the opinion of Sidley & Austin,
counsel to the Parent Companies, shall have been delivered to the Company
in form and substance reasonably satisfactory to the Company stating that
(i) the Trust is a "real estate investment trust" for federal income tax
purposes and the Trust is not subject to Section 269B(a)(3) of the Code by
reason of Section 136(c) of the Deficit Reduction Act of 1984 and (ii)
consummation of the transactions contemplated by this Agreement will not
cause the Trust to cease to qualify as a "real estate investment trust" for
federal income tax purposes and will not cause the Trust to become subject
to Section 269B(a)(3) of the Code. In rendering such opinion, such counsel
shall be entitled to rely upon customary representations reasonably
requested by such counsel and made by the Parent Companies.
Section 6.3 Conditions to Obligations of Parent, Sub and Trust to Effect
the Merger. The obligations of Parent, Sub and Trust to effect the Merger shall
be subject to the fulfillment (or waiver by the Parent Companies) at or prior to
the Effective Time of the following additional conditions:
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(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed at or prior
to the Effective Time, each of the representations and warranties of the
Company contained in this Agreement that is qualified as to materiality
shall be true and correct at and as of the Effective Time as if made at and
as of such time (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct as of
such certain date) and each of the representations and warranties that is
not so qualified shall be true and correct in all material respects at and
as of the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and the Parent Companies shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(b) Consents Under Agreements. Except for the consents listed in
Section 6.3(b) of the Company Letter, the Company shall have obtained the
consent or approval of each person that is not a Governmental Entity whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, hotel management agreement or other agreement or
instrument, except as to which the failure to obtain such consents and
approvals, individually or in the aggregate, would not be expected, in the
reasonable opinion of the Parent Companies, to have a Material Adverse
Effect on the Company or upon the consummation of the transactions
contemplated in this Agreement.
(c) Letters from Company Affiliates. Parent shall have received from
each person named in the letter referred to in Section 5.5 an executed copy
of an agreement substantially in the form of Exhibit 5.5 hereto.
(d) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or
before any court or governmental authority, agency or tribunal, domestic or
foreign, in each case that has a significant likelihood of success (i)
challenging the acquisition by any of the Parent Companies of any shares of
Company Common Stock, seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement
or seeking to obtain from the Company any damages that are material in
relation to the Company, the Parent Companies and their Subsidiaries taken
as a whole, (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective Subsidiaries of any material
portion of the combined business or assets of the Company, Parent, Trust
and their respective Subsidiaries, or to compel the Company, Parent, Trust
and their respective subsidiaries to dispose of or hold separate any
material portion of the combined business or assets of the Company, Parent,
the Trust and their respective Subsidiaries, as a result of the Merger or
any of the other transactions contemplated by this Agreement, (iii) seeking
to impose limitations on the ability of Parent, the Trust or Sub to acquire
or hold, or exercise full rights of ownership of, any shares of Company
Common Stock, including, without limitation, the right to vote any Company
Common Stock purchased by it on all matters properly presented to the
shareholders of the Company, (iv) seeking to prohibit Parent, the Trust or
any of their respective Subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its
Subsidiaries or (v) which otherwise would reasonably be expected to have a
Material Adverse Effect on the Company.
(e) Rights Agreement. The Rights shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of the Rights
Agreement.
37
<PAGE> 161
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of any matters presented
in connection with the Merger by the stockholders or shareholders, as
applicable, of the Company or of the Parent Companies:
(a) by mutual written consent of the Parent Companies and the Company;
(b) by either the Parent Companies or the Company if there has been a
material breach of the representations, warranties, covenants and
agreements on the part of the other set forth in this Agreement, which
breach has not been cured within ten business days following receipt by the
breaching party of notice of such breach from the nonbreaching party;
(c) by either the Parent Companies or the Company if any permanent
order, decree, ruling or other action of a court or other competent
authority restraining, enjoining or otherwise preventing the consummation
of the Merger shall have become final and non-appealable;
(d) by either the Parent Companies or the Company if the Merger shall
not have been consummated before December 31, 1998, unless the failure to
consummate the Merger is the result of a material breach of this Agreement
by the party seeking to terminate this Agreement; provided, however, that
the passage of such period shall be tolled for any part thereof during
which any party shall be subject to a nonfinal order, decree, ruling or
other action restraining, enjoining or otherwise preventing the
consummation of Merger;
(e) by either the Parent Companies or (if the Company has paid to
Parent an amount in cash equal to the sum of the Termination Fee plus all
Expenses if required by Section 5.7 (b) and (c)) the Board of Directors of
the Company if any required approval of the Merger by the stockholders of
the Company shall not have been obtained by reason of the failure to obtain
the required vote upon a vote held at a duly held meeting of such
stockholders or at any adjournment thereof;
(f) by the Parent Companies if the Board of Directors of the Company
shall or shall resolve to (i) not recommend, or withdraw its approval or
recommendation of, the Merger, this Agreement or any of the transactions
contemplated hereby (other than transactions contemplated by Section
4.5(a)), (ii) modify such approval or recommendation in a manner adverse to
Parent, Sub or Trust or (iii) approve or recommend a superior proposal
pursuant to Section 4.3(b);
(g) by the Board of Directors of the Company if (i) (x) to the extent
permitted by Section 4.3(b), the Board of Directors of the Company approves
or recommends a superior proposal or (y) nominees of Hilton Hotels
Corporation are elected as a majority of the members of the Board of
Directors of the Company at the Company's 1997 annual meeting of
stockholders and (ii) the Company has paid to Parent an amount in cash
equal to the sum of the Termination Fee plus all Expenses as provided by
Section 5.7(b); or
(h) by either the Parent Companies or the Board of Directors of the
Company if the approval of the Charter Amendments and the Share Issuances
by the shareholders of Trust or the stockholders of Parent shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of such shareholders or stockholders, as
the case may be, or at any adjournment thereof.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either the Parent Companies or the Company, as provided in Section
7.1, this Agreement shall forthwith become void and there shall be no liability
hereunder on the part of the Company, Parent, Trust, Sub or their respective
officers or directors (except for the last sentence of Section 5.4 and the
entirety of Sections 2.14, 3.21, 5.7 and 5.16, this Section 7.2 and Article
VIII, which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any liability
for any willful breach of a representation or warranty contained in this
Agreement or the breach of any covenant contained in this Agreement.
38
<PAGE> 162
Section 7.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors or
Trustees, as the case may be, at any time before or after approval of the
matters presented in connection with the Merger by the respective stockholders
or shareholders of Parent, Trust and the Company, but, after any such approval,
no amendment shall be made which by law requires further approval by such
stockholders or shareholders without such further approval. This Agreement may
not be amended except by an instrument in writing duly executed by each of the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing duly executed by such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to a nationally recognized overnight courier or when telecopied
(with a confirmatory copy sent by such overnight courier) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent, Sub or Trust, to
Starwood Lodging Corporation
Starwood Lodging Trust
c/o Starwood Capital Group
3 Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Barry Sternlicht
Chief Executive Officer
Facsimile No.: (203) 861-2101
with copies to:
Sherwin L. Samuels
Sidley & Austin
555 W. Fifth Street
Los Angeles, California 90013
Facsimile No.: (213) 896-6600
Scott M. Freeman
Sidley & Austin
875 Third Avenue
New York, New York 10022
Facsimile No.: (212) 906-2021
39
<PAGE> 163
(b) if to the Company, to
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019
Attention: Rand V. Araskog
Chairman and Chief
Executive
with a copy to:
Philip A. Gelston
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile No.: (212) 474-3700
Section 8.3 Interpretation. When a reference is made in this Agreement to a
Section or Article, such reference shall be to a Section or Article of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrase "the date
hereof" in this Agreement means the date of the Original Merger Agreement and
this Agreement shall be deemed to have been entered into as of the date of the
Original Merger Agreement.
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
except as provided in the last sentence of Section 5.4 and the first sentence of
Section 4.4, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral (including the Original
Merger Agreement), among the parties with respect to the subject matter hereof.
This Agreement, except for the provisions of Section 5.8 and Section 5.13, is
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
Section 8.6 Governing Law. Except to the extent that the laws of the State
of Nevada are mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent, Trust or to any direct or indirect wholly owned Subsidiary
of Parent or Trust, but no such assignment shall relieve Sub of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
40
<PAGE> 164
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
Section 8.10 Trust. The name "Starwood Trust" is the designation of Trust
and its Trustees (as Trustees but not personally) under a Declaration of Trust
dated August 25, 1969 as amended and restated, and all persons dealing with
Trust must look solely to Trust's property for the enforcement of any claims
against Trust, as the Trustees, officers, agents and security holders of Trust
assume no personal obligations of Trust, and their respective properties shall
not be subject to claims of any person relating to such obligation.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
STARWOOD LODGING CORPORATION
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Authorized Signatory
CHESS ACQUISITION CORP.
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Authorized Signatory
STARWOOD LODGING TRUST
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Chairman and Chief Executive
Officer
ITT CORPORATION
By: /s/ RAND V. ARASKOG
------------------------------------
Name: Rand V. Araskog
Title: Chairman and Chief Executive
41
<PAGE> 165
ANNEX B
[BEAR STEARNS LETTERHEAD]
November 12, 1997
Board of Trustees
Starwood Lodging Trust
2331 East Camelback Road
Suite 410
Phoenix, Arizona 85016
Board of Directors
Starwood Lodging Corporation
2331 East Camelback Road
Suite 400
Phoenix, Arizona 85016
Gentlemen:
We understand that Starwood Lodging Trust ("SLT") and Starwood Lodging
Corporation ("SLC" and, collectively, "Starwood") and ITT Corporation ("Hotel")
intend to enter into an Amended and Restated Agreement and Plan of Merger to be
dated as of November 12, 1997 (the "Merger Agreement"), pursuant to which a
newly formed subsidiary of SLC will be merged with and into Hotel and each
outstanding share of common stock, no par value, of Hotel (the "Hotel Shares"),
other than shares to be cancelled pursuant to the terms of the Merger Agreement,
will be converted into the right to receive, at the holder's election, $85 in
cash or shares of common stock, par value $.01 per share, of SLC paired with
trust shares, par value $.01 per share, of SLT (as so paired, the "Paired
Shares"), with a value of $85, together with any interest provided in the Merger
Agreement, subject to certain collar provisions; provided that the aggregate
number of Hotel Shares to be converted into the right to receive cash shall not
exceed 30% nor be less than 18% of the total number of Hotel Shares outstanding
immediately prior to the time of the Merger (the "Merger Consideration"), all in
accordance with the terms and conditions of the Merger Agreement.
You have asked us to render our opinion as to whether the Merger
Consideration is fair, from a financial point of view, to Starwood.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed each of SLT's, SLC's and Hotel's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the years ended December
31, 1994 through 1996, and their respective Quarterly Reports on Form 10-Q
for the periods ended March 31, 1997 and June 30, 1997;
3. reviewed certain operating and financial information, including
projections and projected cost savings and synergies, provided to us by
Starwood's and Hotel's respective managements relating to their respective
businesses and prospects;
4. met with certain members of Starwood's and Hotel's senior
management to discuss the operations, historical financial statements and
future prospects of Starwood and Hotel and their view of the business,
operational and strategic benefits, cost savings, potential synergies and
other implications of the Merger;
5. reviewed the historical stock prices and trading activity of the
Paired Shares and the Hotel Shares;
<PAGE> 166
6. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Starwood and Hotel or otherwise relevant to our inquiry;
7. reviewed the terms, to the extent publicly available, of recent
mergers and acquisitions which we deemed generally comparable to the Merger
or otherwise relevant to our inquiry; and
8. considered such other information and conducted such other studies,
analyses, inquiries and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Starwood and Hotel. With respect to
Starwood's and Hotel's projected financial results (including projected
divestitures, cost savings and synergies resulting from, and contemplated tax
and accounting effects of the Merger and related transactions), we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Starwood and
Hotel as to the expected future performance of Starwood and Hotel, respectively.
We have not assumed any responsibility for the information provided to us and we
have further relied upon the assurances of the managements of Starwood and Hotel
that they are unaware of any facts that would make the information provided to
us incomplete or misleading. We have also assumed with your consent that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement. In arriving at our opinion, we have not performed any independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Starwood or Hotel and we have not been furnished with any such evaluation or
appraisal.
Our opinion is necessarily based on economic, market and other conditions,
and the information made available to us, as they exist and can be evaluated as
of the date hereof. Our opinion as expressed below does not imply any conclusion
as to the likely trading range of the Paired Shares either prior to or
subsequent to the consummation of the Merger, which may vary depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion as expressed below does not
address Starwood's underlying business decision to effect the Merger or the
treatment of SLC and SLT in the Merger, and is not a recommendation to Starwood
directors or shareholders as to whether to approve or vote for the Merger.
We have acted as financial advisor to Starwood in connection with the
Merger and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the Merger. We have
previously rendered certain investment banking and financial advisory services
to Starwood and Hotel for which we received customary compensation. In the
ordinary course of our business, we may actively trade the securities of
Starwood or Hotel for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of
the Boards of Starwood and is not to be used for any other purpose, or
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, without our prior written consent; provided, however, that this letter may
be included in its entirety in any joint proxy statement/prospectus to be
distributed to the holders of Paired Shares in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to Starwood.
Very truly yours,
BEAR, STEARNS & CO. INC.
BY: /s/ ANTHONY J. MAGRO
------------------------------------
Managing Director
<PAGE> 167
Annex C-1
[LAZARD FRERES & CO. LLC LETTERHEAD]
October 19, 1997
The Board of Directors
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019
Dear Members of the Board:
We understand that Starwood Lodging Corporation ("Starwood Lodging"), Chess
Acquisition Corp., a wholly-owned subsidiary of Starwood Lodging ("Merger Sub"),
Starwood Lodging Trust, a real estate investment trust ("Starwood Trust" and,
together with Starwood Lodging, the "Starwood Companies"), and ITT Corporation
(the "Company") have entered into an Agreement and Plan of Merger, dated as of
October 19, 1997 (the "Agreement"), pursuant to which Merger Sub will merge with
and into the Company (the "Merger"). Pursuant to the Agreement, upon
consummation of the Merger, each issued and outstanding share of common stock,
no par value, of the Company (other than shares held in the treasury of the
Company or owned by the Company or any direct or indirect wholly-owned
subsidiary of the Company or the Starwood Companies) will be converted into the
right to receive $15.00 in cash and $67.00 in value of Paired Shares, subject to
possible adjustment as set forth in the Agreement (the "Consideration"). For
purposes hereof, "Paired Shares" refers to shares of common stock, par value
$0.01 per share, of Starwood Lodging when paired with shares of common stock,
par value $0.01 per share, of Starwood Trust.
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Company common stock of the Consideration. In
connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company and the Starwood Companies;
(iii)Reviewed various financial forecasts and other data provided to us by
the Company and the Starwood Companies relating to their respective
businesses and the benefits projected by the Starwood Companies to be
realized in connection with the Merger;
(iv) Participated in discussions with members of the senior management of
the Company and the Starwood Companies with respect to the business
and prospects of the Company and the Starwood Companies, the strategic
objectives of each and the possible benefits which might be realized
following the Merger;
(v) Reviewed public information with respect to certain other companies in
lines of business we believe to be generally comparable to those of
the Company and the Starwood Companies;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be generally
comparable to those of the Company and the Starwood Companies;
<PAGE> 168
[LAZARD FRERES & CO. LLC]
(vii) Reviewed the historical stock prices and trading volumes of the
Company common stock and the Paired Shares;
(viii) Held discussions with your attorneys concerning legal, structural
and tax aspects of the Merger; and
(ix) Conducted such other financial studies, analyses and investigations as
we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information. With respect to financial forecasts, including
therein the synergies and tax savings projected to be realized from the Merger,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management of the Company
and the Starwood Companies as to the future financial performance of the Company
and the Starwood Companies, respectively, and that the synergies and tax savings
projected to be realized from the Merger are realized substantially in
accordance with such projections, both as to the financial effect and timing
thereof. We assume no responsibility for and express no view as to such
forecasts or the assumptions on which they are based.
In arriving at our opinion, we have not performed any independent
evaluations or appraisals of the assets or liabilities of the Company or the
Starwood Companies or their respective subsidiaries or trusts, as the case may
be, nor have we been furnished with any such evaluations or appraisals. In
rendering our opinion herein, we have not solicited, and have not been requested
to solicit, any third party acquisition interest in the Company. In addition, we
are not expressing any opinion as to the price or range of prices at which the
Paired Shares may trade subsequent to the announcement of the execution of the
Agreement or the consummation of the Merger. Our opinion is directed only to the
fairness, from a financial point of view, of the Consideration to be received by
the holders of Company common stock in the Merger pursuant to the Agreement and
does not address the business judgement of the Company's Board of Directors in
entering into the Agreement.
Further, our opinion is necessarily based on economics, monetary, market,
legislative and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and that obtaining the necessary
regulatory approvals for the Merger will not have a material adverse effect on
the Company, the Starwood Companies or the trading of Paired Shares.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services regardless of whether the Merger
is consummated. In addition, we have from time to time in the past provided, and
we are currently providing, in matters unrelated to the Merger, investment
banking services to the Company for which we have received, or expect to
receive, customary fees. As you know, a managing director of our firm is a
member of the Company's Board of Directors.
Our engagement and the opinion expressed herein are for the benefit of the
Board of Directors of the Company and our opinion is rendered in connection with
its consideration of the Merger. This opinion is not intended to and does not
constitute a recommendation to any shareholder of the Company as to whether such
holder should vote to approve the Merger and the transactions contemplated by
the Agreement or vote for the Company's nominees for the Board of Directors of
the Company at the Company's 1997 annual meeting of shareholders. It is
understood that, except for inclusion of this letter in its entirety in a proxy
statement from the Company to its shareholders, this letter may not be disclosed
or otherwise referred to without our prior written consent, except as may
otherwise be required by law or by a court of competent jurisdiction.
<PAGE> 169
[LAZARD FRERES & CO. LLC]
Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration is fair to the holders of Company common
stock from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ GERALD ROSENFELD
--------------------------------------
Managing Director
<PAGE> 170
[LAZARD FRERES & CO. LLC]
ANNEX C-2
LAZARD SUPERIORITY OPINION
TO COME
<PAGE> 171
[GLEACHER NATWEST, INC. LETTERHEAD]
ANNEX C-3
November 16, 1997
Special Committee of the Board of Directors
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019
Gentlemen:
This letter will confirm our oral opinion delivered to you on November 12,
1997 (the "Opinion Date"), as to (i) the fairness to the stockholders of ITT
(the "Stockholders") from a financial point of view, as of the Opinion Date, of
the Starwood Transaction Consideration (as defined below) and (ii) the
relationship from a financial point of view, as of the Opinion Date, of the
Starwood Transaction Consideration to the Hilton Transaction Consideration (as
defined below).
We understand that, as set forth in the Amended and Restated Agreement and
Plan of Merger (the "Amended Starwood Merger Agreement"), dated as of November
12, 1997, among Starwood Lodging Corporation ("Starwood Corporation"), Chess
Acquisition Corp., Starwood Lodging Trust ("Starwood Trust" and, collectively
with Starwood Corporation, "Starwood") and ITT Corporation ("ITT"), Starwood has
amended its proposal (the "Amended Starwood Proposal") to acquire ITT through a
merger (the "Starwood Merger") of Chess Acquisition Corp. with and into ITT.
Pursuant to the Amended Starwood Merger Agreement, each share of the Common
Stock of ITT (such shares, together with the associated rights to purchase
shares of Series A Participating Cumulative Preferred Stock, the "Common Stock")
(other than shares of Common Stock held in the treasury of ITT and shares of
Common Stock owned by Starwood or Chess Acquisition Corp.) will be cancelled and
converted into (x) the right to receive, at the election of each Stockholder or
any of their respective wholly-owned subsidiaries, either (i) $85.00 per share
of Common Stock, without interest (except as specified in clause (y) below)
(together with the interest, if any payable pursuant to clause (y) below, the
"Starwood Cash Consideration"), or (ii) the right to receive Paired Shares at
the Exchange Ratio (as defined below) (together with the interest, if any
payable pursuant to clause (y) below, the "Paired Share Consideration") and (y)
if (but only if) the closing of the Starwood Merger occurs after January 31,
1998, cash in an amount per share of Common Stock equal to (i) $85.00 multiplied
by (ii) 7% per annum accrued from and including January 31, 1998, to but
excluding the date of the closing of the Starwood Merger (without compounding)
(the aggregate consideration payable to the Stockholders pursuant to the
Starwood Merger is referred to as the "Starwood Transaction Consideration"). As
used in connection with the Amended Starwood Proposal, the "Exchange Ratio"
means a number equal to the quotient, rounded to the nearest thousandth, or if
there shall not be a nearest thousandth, the next higher thousandth, of (x)
$85.00 divided by (y) the Market Price (as defined below) of the paired shares
of common stock, par value $0.01 per share, of Starwood Corporation
("Corporation Shares"), and shares of beneficial interest, par value $0.01 per
share, of Starwood Trust ("Trust Shares" and, when paired with Corporation
Shares, "Paired Shares") on the fifth New York Stock Exchange, Inc. ("NYSE")
trading day prior to the date of the meeting of the Stockholders to be convened
to approve the Amended Starwood Merger Agreement; provided, however, that in no
event shall the Exchange Ratio be (A) greater than an amount equal to $85.00
divided by $53.263 or (B) less than an amount equal to $85.00 divided by
$61.263. As used in
[GLEACHER NATWEST INC. LETTERHEAD ADDRESS LINE]
<PAGE> 172
Special Committee of the Board of Directors
November 16, 1997
Page 2
connection with the Amended Starwood Proposal, the "Market Price" of a Paired
Share on any date means the average of the Average Prices (as defined below) for
the twenty NYSE trading days (the "Averaging Period") randomly selected by a
neutral independent accounting firm appointed by mutual agreement of Starwood
Trust and ITT from the thirty consecutive NYSE trading days immediately
preceding such date. The "Average Price" for any date means the average of the
daily high and low prices per Paired Share as reported on the NYSE Composite
Transactions reporting system (as published in The Wall Street Journal or, if
not published therein, in another authoritative source mutually selected by ITT
and Starwood Corporation). We also understand that the aggregate number of
shares of Common Stock to be converted in the Starwood Merger into the right to
receive cash shall not (x) exceed 30% or (y) be less than 18%, in either case of
all shares of Common Stock issued and outstanding immediately prior to the
effective time of the Starwood Merger, subject to the proration provisions of
the Amended Starwood Merger Agreement.
We further understand that, as set forth in Amendment No. 36 to the Tender
Offer Statement on Schedule 14D-1 filed by Hilton Hotels Corporation ("Hilton")
and HLT Corporation with the Securities and Exchange Commission (the
"Commission") on November 3, 1997 (the "Hilton Tender Offer Statement"), Hilton
has amended its proposal (the "Amended Hilton Proposal") to acquire ITT by
amending the terms of the cash tender offer (the "Hilton Offer") that Hilton
commenced on January 31, 1997, and the terms of the consideration payable to the
Stockholders in the Hilton Second-Step Merger (as defined below). Under the
Amended Hilton Proposal, (i) Hilton is offering in the Hilton Offer to purchase
up to 65,000,000 shares of Common Stock, representing approximately 55% of the
issued and outstanding shares of Common Stock, at a purchase price of $80.00 per
share of Common Stock in cash, and (ii) following completion of the Hilton
Offer, in accordance with the form of Agreement and Plan of Merger among ITT,
Hilton and HLT Corporation (the "Form Hilton Merger Agreement") that is attached
as an exhibit to the Hilton Tender Offer Statement, HLT Corporation would be
merged with and into ITT in a proposed second-step merger (the "Hilton
Second-Step Merger" and, collectively with the Hilton Offer, the "Hilton
Two-Step Transaction"), and each share of Common Stock not purchased in the
Hilton Offer (other than shares held in the treasury of ITT or owned by Hilton,
HLT Corporation or another direct or indirect wholly-owned subsidiary of Hilton)
will be converted into (x) two shares of the common stock, par value $2.50 per
share, of Hilton ("Hilton Common Stock") and (y) unless the volume-weighted
average of the prices per share of Hilton Common Stock for all trades reported
on the NYSE (or such other exchange on which shares of Hilton Common Stock are
then listed) during the twenty business days immediately preceding the last
business day before the effective time of the Hilton Second-Step Merger is equal
to or greater than $40.00, two shares of Contingent Value Preferred Stock (the
"CVP Shares") issued by the surviving corporation in the Hilton Second-Step
Merger on the terms set forth on Annex I to the Hilton Tender Offer Statement
(the aggregate consideration payable to the Stockholders pursuant to the Hilton
Offer set forth in clause (i) above and the aggregate consideration payable to
the Stockholders pursuant to the Hilton Second-Step Merger set forth in
subclauses (x) and (y) of clause (ii) is collectively referred to as the "Hilton
Transaction Consideration"). Upon the redemption of the CVP Shares, each CVP
Share will entitle the holder (a "CVP Holder") to receive the amount, if any, by
which $40.00 exceeds the per share stock price of the Hilton Common Stock
measured, as described below, during a Valuation Period (as defined below)
ending immediately prior to the first anniversary of the effective time of the
Hilton Second-Step Merger, subject to a maximum amount of $12.00 per CVP Share
(the "Maximum Redemption Amount"). The CVP Shares will be redeemed for this
amount on the first anniversary of the effective time of the Hilton Second-Step
Merger, unless earlier redeemed in accordance with their proposed terms.
We understand that the Hilton Offer provides that the per share stock price
of the Hilton Common Stock for purposes of determining whether the CVP Shares
will be issued will be measured by taking the volume-weighted average of the
prices per share of Hilton Common Stock for all trades reported on the NYSE (or
such other exchange on which shares of Hilton Common Stock are then listed) of
shares of Hilton Common Stock on twenty trading days in the Valuation Period,
which twenty trading days will be randomly chosen on
<PAGE> 173
Special Committee of the Board of Directors
November 16, 1997
Page 3
the first business day following the end of the Valuation Period by the public
accounting firm then serving as the auditor of Hilton's financial statements.
The "Valuation Period" means the 45 trading day period immediately preceding
(but not including) the first anniversary of the effective time of the Hilton
Second-Step Merger. We further understand that any amount to be paid to holders
of CVP Shares upon redemption of the CVP Shares may be paid in cash, in the
equivalent value of registered Hilton Common Stock, or in any combination
thereof, except amounts payable upon redemption for $0.001 per CVP Share (the
"Minimum Redemption Amount") will be paid in cash. The CVP Shares will be
redeemed for the Minimum Redemption Amount if (i) the Current Market Value
equals or exceeds $40.00, calculated as described above, or (ii) the
volume-weighted average of the prices per share of Hilton Common Stock for all
trades reported on the NYSE (or such other exchange on which shares of Common
Stock are then listed) during any twenty consecutive trading day period prior to
the first anniversary of the effective time of the Hilton Second-Step Merger
equals or exceeds $40.00 per share.
For the purposes of the opinion set forth herein, we have:
1. analyzed the historical publicly filed financial statements of ITT,
Starwood Corporation, Starwood Trust and Hilton;
2. analyzed the Starwood Merger and the Two-Step Hilton Transaction;
3. reviewed the Amended Starwood Merger Agreement, the Form Hilton Merger
Agreement and the Hilton Tender Offer Statement;
4. reviewed the historical market prices and reported trading activity of
the Common Stock, the Paired Shares, and Hilton Common Stock;
5. compared the financial performance of Starwood with, and reviewed the
historical market prices and reported trading activity of the common
shares of, publicly traded Real Estate Investment Trusts whose
operating characteristics and ownership structure resemble those of
Starwood;
6. reviewed public information with respect to the financial performances
of certain other companies in lines of business we believe to be
comparable to the businesses of ITT, Starwood and Hilton and reviewed
the historical market prices and reported trading activity of such
companies;
7. reviewed the financial terms of certain business combinations involving
companies in lines of business which we believe to be comparable to the
businesses of ITT, Starwood and Hilton;
8. reviewed selected financial analyses and other presentation materials
as prepared by ITT's financial advisors, Lazard Freres & Co. LLC and
Goldman, Sachs & Co. (including certain estimated financial results of
ITT contained therein for the fiscal years ending on December 31, 1997
and 1998); and
9. performed such other analyses as we have deemed appropriate.
We have assumed and relied upon, without assuming responsibility for
independent verification, the accuracy and completeness of the information
reviewed by us for purposes of this opinion. With respect to the estimated
financial results and other financial analyses and materials reviewed by us, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the senior management of ITT as
to the future financial performance of ITT. We have also assumed, based upon the
information which has been provided to us and without assuming responsibility
for independent verification thereof, that no material undisclosed or contingent
liability exists with respect to Starwood or ITT. Other than the estimated
financial results of ITT referred to in numbered clause 8 above, Gleacher
NatWest has reviewed no financial projections of ITT or Starwood. We have not
solicited, and were not asked to solicit, any third party acquisition interests
in ITT. In addition, we do not express any view as to the price or range of
<PAGE> 174
Special Committee of the Board of Directors
November 16, 1997
Page 4
prices at which the Paired Shares or the Hilton Common Stock or the CVP Shares
would trade subsequent to the consummation of the Merger or the Two-Step Hilton
Transaction, as the case may be. We were not requested to, and our opinion does
not, address the business judgment of the ITT Board of Directors or of the
Special Committee in entering into the Amended Starwood Merger Agreement or
recommending the Starwood Merger. Our opinion is based necessarily on the
economic, market, and other conditions as in effect on, and the information made
available to us as of, the Opinion Date.
In rendering our opinion, we have assumed that the Starwood Merger will be
consummated on the terms described in the Amended Starwood Merger Agreement and
that the Two-Step Hilton Transaction would be consummated on the terms described
in the Hilton Tender Offer Statement, in each case without waiver or variation
of any material terms or conditions. In rendering our opinion we have also
assumed that obtaining all necessary approvals and consents including, but not
limited to, regulatory approvals, would not have a material adverse effect, in
the case of the Starwood Merger, on ITT, Starwood or the value and trading price
of the Paired Shares and, in the case of the Two-Step Hilton Transaction, on
ITT, Hilton or the value and trading price of the Hilton Common Stock or the CVP
Shares. Finally, we have assumed the absence of any material change in the tax
laws of the United States, any state or any political subdivision thereof, or
any regulations promulgated thereunder, and the absence of any material change
in the laws and regulations affecting the gaming or lodging industries in the
United States, any state or any political subdivision thereof.
The Special Committee acknowledges that the opinion and any advice or
materials provided by Gleacher NatWest in connection with its engagement
hereunder is intended for the benefit and use of the Special Committee and the
Board of Directors of ITT in considering the transaction to which the opinion,
advice or materials relate and the Special Committee agrees that, except for
references to this opinion and our engagement in the Amended Starwood Merger
Agreement and references to this Opinion and our engagement in and the
attachment of this Opinion to, the joint Proxy Statement/Prospectus to be
prepared in connection with the Starwood Merger, no such opinion, advice or
material shall be used for any other purpose or be reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor shall
any public references to Gleacher NatWest be made by or on behalf of ITT, in
each case without Gleacher NatWest's prior written consent.
Based upon and subject to the foregoing and other such factors as we deemed
relevant, we are of the opinion that, as of the Opinion Date, (i) the Starwood
Transaction Consideration is fair to the Stockholders from a financial point of
view; and (ii) the Starwood Transaction Consideration is superior to the Hilton
Transaction Consideration from a financial point of view.
Very truly yours,
GLEACHER NATWEST INC.
/s/ ERIC J. GLEACHER
--------------------------------------
Eric J. Gleacher
Chairman and Chief Executive Officer
<PAGE> 175
ANNEX D
PROPOSED AMENDMENT TO CORPORATION ARTICLES
ARTICLE NINETEENTH
In order to enable the Corporation and any Subsidiary (as hereinafter
defined) to secure and maintain in good standing all licenses, franchises and
other regulatory approvals issued by Gaming Authorities (as hereinafter defined)
which are necessary for the lawful operation of gaming and related businesses
now or hereafter engaged in by the Corporation or any Subsidiary within or
without the United States of America, which licenses, franchises or other
regulatory approvals are conditioned upon some or all of the holders of the
Corporation's stock possessing prescribed qualifications (the "Gaming
Licenses"), and in order to insure that the business of the Corporation and its
Subsidiaries will be carried on in compliance with the laws and regulations
governing the conduct of gaming and related businesses (the "Gaming Laws"), the
following provisions are made and shall apply for so long as the Corporation is
subject to Gaming Laws:
(a) Securities (as hereinafter defined) of the Corporation shall be
subject to redemption by the Corporation, pursuant to Section 78.196 of the
Nevada Revised Statutes or any other applicable provision of law, to the
extent necessary to prevent the loss or to secure the reinstatement of any
Gaming License held by the Corporation or any Subsidiary.
(b) Securities of the Corporation shall be held subject to the
condition that if a holder thereof is found by a Gaming Authority to be
disqualified or unsuitable pursuant to any Gaming Law (a "Disqualified
Holder"), such holder shall dispose of all of the Corporation's Securities
held by such holder within the 120 day period (the "Disposition Period")
commencing on the date (the "Notice Date") upon which the Corporation shall
have received notice from a Gaming Authority of such holder's
disqualification or unsuitability (the "Disqualification Notice"). Promptly
following its receipt of a Disqualification Notice, the Corporation shall
cause such Disqualification Notice to be delivered to the Disqualified
Holder named therein by personal delivery, by mailing it to the address
shown on the Corporation's books and records or through the use of any
other reasonable means. Failure of the Corporation to provide such
Disqualification Notice to a Disqualified Holder after making reasonable
efforts to do so shall not preclude the Corporation from exercising its
rights.
(c) If any Disqualified Holder fails to dispose of the Corporation's
Securities within the Disposition Period, the Corporation may redeem such
Securities at the lesser of (1) the lowest closing sale price of such
Securities on any trading day during the Disposition Period or (2) such
Disqualified Holder's original purchase price; provided, that if the
Securities to be so redeemed are paired with securities of SLT (the
Securities of the Corporation and the securities of SLT when so paired
being herein referred to as "Paired Securities") pursuant to the Pairing
Agreement, dated as of June 25, 1980, as amended, between SLT and the
Corporation, the Corporation and SLT may redeem such Paired Securities for
an aggregate amount equal to the lesser of (1) the lowest closing sale
price of such Paired Securities on any trading day during the Disposition
Period or (2) such Disqualified Holder's original purchase price for such
Paired Securities.
(d) Commencing on the Notice Date, it shall be unlawful for a
Disqualified Holder to:
(1) receive payments of dividends or interest upon any Securities
of the Corporation held by such Disqualified Holder,
(2) exercise, directly or indirectly, any right conferred by the
Corporation's Securities upon the holders thereof, or
(3) receive any remuneration in any form, for services rendered or
otherwise, from the Subsidiary of the Corporation that holds a Gaming
License.
(e) The Board of Directors shall have the power to determine, on the
basis of information known to the Board after reasonable inquiry, all
questions arising under this Article NINETEENTH including,
<PAGE> 176
without limitation, (1) whether a person is a Disqualified Holder, (2)
whether a Disqualified Holder has disposed of Securities pursuant to
Paragraph (b) of this Article NINETEENTH and (3) the amount of Securities
held directly or indirectly by any person. Any such determination shall be
binding and conclusive on all such persons.
(f) The Corporation shall be entitled to injunctive relief in any
court of competent jurisdiction to enforce the provisions of this Article
NINETEENTH, and each holder of Securities of the Corporation will be deemed
to have acknowledged by acquiring or retaining Securities of the
Corporation that failure to comply with this Article NINETEENTH will expose
the Corporation to irreparable injury for which there is not adequate
remedy at law and that the Corporation is entitled to injunctive relief to
enforce the provisions of this Article NINETEENTH.
(g) A Disqualified Holder shall indemnify the Corporation and its
Subsidiaries for any and all direct or indirect costs (including attorney's
fees) incurred by the Corporation as a result of such holder's continuing
ownership of or failure to divest the Securities.
(h) The following definitions shall apply with respect to this Article
NINETEENTH:
(1) The term "Gaming Authorities" includes all governmental
authorities within or without the United States of America which issue
or grant any license, franchise or regulatory approval necessary or
appropriate for the lawful operation of gaming and related businesses.
With respect to the State of Nevada, the term "Gaming Authorities" shall
include, without limitation, the Nevada Gaming Commission, the Nevada
State Gaming Control Board or their respective successors; and with
respect to Atlantic City, New Jersey, the term "Gaming Authorities"
shall include, without limitation, the New Jersey Casino Control
Commission, the Division of Gaming Enforcement or their respective
successors.
(2) The term "Securities" means any instrument evidencing a direct
or indirect beneficial ownership or creditor interest in the
Corporation, including but not limited to, Common Stock, Preferred
Stock, bonds, mortgages, debentures, security agreements, notes,
warrants, options and rights.
(3) The term "Subsidiary" (A) in matters relating to Gaming Laws of
the State of New Jersey, shall have the definition set forth in the New
Jersey Statutes Annotated 5:12-47 or (B) in matters relating to Gaming
Laws outside of the State of New Jersey, means (i) a corporation, more
than 50% of the outstanding voting securities of which the Corporation
or a Subsidiary of the Corporation owns or has the power to vote or (ii)
a firm, association, partnership, limited liability company, trust or
other form of business organization, not a natural person, of which the
Corporation or a Subsidiary of the Corporation owns or has the power to
vote a majority interest.
2
<PAGE> 177
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS, TRUSTEES AND
OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Corporation contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
The Maryland REIT Law permits a Maryland REIT to include in its declaration
of trust a provision limiting the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Trust Declaration contains such a
provision which eliminates such liability to the fullest extent permitted by the
Maryland law for acts or omissions after June 6, 1988.
The Corporation Articles and the Trust Declaration provide that the
Corporation and the Trust, respectively, shall indemnify, to the fullest extent
permitted by law, all persons who may be indemnified pursuant to the MGCL and
Maryland REIT Law, respectively. The MGCL requires a corporation or a Maryland
REIT (unless its charter or declaration provides otherwise, which the
Corporation Articles and the Trust Declaration do not) to indemnify a director,
trustee or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation or Maryland REIT to indemnify
its present and former directors, trustees and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director, trustee or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director, trustee or officer actually received an improper personal benefit in
money, property or services or (c) in the case of any criminal proceeding, the
director, trustee or officer had reasonable cause to believe that the act or
omission was unlawful. However, under the MGCL, a Maryland corporation or a
Maryland REIT may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or the Maryland REIT or for a judgment of liability on
the basis that personal benefit was improperly received, unless in either case a
court orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation or a Maryland REIT to advance reasonable expenses to a
director, trustee or officer upon the receipt by the corporation or the Maryland
REIT of (a) a written affirmation by the director, trustee or officer of his
good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation or the Maryland
REIT if it shall ultimately be determined that the standard of conduct was not
met.
The Trust Declaration provides that no Trustee, officer or agent of the
Trust shall be liable or held to any personal liability whatsoever for an
obligation or contract of the Trust. In addition, the Trust Declaration provides
that the provisions of the MGCL which set forth the standard of care required of
directors of corporations organized under the laws of the State of Maryland, and
all other statutory or decisional law which sets forth the standard of care
required of officers, employees and agents for corporations organized under the
laws of the State of Maryland, shall be fully applicable to the Trust, and to
the Trustees, officers, employees and agents of the Trust, as if the Trust were
a corporation organized under the laws of the State of Maryland and its
Trustees, officers, employees and agents were, respectively, directors,
officers, employees and agents of such corporation. Notwithstanding the
foregoing, the Trust Declaration provides that to the fullest extent permitted
by Maryland statutory or decisional law, no Trustee or officer of the Trust
shall be liable to the Trust or its stockholders for money damages arising out
of acts or omissions occurring on or after June 6, 1988;
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<PAGE> 178
provided, however, that such provision shall not limit the liability of the
Trustees or officers to the Trust or its shareholders (i) to the extent that is
proved that such person actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit in money,
property or services actually received, or (ii) to the extent that a judgment or
final adjudication adverse to such person is entered in a proceeding based on a
finding in the proceeding that such person's action, or failure to act, was the
result of active and deliberate dishonesty which was material to the cause of
action adjudicated in the proceeding.
Starwood Lodging has entered into indemnification agreements with its
directors, trustees and executive officers providing for the maintenance of
directors, trustees and officers liability insurance, subject to certain
conditions, and the indemnification of and advancement of expenses to such
directors, trustees and executive officers.
ITEM 21. EXHIBITS.
(a) Exhibits. The following is a list of Exhibits included as part of this
Registration Statement. Items marked with an asterisk are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of October 19, 1997 among ITT Corporation,
Starwood Lodging Corporation, Starwood Lodging Trust and Chess Acquisition Corp.
(included as Annex A to the Joint Proxy Statement/Prospectus). Schedules to the
Agreement and Plan of Merger are omitted pursuant to Item 601(b)(2) of Regulation
S-K. Starwood Lodging hereby agrees to furnish copies of such Schedules to the
Commission upon request.
4.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as
amended (incorporated by reference to Exhibit 3A to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated January 31, 1995 (the "January
1995 Form 8-K")).
4.2 Amendment and Restatement of Articles of Incorporation of the Corporation, as
amended (incorporated by referenced to Exhibit 3B to the January 1995 Form 8-K).
4.3 Trustees' Regulations of the Trust, as amended (incorporated by referenced to
Exhibit 3.3 to the Trust's and the Corporation's Joint Annual Report on Form 10-K
for the year ended December 31, 1994 (the "1994 Form 10-K")).
4.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to
the 1994 Form 10-K).
4.5 Form of Indenture for Debt Securities (incorporated by reference to Exhibit 4.1 to
the Trust's and the Corporation's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on October 3, 1996 (Registration Nos. 333-13411
and 333-13411-01) (the "1996 Form S-3").
4.6 Form of Indenture for Convertible Notes (incorporated by reference to Exhibit 4.2 to
the 1996 Form S-3).
4.7 Form of Convertible Notes (included in Exhibit 4.6).
5.1++ Opinion of Sidley & Austin.
5.2++ Opinion of Ballard Spahr Andrews & Ingersoll.
8.1++ Opinion of Sidley & Austin as to certain United States federal income tax
consequences.
8.2++ Opinion of Cravath, Swaine & Moore as to certain United States federal income tax
consequences.
23.1** Consent of Coopers & Lybrand L.L.P.
23.2++ Consent of Deloitte & Touche LLP.
23.3++ Consent of Price Waterhouse LLP.
23.4++ Consent of Arthur Andersen LLP.
</TABLE>
II-2
<PAGE> 179
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
23.5++ Consent of Lazard Freres & Co. LLC.
23.6 Consent of Bear Stearns & Co. Inc. (included in Annex B to the Joint Proxy
Statement/ Prospectus).
23.7 Consent of Sidley & Austin (included in Exhibits 5.1. and 8.1).
23.8 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.2).
23.9 Consent of Cravath, Swaine & Moore (included in Exhibit 8.2).
24 Powers of Attorney (contained in signature pages hereto).
99.1++ Form of proxy card to be mailed to holders of Paired Shares.
99.2++ Form of proxy card to be mailed to holders of ITT Common Stock.
99.3++ Form of Form of Election and Transmittal Letter.
</TABLE>
- ---------------
++ To be filed by amendment.
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules.
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are incorporated by reference herein.
(c) Reports, Opinions or Appraisals.
The opinions of Bear, Stearns & Co. Inc., the two opinions of Lazard Freres
& Co. LLC and the opinion of Gleacher NatWest Inc. are included as Annexes B,
C-1, C-2 and C-3, respectively, to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
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<PAGE> 180
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrants pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(c) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(e) The Registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(g) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Phoenix, State of Arizona, on the 20th day of November, 1997.
STARWOOD LODGING TRUST
By: /s/ RONALD C. BROWN
------------------------------------
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman, Chief Executive November 20, 1997
- ------------------------------------------ Officer and Trustee
Barry S. Sternlicht (Principal Executive
Officer)
/s/ GARY M. MENDELL President and Trustee November 20, 1997
- ------------------------------------------
Gary M. Mendell
/s/ RONALD C. BROWN Senior Vice President November 20, 1997
- ------------------------------------------ (Principal Financial and
Ronald C. Brown Accounting Officer)
* Senior Vice President November 20, 1997
- ------------------------------------------ and Trustee
Steven R. Goldman
* Trustee November 20, 1997
- ------------------------------------------
Bruce W. Duncan
* Trustee November 20, 1997
- ------------------------------------------
Madison F. Grose
* Trustee November 20, 1997
- ------------------------------------------
Roger S. Pratt
</TABLE>
II-5
<PAGE> 182
<TABLE>
<C> <S> <C>
* Trustee November 20, 1997
- ------------------------------------------
Stephen R. Quazzo
* Trustee November 20, 1997
- ------------------------------------------
Daniel H. Stern
*By: /s/ RONALD C. BROWN
- ------------------------------------------
Ronald C. Brown
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 183
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Phoenix, State of Arizona, on the 20th day of November, 1997.
STARWOOD LODGING CORPORATION
By: /s/ ERIC A. DANZIGER
------------------------------------
Eric A. Danziger
President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman of the Board November 20, 1997
- ------------------------------------------ and Director
Barry S. Sternlicht
/s/ ERIC A. DANZIGER President and Chief Executive November 20, 1997
- ------------------------------------------ Officer (Principal Executive
Eric A. Danziger Officer)
/s/ ALAN M. SCHNAID Vice President and Corporate November 20, 1997
- ------------------------------------------ Controller (Principal
Alan M. Schnaid Financial and Accounting
Officer)
* Director November 20, 1997
- ------------------------------------------
Jonathan D. Eilian
* Director November 20, 1997
- ------------------------------------------
Bruce M. Ford
* Director November 20, 1997
- ------------------------------------------
Graeme W. Henderson
* Director November 20, 1997
- ------------------------------------------
Earle F. Jones
* Director November 20, 1997
- ------------------------------------------
Michael A. Leven
</TABLE>
II-7
<PAGE> 184
<TABLE>
<C> <S> <C>
* Director November 20, 1997
- ------------------------------------------
Jean Marc-Chapus
* Director November 20, 1997
- ------------------------------------------
Daniel W. Yih
*By: /s/ ALAN M. SCHNAID
- ------------------------------------------
Alan M. Schnaid
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 185
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
2.1 Agreement and Plan of Merger dated as of October 19, 1997 among ITT Corporation,
Starwood Lodging Corporation, Starwood Lodging Trust and Chess Acquisition Corp.
(included as Annex A to the Joint Proxy Statement/Prospectus). Schedules to the
Agreement and Plan of Merger are omitted pursuant to Item 601(b)(2) of Regulation
S-K. Starwood Lodging hereby agrees to furnish copies of such Schedules to the
Commission upon request.
4.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as
amended (incorporated by reference to Exhibit 3A to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated January 31, 1995 (the "January
1995 Form 8-K")).
4.2 Amendment and Restatement of Articles of Incorporation of the Corporation, as
amended (incorporated by referenced to Exhibit 3B to the January 1995 Form 8-K).
4.3 Trustees' Regulations of the Trust, as amended (incorporated by referenced to
Exhibit 3.3 to the Trust's and the Corporation's Joint Annual Report on Form 10-K
for the year ended December 31, 1994 (the "1994 Form 10-K")).
4.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to
the 1994 Form 10-K).
4.5 Form of Indenture for Debt Securities (incorporated by reference to Exhibit 4.1 to
the Trust's and the Corporation's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on October 3, 1996 (Registration Nos. 333-13411
and 333-13411-01) (the "1996 Form S-3").
4.6 Form of Indenture for Convertible Notes (incorporated by reference to Exhibit 4.2 to
the 1996 Form S-3).
4.7 Form of Convertible Notes (included in Exhibit 4.6).
5.1++ Opinion of Sidley & Austin.
5.2++ Opinion of Ballard Spahr Andrews & Ingersoll.
8.1++ Opinion of Sidley & Austin as to certain United States federal income tax
consequences.
8.2++ Opinion of Cravath, Swaine & Moore as to certain United States federal income tax
consequences.
23.1** Consent of Coopers & Lybrand L.L.P.
23.2++ Consent of Deloitte & Touche LLP.
23.3++ Consent of Price Waterhouse LLP.
23.4++ Consent of Arthur Andersen LLP.
23.5++ Consent of Lazard Freres & Co. LLC.
23.6 Consent of Bear, Stearns & Co. Inc. (included in Annex B to the Joint Proxy
Statement/ Prospectus).
23.7 Consent of Sidley & Austin (included in Exhibits 5.1. and 8.1).
23.8 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.2).
23.9 Consent of Cravath, Swaine & Moore (included in Exhibit 8.2).
24 Powers of Attorney (contained in signature pages hereto).
99.1++ Form of proxy card to be mailed to holders of Paired Shares.
99.2++ Form of proxy card to be mailed to holders of ITT Common Stock.
99.3++ Form of Form of Election and Transmittal Letter.
</TABLE>
- ---------------
++ To be filed by amendment.
* Filed herewith.
** Previously filed.
