<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997
REGISTRATION NOS. AND
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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.
SIDLEY & AUSTIN
555 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90013
(213) 896-6000
</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..................... 159,738,217(1) N.A. $7,146,428,127(2) $2,165,601
==============================================================================================================================
</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 ITT Common Stock (as defined herein).
(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 $4.2813, the average of the high and low prices of ITT
Common Stock on October 28, 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 $15 per share in cash to be
paid by Starwood Lodging Trust and Starwood Lodging Corporation pursuant to
the Merger.
------------------------
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
, 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 , 1998, at
. Attendance at the ITT Meeting will be limited to
stockholders of record on , 1998, 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 Agreement and Plan of Merger dated as of October 19, 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 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") having a value of
$67, subject to certain collar provisions, and $15 in cash.
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 ,
1998, 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.
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
, 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 Agreement and Plan of Merger, dated as of
October 19, 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 to increase the number of authorized Trust Shares;
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 shares of common stock, par value
$.01 per share, of the Corporation ("Corporation Shares") and Trust Shares (the
Trust Shares, when paired with the Corporation Shares, referred to as the
"Paired Shares"), having a value of $67, subject to certain collar provisions,
and $15 in cash.
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
, 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
, 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
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 Agreement and Plan of Merger, dated
as of October 19, 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 Articles of
Incorporation of the Corporation to increase the number of authorized
Corporation Shares; 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 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"), having a value of
$67, subject to certain collar provisions, and $15 in cash.
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
, 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
, 1997
Phoenix, Arizona
<PAGE> 5
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.
[STARWOOD LODGING LOGO]
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 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 , 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 , 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 ("Paired Shares").
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 Agreement and Plan of Merger, dated as of October 19, 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") and the Articles of Incorporation of the
Corporation (the "Corporation Articles") to increase the number of authorized
Trust Shares (the "Trust Amendment") and Corporation Shares (the "Corporation
Amendment"), respectively.
The ITT Meeting has been called to consider and vote upon a proposal to
approve 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 Paired Shares having a value of $67, subject to the collar provision
described herein, and $15 in cash.
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 are
first being mailed to shareholders of the Trust and stockholders of the
Corporation and ITT on or about , 1997.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1997.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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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..................................................................... 9
The Merger.......................................................................... 10
Starwood Recent Developments........................................................ 16
ITT Corporation Summary Selected Financial Data..................................... 18
Starwood Lodging Summary Selected Financial Data.................................... 19
Comparative Per Share Data.......................................................... 21
THE MEETINGS.......................................................................... 22
Date, Place and Time................................................................ 22
Matters to be Considered............................................................ 22
Voting Rights....................................................................... 22
Proxies............................................................................. 23
Solicitation of Proxies............................................................. 24
THE MERGER............................................................................ 25
General............................................................................. 25
Background of the Merger............................................................ 25
Recommendation of the Starwood Lodging Boards; Reasons for the Merger............... 27
Recommendation of the ITT Board; Reasons for the Merger............................. 28
Opinion of Financial Advisor to Starwood Lodging.................................... 29
Opinion of Financial Advisor to ITT................................................. 31
Interests of Certain Persons in the Merger.......................................... 35
Amendment to Pairing Agreement...................................................... 37
Accounting Treatment................................................................ 37
Regulatory Approvals................................................................ 37
Votes Required for Approval......................................................... 43
No Dissenter's Rights............................................................... 43
Federal Securities Laws Consequences; Stock Transfer Restriction Agreements......... 43
THE MERGER AGREEMENT.................................................................. 44
General............................................................................. 44
Effective Time...................................................................... 44
Conversion of Shares; Procedures for Exchange of Certificates....................... 44
Dividends; Transfer Taxes; Withholding.............................................. 45
No Fractional Securities............................................................ 46
ITT Stock Options................................................................... 46
Representation on Starwood Lodging Boards........................................... 47
Representations and Warranties...................................................... 47
Business of ITT Pending the Merger.................................................. 48
Business of Starwood Lodging Pending the Merger..................................... 49
Acquisition Proposals............................................................... 50
Certain Transactions................................................................ 51
Indemnification; Directors and Officers Insurance................................... 52
Certain Employee Matters............................................................ 52
</TABLE>
2
<PAGE> 7
<TABLE>
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<S> <C>
Certain Gaming Regulatory Matters................................................... 53
Conditions to the Consummation of the Merger........................................ 53
Termination......................................................................... 56
Certain Fees and Expenses........................................................... 57
Amendment and Waivers............................................................... 58
SPECIAL DISTRIBUTION PROPOSAL......................................................... 58
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 59
AMENDMENTS TO DECLARATION OF TRUST OF THE TRUST AND ARTICLES OF INCORPORATION OF THE
CORPORATION......................................................................... 74
Votes Required for Approval......................................................... 77
MANAGEMENT OF THE STARWOOD COMPANIES.................................................. 77
Trust Board......................................................................... 77
Corporation Board................................................................... 77
OWNERSHIP OF PAIRED SHARES............................................................ 78
OWNERSHIP OF ITT COMMON STOCK......................................................... 81
Certain Beneficial Owners........................................................... 81
Directors and Officers.............................................................. 82
PRICE RANGES OF PAIRED SHARES; DISTRIBUTIONS.......................................... 83
Market Information.................................................................. 83
Distributions Made/Declared......................................................... 83
PRICE RANGE OF SHARES OF ITT COMMON STOCK............................................. 84
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ITT AND STOCKHOLDERS AND SHAREHOLDERS OF
STARWOOD LODGING.................................................................... 84
General............................................................................. 84
Special Meetings of Stockholders.................................................... 85
Stockholder Action by Written Consent............................................... 85
Stockholder Nominations and Proposals for Business.................................. 85
Certain Extraordinary Corporate Transactions........................................ 86
Limitation on Ownership of Capital Stock............................................ 87
Business Combinations Involving Interested Stockholders............................. 87
Control Share Acquisitions.......................................................... 88
Removal of Directors or Trustees.................................................... 89
Consideration of Other Constituencies............................................... 90
Personal Liability of Directors, Officers and Trustees.............................. 90
Indemnification of Officers, Directors and Trustees................................. 91
Amendments to Governing Documents................................................... 91
Rights and Warrant Plan............................................................. 92
Appraisal and Dissenters' Rights.................................................... 92
DESCRIPTION OF STARWOOD CAPITAL STOCK................................................. 93
General............................................................................. 93
Preemptive Rights................................................................... 93
Preferred Shares.................................................................... 93
Paired Shares....................................................................... 94
The Pairing Agreement............................................................... 94
Maryland Takeover Legislation....................................................... 100
Ownership Limits; Restrictions on Transfer; Repurchase and Redemption of Shares..... 101
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 102
LEGAL MATTERS......................................................................... 103
</TABLE>
3
<PAGE> 8
<TABLE>
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<S> <C>
EXPERTS............................................................................... 103
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETINGS........................................ 104
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
Annexes:
Annex A -- The Merger Agreement
Annex B -- Opinion of Bear, Stearns & Co. Inc.
Annex C -- Opinion of Lazard Freres & Co. LLC
</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.
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 ITT Common Stock." 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.
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 and October 21, 1997 (as amended by
the Form 8-K/A dated October 29, 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 Report on Form 8-K dated October 21, 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,
SUITE 400
PHOENIX, ARIZONA 85016
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
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).
7
<PAGE> 12
CHESS ACQUISITION CORP.
C/O STARWOOD LODGING
CORPORATION
2231 E. CAMELBACK ROAD, SUITE
410
PHOENIX, ARIZONA 85016
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 , 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 and
the Corporation Articles to increase the
number of authorized shares of beneficial
interest of the Trust and shares of capital
stock of the Corporation, respectively; 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 , (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 , (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 --
Recommendation of the Starwood Boards; Reasons
for the Merger."
8
<PAGE> 13
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
Declaration of Trust of the Trust and Articles
of Incorporation of the Corporation."
OPINION OF FINANCIAL ADVISOR
TO STARWOOD LODGING At the October 19, 1997 meeting of the Starwood
Lodging Boards, Bear Stearns & Co. Inc. ("Bear
Stearns") delivered its oral opinion
(subsequently confirmed in writing) to the
effect that, based upon and subject to the
various considerations set forth in such
opinion, as of the date of such opinion, 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.
THE ITT MEETING
DATE, TIME AND PLACE The ITT Meeting is to be held on , 1998
at .m., local time, at .
9
<PAGE> 14
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 , 1998
(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, a copy of which
is attached hereto as Exhibit C, that, 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 the stockholders of ITT
from a financial point of view. See "The
Merger -- Opinion of Financial Advisor to ITT."
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.
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 Each share 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 to be canceled in accordance with
the provisions of the Merger Agreement)
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 (a) a number of validly
issued, fully paid and nonassessable Paired
Shares equal to the quotient, rounded to the
nearest thousandth, or if there shall not be a
nearest thousandth, the next higher thousandth,
of (x) $67.00 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,
10
<PAGE> 15
however, that in no event shall the Exchange
Ratio be (A) greater than 1.258 or (B) less
than 1.094, plus (b) $15 in cash, without
interest. The "Market Price" of a Paired Share
on any date means the average of the daily
closing 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) for the 20 consecutive
NYSE trading days immediately preceding such
date. See "The Merger Agreement -- Conversion
of Shares; Procedure for Exchange of
Certificates."
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 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
11
<PAGE> 16
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 stockholders 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) (x) the ITT Board
approves or recommends a superior proposal or
(y) nominees of Hilton Hotels Corporation
("Hilton") are elected as a majority of the
members of the ITT Board at ITT's 1997 annual
meeting of stockholders; 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."
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<PAGE> 17
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
terminated 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 Merger Agreement, (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") in same-day funds, plus 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;
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 limited to $195 million.
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 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
13
<PAGE> 18
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,
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.
Pursuant to the Merger Agreement, ITT has the
right to nominate three individuals as members
of the Corporation Board and one individual as
a member of the Trust Board. Mr. Araskog is
expected to be one of the four nominees and ITT
has not yet identified the other three nominees
to the Starwood Lodging Boards. Directors,
officers and employees of ITT also 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."
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 will
recognize gain or loss in 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 ITT Com-
14
<PAGE> 19
mon Stock exchanged 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 or the Corporation as a
result of the Merger or the Special
Distribution. The Special Distribution should
be taxed to a shareholder of the Trust as
follows: first, as a dividend to the extent of
the allocable portion of the Trust's earnings
and profits; second, as a return of capital to
the extent of such shareholder's adjusted basis
in his or her Trust Shares; and thereafter, as
gain from the sale or exchange of Trust Shares.
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 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. See "The
Merger -- Accounting Treatment."
SURRENDER OF STOCK
CERTIFICATES Starwood Lodging has authorized Bankers Trust
Company to act as Exchange Agent under the
Merger Agreement (the "Exchange Agent"). As
soon as practicable after the Effective Time,
the Exchange Agent will send a transmittal
letter to each ITT stockholder. The transmittal
letter will contain instructions with respect
to the surrender of certificates representing
ITT Common Stock to be exchanged for Paired
Shares and cash. See "The Merger -- Conversion
of Shares; Procedure for Exchange of
Certificates."
ITT STOCKHOLDERS SHOULD NOT FORWARD
CERTIFICATES REPRESENTING ITT COMMON STOCK TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
TRANSMITTAL LETTERS. ITT STOCKHOLDERS SHOULD
NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
15
<PAGE> 20
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 5, 1997, the
shareholders and stockholders of the Trust and Corporation, respectively,
approved the acquisition of Westin by Starwood Lodging. 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.
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 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
16
<PAGE> 21
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 Capital Stock -- 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.
17
<PAGE> 22
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)................... 2.88 1.54 2.11 1.24 .63 .33 .02
OPERATING DATA:
Operating income................................. 452 527 728 568 292 142 34
EBITDA(2):....................................... 997 724 1,004 821 424 251 114
Cash from continuing operating activities........ 354 525 504 230 186 143
Number of employees (in thousands)............... 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......... 3,467 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 $ and
$ , respectively, compared with $ and $ ,
respectively, for the first nine months of 1996. These comparable
year-over-year results represent increases of 19% and 20% 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 $29 pre-tax
charge of costs associated with the unsolicited tender offer by 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.
18
<PAGE> 23
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 Reports on Form 8-K
dated February 10, 1997, February 14, 1997, March 20, 1997, March 21, 1997,
September 9, 1997, September 10, 1997 and October 21, 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 $ 439 $ 181 $ 63 $ 185 $ 444 $ 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 $ 196 $ 31 $ 21 $ (10) $ 236 $ 34 $ 11 $ (4) $ (4) $ (10)
Corporation(2).. 14 (19) (6) (1) 12 (11) (7) (2) (1) (3) (10)
----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Combined....... $ 26 $ 177 $ 25 $ 20 $ 2 $ 225 $ 27 $ 9 $ (5) $ (7) $ (20)
Net Income (Loss)
Per
Share/Paired
Share(3):
Trust.......... $0.17 $ 0.95 $ 0.66 $ 1.17 $(0.19) $ 1.25 $ 1.12 $ 0.92 $(1.14) $(1.28) $(3.24)
Corporation.... 0.20 (0.09) (0.13) (0.03) 0.22 (0.06) (0.22) (0.15) (0.39) (1.04) (3.27)
----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Combined....... $0.37 $ 0.86 $ 0.53 $ 1.14 $ 0.03 $ 1.19 $ 0.90 $ 0.77 $(1.53) $(2.32) $(6.51)
</TABLE>
19
<PAGE> 24
<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 $ 7,311 $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 9,260 268 101 108 91 41 102 100
Combined(1)...................... $ 2,145 $ 7,821 $1,436 $ 425 $ 480 $123 $160 $171 $170
Shareholder's Equity (Deficit):
Trust............................ $ 1,554 $ 4,571 $ 760 $ 566 $ 569 $205 $ 11 $ 72 $ 76
Corporation...................... 82 871 32 30 23 11 (2) (59) (56)
------- ------- ------- ------- ------- ----- ----- ----- -----
Combined......................... $ 1,636 $ 5,442 $ 792 $ 596 $ 592 $216 $ 9 $ 13 $ 20
Paired Shares outstanding at end of
period(3)........................ 68 206 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)............. $1.17 $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.
20
<PAGE> 25
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 included elsewhere herein and incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
STARWOOD LODGING - HISTORICAL
Net income per Paired Share................................. .53 .90
Cash dividends per Paired Share............................. 1.17 1.36
Book value per Paired Share................................. 17.22 14.83
ITT - HISTORICAL
Net income per share........................................ 2.88 2.11
Cash dividends per share.................................... -- --
Book value per share........................................ 28.79 26.50
STARWOOD LODGING - PRO FORMA (WESTIN)
Income from operations per Paired Share..................... .37 .03
Cash dividends per Paired Share............................. 1.17 1.36
Book value per Paired Share................................. 29.21
STARWOOD LODGING - PRO FORMA (WESTIN AND ITT)
Net Income per Paired Share................................. .86 1.19
Cash Dividends per Paired Share............................. 1.17 1.36
Book value per Paired Share................................. 26.42
ITT - EQUIVALENT PRO FORMA
Net Income per share........................................ 1.75 2.55
Cash dividends per share.................................... -- --
Book value per share........................................ 28.79
</TABLE>
COMPARATIVE MARKET PRICES
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 , 199 , 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 $ . See "Price Range of Paired
Shares; Distributions" and "Price Range of ITT Common Stock."
21
<PAGE> 26
THE MEETINGS
DATE, PLACE AND TIME
STARWOOD MEETINGS. The Trust Meeting and the Corporation Meeting are to be
held on , 1998 at .m. and .m. (local time), respectively,
at .
THE ITT MEETING. The ITT Meeting is to be held on , 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
, 1998 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 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
22
<PAGE> 27
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.
THE CORPORATION. The Corporation Board has fixed the close of business on
, 1998 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 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 ,
1998 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
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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.
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: 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 and the Registration Statement 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
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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 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.
THE MERGER
This section of the Joint Proxy Statement/Prospectus as well as the section
of this Joint Proxy Statement/Prospectus 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 which is
attached as Annex A to this Joint Proxy Statement/Prospectus 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 the Exchange Ratio of Paired Shares
depending on the Market Price, and $15 in cash (the "Merger Consideration"). 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 -- Conversion of Shares; Procedures for 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 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.
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
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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. ITT decided not to pursue
an appeal of the court's decision and 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.
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. 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 a meaningful
and concrete proposal.
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.
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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
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 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 Merger Agreement. At these meetings, each
party's respective board approved the Merger Agreement, and promptly thereafter
the Merger Agreement was executed.
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. Under the terms of the Amended Hilton
Transaction, the Proposed Squeeze Out Merger would be amended so that each share
of ITT Common Stock not tendered and purchased in the Hilton Offer would be
converted into two shares of Hilton Common Stock and two shares of Contingent
Value Preferred Stock of Hilton (the "CVP Shares"). As set forth in the Schedule
14D-1 described below, each CVP Share entitles 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 Stock are described
in more detail in a Tender Offer Statement on Schedule 14D-1 and amendments
thereto filed with the Commission by Hilton and HLT.
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.
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- As the largest hotel company in the world, Starwood Lodging will be able
to achieve purchasing, marketing and reservation efficiencies.
- 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 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 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, and 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 to this Joint Proxy
Statement/Prospectus), the consideration to be received by stockholders
of ITT pursuant to the Merger is fair to such stockholders 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 of 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
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
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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 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 the Starwood Lodging to act as its financial
advisor in connection with the transactions contemplated by the Merger
Agreement. Starwood Lodging retained Bear Stearns to act as its financial
advisor 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.
At the October 19, 1997, meeting of the Starwood Lodging Boards, Bear
Stearns delivered its oral opinion (subsequently confirmed in writing) to the
effect that, based upon and subject to the various considerations set forth in
such opinion, as of the date of such opinion, 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 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
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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. 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 $15 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 $15 per share to ITT's
shareholders. Based on the foregoing, Bear Stearns noted that Starwood Lodging's
contribution to FFO was 35.6% and 36.2% 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 36.6.% to
39.9% 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
$82 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 36.6% to 39.9% of Starwood Lodging/ITT combined. Based on the
foregoing analysis, the value of such interest would exceed Starwood Lodging's
standalone value by 7.2% to 16.9%.
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
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<PAGE> 35
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 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 Merger Consideration to be received by holders of ITT Common Stock
is fair to such holders from a financial point of view.
A COPY OF THE FULL TEXT OF THE LAZARD FRERES OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. THE SUMMARY OF THE LAZARD FRERES OPINION SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. HOLDERS OF SHARES OF ITT COMMON STOCK ARE URGED TO
READ THE LAZARD FRERES OPINION CAREFULLY AND IN ITS ENTIRETY. THE OPINION IS NOT
INTENDED TO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ITT
AS TO WHETHER SUCH HOLDER SHOULD VOTE FOR THE ITT PROPOSAL.
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<PAGE> 36
In the course of performing its review and analyses for rendering its
opinion, Lazard Freres: (i) reviewed the financial terms and conditions of the
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 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 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 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 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 savings projected to be realized from the 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 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 Merger Consideration to be received by the holders of ITT Common
Stock in the Merger and does not address the business judgment of the ITT Board
in entering into the 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 Merger would be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by ITT and that obtaining the necessary
regulatory approvals for the 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
funds from operations ("FFO") (based
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<PAGE> 37
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 Marriot Corporation,
Parent Holding Corp. (whose constituent companies are Promus Hotel Corporation
and Doubletree Corporation) (pro forma for the announced merger), La Quinta
Inns, Inc., Four Seasons Hotels Corporation, Marriot 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, Circus Circus Enterprises, Inc., Harrah's
Entertainment, Inc. and MGM Grand Hotel Finance Group (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 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
Limited Partnership (September 1997); Promus Hotel Corporation's pending
acquisition of Doubletree Corporation (September 1997); Patriot American's
acquisition of Wyndham Hotel Corporation (February 1997); Marriot
International's acquisition of Renaissance Hotel Group N.V. (February 1997);
Doubletree Corporation's acquisition of Red Lion Hotels Inc. (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 SpA (Fimpar SpA) (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 Corporation, Wyndham Hotel
Corporation, Renaissance Hotel Group N.V., Red Lion Hotels Inc. 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 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
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Entertainment Corporation (June 1996); Circus Circus Enterprises' 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 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 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 Merger,
including the potential impact of the 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 Merger would be accretive in the years 1998 and 1999
to FFO on a per Paired Share basis.
The preparation of a fairness 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 the 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. The Lazard Freres 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
opinion, 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. 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'
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analysis of the fairness of the Merger Consideration, 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, did not deliver an opinion to the ITT Board with
respect to the Merger. Goldman Sachs advised the ITT Board that it believed it
to be inappropriate for Goldman Sachs to deliver an opinion with respect to the
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 of the
Merger Consideration 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. 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
agreed to pay 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. The fees described above are payable to Goldman Sachs and Lazard
Freres regardless of whether the Merger is consummated. 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.
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.
STARWOOD LODGING BOARDS. Pursuant to the Merger Agreement, ITT has the
right to nominate three individuals as members of the Corporation Board and one
individual as a member of the Trust Board. Mr. Araskog is expected to be one of
the four nominees and ITT has not yet identified the three other nominees to the
Starwood Lodging Boards.
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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 (x) the exercise price per share of ITT Common Stock
immediately prior to the Effective Time divided by the Exchange Ratio, reduced
by (y) the cash amount of the per share merger consideration payable pursuant to
the Merger Agreement. 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 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.
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<PAGE> 41
Directors, Trustees and executive officers of Starwood Lodging hold Paired
Options and Restricted Stock Awards as follows:
PAIRED OPTIONS
<TABLE>
<CAPTION>
DATE OF
NAME NUMBER OF PAIRED SHARES GRANT EXERCISE PRICE
-------------------------------------- ----------------------- --------- --------------
<S> <C> <C> <C>
Ronald C. Brown.......................
Jean-Marc Chapus......................
Eric A. Danziger......................
Theodore W. Darnall...................
Bruce W. Duncan.......................
Jonathan D. Eilian....................
Bruce M. Ford.........................
Steven R. Goldman.....................
Madison F. Grose......................
Graeme W. Henderson...................
Earle F. Jones........................
Michael A. Leven......................
Gary M. Mendell.......................
Roger S. Pratt........................
Stephen R. Quazzo.....................
Alan M. Schnaid.......................
Daniel H. Stern.......................
Barry S. Sternlicht...................
Daniel W. Yih.........................
</TABLE>
RESTRICTED STOCK AWARDS
<TABLE>
<CAPTION>
NAME NUMBER OF PAIRED SHARES DATE OF GRANT
-------------------------------------- ----------------------- -------------
<S> <C> <C>
</TABLE>
AMENDMENT TO PAIRING AGREEMENT
The Trust and the Corporation are parties to the Pairing Agreement, which
provides, among other things, that the Trust may not issue or transfer shares of
beneficial interest of the Trust unless effective provision is made for the
issuance or transfer of the same number of shares of common stock of the
Corporation and that shares of beneficial interest of the Trust may not be
transferred on the books of the Trust unless the transferee acquires the same
number of shares of common stock of the Corporation.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using purchase accounting.
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
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<PAGE> 42
(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. 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 or February 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 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 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 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 Nevada Board and the Nevada Commission by , 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.
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
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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.
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.
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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 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
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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.
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. Starwood
Lodging intends to file with the FCC, as soon as practicable, application(s)
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 the 15th calendar day after the date such forms are
filed, 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
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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 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
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
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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 no effect on the Shares Issuance
Proposal.
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 DISSENTER'S 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 Starwood Lodging is not 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 conformed 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 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; PROCEDURES FOR EXCHANGE OF CERTIFICATES
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
canceled 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 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 canceled in accordance with the provisions of the Merger Agreement)
together with the associated Right will as of the Effective Time be
converted into the right to receive the Exchange Ratio of validly issued,
fully paid and nonassessable Paired Shares and $15 in cash, without
interest. All such shares of ITT Common Stock (and the associated Rights),
when so converted, will no longer be outstanding and will automatically be
canceled and retired and will cease to exist and each holder of a
certificate representing any such shares (and the associated Rights) will
cease to have any rights with respect thereto, except the right to receive
(i) certificates representing the Paired Shares into which shares of ITT
Common Stock (and the associated Rights) are converted, (ii) cash into
which such shares are converted pursuant to the provisions of the Merger
Agreement, (iii) any cash, without
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interest, in lieu of fractional Paired Shares to be issued or paid in
consideration therefor, and (iv) any dividends and other distributions in
accordance with the provisions of the Merger Agreement, upon the surrender
of such certificate in accordance with the provisions of the Merger
Agreement.
STARWOOD LODGING HAS ESTABLISHED THE FOLLOWING TOLL-FREE TELEPHONE NUMBER
(1-800 [ ]) TO ENABLE STOCKHOLDERS OF ITT AND STARWOOD LODGING TO
RECEIVE INFORMATION REGARDING THE EXCHANGE RATIO. Commencing 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 per share closing prices on the NYSE of
Paired Shares during the 20 consecutive trading days ending as of the day prior
to such call or January , 1998, as appropriate. Because the Market Price upon
which the actual Exchange Ratio will be based cannot be determined definitely
until the close of trading on January , 1998, callers to such toll-free
telephone number prior to January , 1998 should bear in mind that fluctuations
in the trading price of Paired Shares during the 20 consecutive trading days
ending January , 1998 may cause the actual Exchange Ratio to vary from the
assumed Exchange Ratio indicated on such recorded message prior to January ,
1998.
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 $15 in cash per share
will be issued in 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
the right to receive the Merger Consideration.
Starwood Lodging will authorize Bankers Trust Company (or such other person
or persons as shall be acceptable to Starwood Lodging and ITT) to act as the
Exchange Agent under the Merger Agreement. 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 and cash payable as Merger
Consideration pursuant to the provisions of the Merger Agreement in exchange for
outstanding shares of ITT Common Stock, cash required to make payments in lieu
of any fractional shares and cash or other property to pay or make any dividends
or distributions (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 Starwood Lodging, on a daily basis. Any interest or
other income resulting from such investments shall be paid to Starwood Lodging.
The Exchange Agent will deliver the Paired Shares contemplated to be issued and
the cash payable pursuant to the provisions of the Merger Agreement and cash or
other property distributable pursuant to the provisions of the Merger Agreement
out of the Exchange Fund.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each record holder of a certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of ITT Common Stock
converted in the Merger (the "Certificates"), a letter of transmittal in form
reasonably acceptable to ITT. Upon surrender for cancelation 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 and cash into
which the shares (and the associated Rights) represented by the surrendered
Certificate will have been converted at the Effective Time, cash in lieu of any
fractional Paired Shares and any dividends or other distributions in accordance
with the provisions of the Merger Agreement, and any Certificate so surrendered
shall forthwith be canceled.
STOCKHOLDERS OF ITT SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. A TRANSMITTAL LETTER WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES WILL BE MAILED TO FORMER ITT STOCKHOLDERS AS SOON AS PRACTICABLE
AFTER THE MERGER.
DIVIDENDS; TRANSFER TAXES; WITHHOLDING
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
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entitled by reason of the Merger to receive a certificate representing Paired
Shares until such person surrenders the related Certificate or Certificates, and
no cash payment will be paid to any such person until such person surrenders the
related Certificate or Certificates. 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; (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; and (iii) at the time of such
surrender or as promptly as practicable thereafter, the amount of any cash
payable to which such holder is entitled. In no event shall the person entitled
to receive such dividends or other distributions or cash be entitled to receive
interest on such dividends or other distributions or cash. Before any
certificate representing Paired Shares or cash or other property will be issued
or delivered in a name other than that in which the Certificate surrendered in
exchange therefor is registered, the Certificate so surrendered must be properly
endorsed and otherwise in proper form for transfer and the person requesting
such exchange must 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
must establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. Starwood Lodging or the Exchange Agent is 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.
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), 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 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")
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(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 (x) the
exercise price per share of ITT Common Stock immediately prior to the Effective
Time divided by the Exchange Ratio, reduced by (y) the cash amount of the per
share merger consideration payable pursuant to the Merger Agreement. The
Corporation has agreed to pay cash to holders of ITT 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 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.
REPRESENTATION ON STARWOOD LODGING BOARDS
The Corporation and the Trust shall use all reasonable efforts to cause the
Corporation Board and the Trust Board to be increased in size, effective at the
Effective Time, by three members in the case of the Corporation Board, and by
one member in the case of the Trust Board, with such four new members being
individuals selected by ITT (with notice of such selection to be given to
Starwood Lodging within 30 days after the date of the Merger Agreement) from the
members of the ITT Board.
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
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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 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 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 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,
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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 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 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 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
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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.
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 promptly 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.
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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 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, during the period from the date of
the 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).
Prior to the Effective Time, the Trust may declare a dividend not to exceed
$1.5 billion, payable to its shareholders of record as of such time and payable
in property other than cash which property may be acquired by the Corporation in
exchange for shares of the Corporation's capital stock. In connection with the
foregoing, the Pairing Agreement may be amended to permit and facilitate such
transactions. In the event that the Corporation fails to exercise its right, in
whole or in part, to acquire such property prior to the Effective Time, the
Exchange Ratio shall be equitably adjusted. The Starwood Companies have agreed
that in effecting
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transactions contemplated by the Merger Agreement, the stockholders of ITT shall
be treated on a fair and equitable basis (including in respect of the
consideration payable in the Merger).
In the Merger Agreement, ITT acknowledged and agreed that, prior to the
Effective Time, Starwood Lodging and its subsidiaries are obligated under the
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 Starwood
Lodging, all of which shall be deemed to be consistent with Starwood Lodging's
obligations under the Merger Agreement. In the Merger Agreement, ITT and
Starwood Lodging further acknowledged and agreed that, prior to the Effective
Time, Starwood Lodging must pay a fee to certain investment banks in connection
with the transactions contemplated by the Transaction Agreement, and such fee
shall have been paid in the type and amount of consideration previously
discussed by and among the parties to the Merger 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 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 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 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
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,
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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 CCC, 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 CCC 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 CCC),
ITT has agreed to execute and deliver a trust agreement prepared by Starwood
Lodging and reasonably acceptable to ITT and the CCC 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;
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(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
Regulatory Matters" above, all required shares of common stock have been
deposited in trust with a trustee qualified and otherwise acceptable to the
CCC and the transactions and arrangements contemplated by "-- Certain
Regulatory Matters" above shall be in full force and effect or (y) (1) the
CCC 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 CCC and Starwood Lodging
in respect of such 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 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.
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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 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
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(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.
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
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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) (x) the ITT Board has approved or
recommended a superior proposal or (y) nominees of Hilton have been elected
as a majority of the members of the ITT Board at ITT's 1997 annual meeting
of stockholders 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 Merger Agreement, (x) any person or 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 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; 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 limited to
$195 million;
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
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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.
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
SHAREHOLDERS 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.
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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.
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.
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Federal Income Tax Consequences to ITT, the Trust and the Corporation
No gain or loss should be recognized by ITT, the Trust or the Corporation
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 of the Merger. A stockholder's basis in such additional
Corporation Shares generally should equal the fair market value of the property
distributed to such stockholder in connection with the Special Distribution.
As a result of the earnings and profits allocation rules discussed above,
the Special Distribution is likely to result in shareholders of the Trust (other
than shareholders who receive their Trust Shares as a result of the Merger)
being allocated more of the earnings and profits of the Trust than such
shareholders would have been allocated in the absence of the Special
Distribution. Shareholders of the Trust who are shareholders at the time the
Special Distribution is made are therefore likely to have taxable income in
excess of the income they would have had had the Trust made only its regular
cash distributions.
It is possible that the IRS may assert that the Special Distribution and
its acquisition by the Corporation should be treated for federal income tax
purposes in a manner other than the manner described above. Such a
recharacterization by the IRS could result in federal income tax consequences to
the shareholders and stockholders of 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.
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)
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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. Such reporting and record keeping requirements will not
apply to REITs for taxable years beginning after December 31, 1997.
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
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95% test, multiplied by a fraction intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust will be subject to a
4% excise tax on the excess of such required distributions over the amounts
actually distributed. Seventh, pursuant to IRS Notice 88-19, if the Trust has a
net unrealized built-in gain, with respect to any asset (a "Built-in Gain
Asset") held by the Trust on January 1, 1995 or acquired by the Trust from a
corporation that is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in certain transactions in which the basis
of the Built-in Gain Asset in the hands of the Trust is determined by reference
to the basis of the asset in the hands of the C corporation, and the Trust
directly or indirectly recognizes gain on the disposition of such asset during
the 10-year period (the "Recognition Period") beginning on January 1, 1995 with
respect to assets held by the Trust on such date or, with respect to other
assets, the date on which such asset was acquired by the Trust, then, to the
extent of the Built-in Gain (i.e., the excess of (a) the fair market value of
such asset over (b) the Trust's adjusted basis in such asset, determined as of
the beginning of the Recognition Period), such gain will be subject to tax at
the highest regular corporate rate pursuant to Treasury Regulations that have
not yet been promulgated. The results described above with respect to the
recognition of Built-in Gain assume that the Trust will make an election
pursuant to IRS Notice 88-19 with respect to assets acquired by the Trust from a
corporation that is or has been a C corporation. The Trust believes that it 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 generally will 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
Paired Common Shares -- Ownership Limits: Restrictions on Transfer; Repurchase
and Redemption of Shares." With respect to its taxable years ending before
January 1, 1998, in order to maintain its election to be taxed as a REIT, the
Trust must also maintain certain records and request certain information from
its shareholders designed to disclose the actual ownership of its stock. The
Trust believes that it has complied and will comply with these requirements.
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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
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 acquisition of Westin, certain of the assets of Westin, including third
party management, franchise and represention agreements and certain trademarks
and other intangible property will be held by corporations (the "Management
Subsidiaries") of which the Trust 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 IRS Letter will continue to apply to the Trust after the
effective time, and that the termination of the Trust's REIT election for the
taxable years ended December 31, 1991 through 1994 did not, and the consumation
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
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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, the
Realty Subsidiary Entities and the Operating Subsidiary Entities will each
maintain separate books and records and all material transactions among them
have been and will be negotiated and structured with the intention of achieving
an arm's-length result. Prior to the Effective Time of 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, the Operating Partnership, the Subsidiary Entities and the
Operating Subsidiary Entities are controlled by the same interests. As a result,
the IRS could, pursuant to Section 482 of the Code, seek to distribute,
apportion or allocate gross income, deductions, credits or allowances between or
among them if it determines that such distribution, apportionment or allocation
is necessary in order to prevent evasion of taxes or to clearly reflect income.
The Trust and the Corporation believe that all material transactions between
them and among them and the Realty Partnership, the Operating Partnership, the
Subsidiary Entities and the Operating Subsidiary Entities have been and will be
negotiated and structured with the intention of achieving an arm's-length
result. As a result, the potential application of Section 482 of the Code should
not have a material effect on the Trust or the Corporation.
Income Tests. In order to maintain qualification as a REIT, the Trust must
annually satisfy certain gross income requirements (the "gross income tests").
First, at least 75% of the Trust's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined types of
income derived directly or indirectly from investments relating to real property
or mortgages on real property (including "rents from real property," as
described below, and in certain circumstances, interest) or from certain types
of qualified temporary investments. Second, at least 95% of the Trust's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from the same items which qualify under the 75% income test
and from dividends, interest, and gain from the sale or disposition of stock or
securities that do not constitute dealer property or from any combination of the
foregoing. Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less 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,
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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 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
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or profits of any person (except by reason of being based on a fixed percentage
of receipts or sales, as described above).
Another requirement for rent payments under a Lease to constitute "rents
from real property" is that the rent attributable to personal property under the
Lease must not be greater than 15% of the rent received under the Lease. For
this purpose, rent attributable to personal property is the amount that bears
the same ratio to the total rent for the taxable year as the average of the
adjusted basis of the personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate adjusted basis of both the
real property and personal property leased under, or in connection with, such
lease. If the IRS were to successfully assert that with respect to one or more
of the Leases rent attributable to personal property is greater than 15% of the
total rent, then it is possible that the Trust would not be able to satisfy
either the 75% or 95% gross income tests, 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 or 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 the
Operating Partnership or any Operating Subsidiary Entity (or such tenant), the
rent paid by the tenant with respect to the leased property would not qualify as
income of the type that can be received by a REIT. In order to prevent such a
situation, which would likely result in the disqualification of the Trust as a
REIT, the Declaration of Trust and the Articles of Incorporation contain
restrictions on the amount of Trust Shares and Corporation Shares that any one
person can own. These restrictions generally provide that any attempt by any one
person to actually or constructively acquire 8.0% or more of the outstanding
Paired 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 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.
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For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. The Realty Partnership and
certain of the Realty Subsidiary Entities hold notes and may advance money from
time to time to tenants for the purpose of financing tenant improvements, making
real estate loans or holding or acquiring additional notes. None of the notes
currently held by the Realty Partnership or the Realty Subsidiary Entities
provide for the payment of any amount based on the income or profits of any
person other than amounts based, on a fixed percentage or percentages of
receipts or sales. In addition, none of the Trust, the Realty Partnership or the
Realty Subsidiary Entities intend to charge interest that will depend in whole
or in part on the income or profits of any person or to make loans (not secured
in substantial part by real estate mortgages) in amounts that could jeopardize
the Trust's compliance with the 75% and 5% asset tests, discussed below. To the
extent the notes held by the Realty Partnership or the Realty Subsidiary
Entities are secured by real property, the interest received or accrued with
respect to such notes should be treated as qualifying income for both the 75%
and the 95% gross income tests. Certain of the notes held by the Realty
Partnership are not secured by real property. Interest received or accrued with
respect to such notes 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 acquisition of Westin, 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,
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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.
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 Realty Subsidiary Entity may find it necessary to arrange for
short-term or possible long-term borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Trust's deduction
for dividends paid for the earlier year. Thus, the Trust may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Trust
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Trust will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Trust fails to qualify
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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.
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
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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-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.
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 Limitation, the Trust
does not expect to be a "pension held REIT" within the meaning of the Code.
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FEDERAL TAXATION OF NON-U.S. HOLDERS OF PAIRED 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 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
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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 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
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available for distribution to holders of Paired Common Shares. See "-- Federal
Income Taxation of the Corporation" above. In addition, if the Realty
Partnership or any Realty Subsidiary Entity were to be taxable as a corporation,
the Trust would not qualify as a REIT. Furthermore, any change in the status of
a partnership or limited liability company for tax purposes might be treated as
a taxable event in which case the Trust or the Corporation might incur a tax
liability without any related cash distributions.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Realty Partnership, the Operating Partnership and
certain of the Realty Subsidiary Entities and the Operating Subsidiary Entities
have been formed by way of contributions of the Company's property and certain
property held by other parties (including affiliates of Starwood Capital).
Consequently, allocations with respect to such contributed property must be made
in a manner consistent with Section 704(c) of the Code.
The Treasury Regulations under Section 704(c) of the Code allow
partnerships to use any reasonable method of accounting for Book-Tax Differences
so that the contributing partner receives the tax benefits and burdens of any
built-in gain or loss associated with the contributed property. However, the
special allocation rules of Section 704(c) of the Code do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Realty Partnership or the Operating
Partnership may cause the Trust or the Corporation, as the case may be, to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Trust or the Corporation to recognize taxable income in excess of cash
proceeds, which, in the case of the Trust, might adversely affect the Trust's
ability to comply with the REIT distribution requirements. See "-- Federal
Income Taxation of the Trust -- Requirements For Qualification -- Annual
Distribution Requirements" 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.
73
<PAGE> 78
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 will 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.
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 increase the
number of authorized shares of beneficial interest of the Trust.
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 increase the number of authorized shares of
capital stock of the Corporation.
CURRENT PROVISIONS. On December 5, 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 5, 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.
At 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
74
<PAGE> 79
Preferred Shares were issued and outstanding or reserved for issuance. At 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 5, 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.
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 and (iii) 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, and (c)
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 Beneficial Interest evidencing units of beneficial interest in
the Trust 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 Trustees in their discretion in a
resolution or resolutions duly adopted by the Trustees and recorded within
the State of Maryland in such public offices as this Declaration and any
amendments shall have been recorded in accordance with Section 9.8 of this
Declaration. As used herein, the term "Shares" shall mean and include (i)
the Trust Shares, Excess Trust Shares and Excess Preferred Shares, and (ii)
from and after the issuance of Shares of any other and additional classes
of Shares of Beneficial Interest so created and authorized by the Trustees,
such Shares of Beneficial Interest. 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 represented 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. There shall
be no more than 1,350,000,000 Shares issued. 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."
75
<PAGE> 80
The Corporation Amendment provides that the authorized capital stock of the
Corporation consists of 1.35 billion shares, consisting of (i) one billion
Corporation Shares, (ii) 50 million shares of Excess Common 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 capital 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, qualifications, and redemption provisions, 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)."
PURPOSE AND EFFECT OF PROPOSED AMENDMENTS. 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, 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 discourage unsolicited takeover attempts, thereby limiting the 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.
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<PAGE> 81
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 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.
MANAGEMENT OF THE STARWOOD COMPANIES
TRUST BOARD
The Trust Board is divided into three classes. The terms of two Trustees
expire at the 1998 Annual Meeting of Shareholders of the Trust, the terms of
three Trustees expire at the 1999 Annual Meeting of Shareholders of the Trust
and the terms of three Trustees expire at the 2000 Annual Meeting of
Shareholders of the Trust.
Set forth below is information concerning individuals whom ITT expects to
designate to the Trust Board pursuant to the Merger Agreement.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ----------------------------- --------------------------------------------------------------
<S> <C>
</TABLE>
CORPORATION BOARD
The Corporation Board is divided into three classes. The terms of four
Directors expire at the 1998 Annual Meeting of Stockholders of the Corporation,
the terms of three Directors expire at the 1999 Annual Meeting of Stockholders
of the Corporation and the terms of two Directors expire at the 2000 Annual
Meeting of Stockholders of the Corporation.
Set forth below is information as to the individuals whom ITT expects to
designate to the Corporation Board pursuant to the Merger Agreement.
<TABLE>
<CAPTION>
JOINING CLASS
WHOSE TERM
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE EXPIRES AT
- ----------------------------- -------------------------------------------- ----------------
<S> <C> <C>
</TABLE>
77
<PAGE> 82
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
78
<PAGE> 83
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.
79
<PAGE> 84
(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).
80
<PAGE> 85
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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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> 87
PRICE RANGES OF PAIRED SHARES; DISTRIBUTIONS
MARKET INFORMATION
The Paired Shares are traded principally on the NYSE under the symbol
"HOT." The following table sets forth, for the fiscal periods indicated, the
high and low sales prices per Paired Share on the NYSE Composite Transactions
Tape (as adjusted for the one-for-six reverse stock split in June 1995 and the
three-for-two stock split in January 1997).
<TABLE>
<CAPTION>
RETURN OF
DISTRIBUTIONS CAPITAL GAAP
HIGH LOW MADE BASIS(a)
------ ------ ---------------- ------------
<S> <C> <C> <C> <C>
1997
First quarter................................. $45.88 $34.50 $ 0.39 $ .21
Second quarter................................ $42.81 $34.25 $ 0.39 $ .01
Third Quarter................................. $58.13 $41.38 $ 0.48 $ 0.48
Fourth Quarter (through December , 1997)....
1996
First quarter................................. $23.25 $19.67 $ 0.31 $ 0.11
Second quarter................................ $25.75 $21.17 $ 0.33 --
Third quarter................................. $27.92 $22.08 $ 0.33 $ 0.14
Fourth quarter................................ $36.75 $27.42 $ 0.39(b)(c) $ 0.22
1995
First quarter................................. $16.00 $10.50 None N/A
Second quarter................................ $16.50 $14.00 None N/A
Third quarter................................. $19.42 $15.75 $ 0.31 $ 0.14
Fourth quarter................................ $20.00 $17.92 $ 0.31(d) $ 0.11
</TABLE>
- ---------------
(a) Represents distributions per Paired Share in excess of net income per Paired
Share on a GAAP 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 full trading day prior to the public
announcement of the execution of the Merger, the high and low sale prices per
Paired Share on the NYSE Composite Transactions Tape were $57.81 and $56.25,
respectively.
DISTRIBUTIONS MADE/DECLARED
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. The Trust declared and paid dividends of $0.39 per share for each
of the first and second quarters of 1997 and $0.31, $0.33, $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 (1) 95% of combined funds from
operations for any four consecutive calendar quarters; (2) an amount sufficient
to maintain the Trust's tax status as a real estate investment trust; and (3)
the amount necessary for the Trust to avoid the payment of federal income or
excise tax.
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<PAGE> 88
PRICE RANGE OF SHARES OF ITT COMMON STOCK
The ITT Common Stock is listed and principally traded on the NYSE under the
symbol "ITT." The following table sets forth, for each of the periods indicated,
the reported high and low sales prices per share of ITT Common Stock as reported
on the NYSE Composite Tape.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------------------------------------------------------------------------- ------- -------
<S> <C> <C>
1997
First quarter.......................................................... $60.500 $41.125
Second quarter......................................................... $61.750 $57.325
Third quarter.......................................................... $68.625 $60.825
Fourth quarter (through November , 1997)............................. $ $
1996
First quarter.......................................................... $62.625 $47.375
Second quarter......................................................... $68.250 $56.875
Third quarter.......................................................... $66.625 $43.000
Fourth quarter......................................................... $46.500 $40.875
1995
Fourth quarter (from December 20, 1995)................................ $53.125 $47.500
</TABLE>
On October 17, 1997, the last full trading day prior to the announcement of
the Merger, the last sales price of ITT Common Stock is as reported on the NYSE
Composite Tape was $70.375.
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 , 1997 there were approximately 56,000 holders of record of ITT
Common Stock.
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 by-laws. 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
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<PAGE> 89
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. 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 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 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 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. The
Maryland REIT Law does not contain any such provisions.
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
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<PAGE> 90
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.
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 or share
exchange, requires approval by holders of two-thirds of the shares of the
corporation entitled to vote on such matters. 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
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<PAGE> 91
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. 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, of the Corporation Shares or Trust Shares, respectively, (ii) that
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 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 Capital Stock -- Ownership Limits; Restriction 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
THE 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 and an interested stockholder who beneficially owns 10%
or more of the voting power of the corporation's shares or an affiliate of the
corporation 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 an affiliate thereof 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 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 REIT and (ii) two-thirds of the votes entitled to be cast
by holders of outstanding voting shares of the corporation or REIT other than
shares held by the interested shareholders with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's or 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
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<PAGE> 92
the interested stockholder for its shares. For purposes of the foregoing
provisions, "interested stockholder" means any person who beneficially owns 10%
or more of the voting power of the Maryland corporation's outstanding voting
shares or shares of beneficial interest of a REIT, or an affiliate of such
corporation or 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 outstanding voting shares of such corporation or shares of beneficial
interest of such REIT. 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 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.
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 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 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 owned by the acquiror or by
officers or directors who are employees of the corporation. "Control shares" are
voting shares of stock which, if aggregated with all other such shares of stock
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 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 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 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 within ten days following a control share acquisition then,
subject to certain conditions and limitations, the corporation 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
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acquisition 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 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. The Trust and the Corporation have exempted from the MGCL all
control share acquisitions involving any person.
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 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 articles of
incorporation provide 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 or trustees, as
applicable. 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 be cast for the election of directors or
trustees, or with cause by all remaining Trustees. The Corporation Articles
provide that a director may be removed for cause by the vote of two thirds of
all Corporation Shares entitled to be cast for the election of directors.
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.
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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 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, OFFICERS AND TRUSTEES
STARWOOD LODGING. The Corporation Articles provide that, to the fullest
extent permitted by Maryland law, no director or officer shall be liable to the
Corporation or its stockholders for monetary damages. The MGCL permits such a
limitation generally, except to the extent there was an improper benefit or
profit received by the officer or director, or that a final adjudication or
judgment against the officer or director was based on a finding that the action
of such person was a result of active and deliberate dishonesty and that such
action was material to the result. The Corporation Articles provide that the
liability of directors and officers of the Corporation to the Corporation or its
stockholders shall not be limited (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.
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.
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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 OFFICERS, DIRECTORS AND TRUSTEES
STARWOOD LODGING AND ITT. The MGCL permits indemnification of directors
and officers as well as other employees and individuals 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) unless (i) the act was material
and committed in bad faith or (ii) a director received an improper personal
benefit or (iii) in a criminal proceeding, a director had cause to know that act
was unlawful. 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. The Maryland REIT Law permits a REIT to indemnify or advance expenses
to trustees, officers, employees and agents of the REIT to the same extent as is
permitted for directors, officers, employees and agents of a Maryland
corporation under the MGCL. The ITT By-laws, the Corporation Articles and the
Trust Declaration provide that ITT, the Corporation and the Trust, respectively,
shall indemnify, to the fullest extent permitted by law, all persons who may be
indemnified pursuant to the NGCL, the MGCL and Maryland REIT Law, respectively.
AMENDMENTS TO GOVERNING DOCUMENTS
THE STARWOOD LODGING. Under the MGCL and Maryland REIT Law, unless
otherwise provided in articles of incorporation or a declaration of trust, a
proposed amendment to articles of incorporation or a 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 the
affirmative vote of a majority of votes entitled to be cast on the matter for
amendment thereto. 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 Annotated Code of Maryland.
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.
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
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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 have 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
articles of incorporation in a way which alters the contractual rights of any
outstanding shares as expressly set forth in the articles of incorporation and
substantially adversely affects such stockholders' rights if the right to do so
is not reserved in the articles of incorporation. 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.
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 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.
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DESCRIPTION OF STARWOOD CAPITAL STOCK
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, 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 classes or series 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.
At 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. At 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 stockholder 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 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
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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 capital 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.
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.
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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 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
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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
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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 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.
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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
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").
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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 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
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(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 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.
MARYLAND TAKEOVER LEGISLATION
Under the MGCL, certain "business combinations" (including mergers,
consolidations, share exchanges, or, in certain circumstances, asset transfers
or issuances or reclassifications of equity securities) between a Maryland
corporation or a Maryland real estate investment trust and any person who
beneficially owns 10% or more of the voting power of the corporation's or
trust's shares or an affiliate of the corporation or trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting shares
of the corporation or trust (an "Interested Stockholder") or an affiliate
thereof, are prohibited or restricted unless exempted. Starwood Lodging has
exempted all "business combinations" involving any party from the business
combination provisions of the MGCL.
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Under Maryland law, under certain circumstances "control shares" of a
Maryland corporation or a Maryland real estate investment trust acquired in a
"control share acquisition" may have no voting rights. Starwood Lodging has
exempted all control share acquisitions involving any person from the MGCL.
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 capital stock of the Trust or the Corporation and continued
holding or ownership of capital stock of the Trust or the Corporation
constitutes, under the 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 he 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.
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
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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 precluding an acquisition of 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 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
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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 Piper & Marbury L.L.P. as to certain
matters of Maryland law.
Sidley & Austin, counsel for Starwood Lodging, and Cravath, Swaine & Moore,
counsel for ITT, will pass on certain Federal income tax consequences of the
Merger for Starwood Lodging and the ITT stockholders, respectively.
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.
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.
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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.
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
104
<PAGE> 109
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
, 1997
Sherwin L. Samuels
Secretary
By Order of the Board of Directors
STARWOOD LODGING CORPORATION
, 1997
Nir E. Margalit
Secretary
By Order of the Board of Directors
ITT CORPORATION
, 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.
105
<PAGE> 110
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
INDEX TO PRO FORMA (UNAUDITED) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION --
PRO FORMA FINANCIAL STATEMENTS AS ADJUSTED FOR THE ITT AND
WESTIN TRANSACTIONS................................................................ F-3
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Balance Sheet as of September 30, 1997...................... F-4
Starwood Lodging Trust Unaudited Consolidated Pro Forma Balance Sheet as of September
30, 1997........................................................................... F-5
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Balance Sheet as of
September 30, 1997................................................................. F-6
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Balance Sheets as of September 30, 1997............................................ F-7
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statement of Operations for the nine months ended September
30, 1997........................................................................... F-10
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statement of Operations for
the nine months ended September 30, 1997........................................... F-11
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statement of Operations
for the nine months ended September 30, 1997....................................... F-12
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statement of Operations for the year ended December 31,
1996............................................................................... F-13
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statement of Operations for
the year ended December 31, 1996................................................... F-14
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statement of Operations
for the year ended December 31, 1996............................................... F-15
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Statements of Operations for the nine months ended September 30, 1997 and the year
ended December 31, 1996............................................................ F-16
ITT CORPORATION PRO FORMA FINANCIAL STATEMENTS
Unaudited Consolidated Pro Forma Balance Sheet as of September 30, 1997.............. F-18
Unaudited Consolidated Pro Forma Statement of Income for the nine months ended
September 30, 1997................................................................. F-19
Unaudited Consolidated Pro Forma Statement of Income for the year ended December 31,
1996............................................................................... F-20
Notes to Unaudited Pro Forma Consolidated Financial Statements....................... F-21
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION --
PRO FORMA FINANCIAL STATEMENTS AS ADJUSTED FOR THE WESTIN TRANSACTION.............. F-22
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Balance Sheet as of September 30, 1997...................... F-23
Starwood Lodging Trust Unaudited Consolidated Pro Forma Balance Sheet as of September
30, 1997........................................................................... F-24
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Balance Sheet as of
September 30, 1997................................................................. F-25
</TABLE>
F-1
<PAGE> 111
<TABLE>
<S> <C>
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Balance Sheets as of September 30, 1997............................................ F-26
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statement of Operations for the nine months ended September
30, 1997........................................................................... F-29
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statement of Operations for
the nine months ended September 30, 1997........................................... F-30
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statement of Operations
for the nine months ended September 30, 1997....................................... F-31
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statement of Operations for the year ended December 31,
1996............................................................................... F-32
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statement of Operations for
the year ended December 31, 1996................................................... F-33
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statement of Operations
for the year ended December 31, 1996............................................... F-34
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Statements of Operations for the nine months ended September 30, 1997 and the year
ended December 31, 1996............................................................ F-35
</TABLE>
F-2
<PAGE> 112
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(UNAUDITED)
The following unaudited pro forma combined consolidated and separate
consolidated balance sheets are presented as if (i) the merger of Chess
Acquisition Corp. ("Merger Sub"), a subsidiary of Starwood Lodging Corporation
(the "Corporation"), with and into ITT Corporation ("ITT") (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of October 19, 1997 (the
"Merger Agreement"), among ITT, the Corporation, Merger Sub and Starwood Lodging
Trust (the "Trust" and, together with the Corporation, the "Company" or
"Starwood Lodging") and (ii) the acquisition by Starwood Lodging and certain of
its affiliates of Westin Hotels & Resorts Worldwide, Inc. ("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") and W&S
Atlanta Corp. ("Atlanta" and, together with Westin Worldwide, Lauderdale,
Seattle, St. John and Denver, "Westin") pursuant to the Transaction Agreement
dated as of September 8, 1997 (the "Transaction Agreement"), among the Trust,
SLT Realty Limited Partnership ("Realty"), the Corporation, SLC Operating
Limited Partnership ("Operating" and, together with Realty, the "Partnerships"),
WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation,
Juergen Bartels, Westin Worldwide, Lauderdale, Seattle, St. John, Denver,
Atlanta and W&S Hotel L.L.C., had occurred as of September 30, 1997.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets should be read in conjunction with the separate consolidated and
combined consolidated historical financial statements of the Trust and the Notes
thereto included in the Starwood Lodging Joint Annual Report on Form 10-K for
the year ended December 31, 1996, and the unaudited separate and combined
financial statements and related notes of Starwood Lodging included in its Joint
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, each of which are incorporated by reference in this
Joint Proxy Statement/Prospectus. In management's opinion, all pro forma
adjustments necessary to reflect the effects of the acquisition of ITT and
Westin have been made.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets are not necessarily indicative of what the actual financial
position of the Company would have been as of September 30, 1997, nor do they
purport to represent the future financial position of the Company.
F-3
<PAGE> 113
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STARWOOD
PRO FORMA STARWOOD PRO FORMA LODGING
ITT LODGING ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Total current assets................... $ 1,302 $ 278 $ $ 1,580
Plant, property and equipment, net..... 4,667 3,198 7,865
Investments............................ 328 78 406
Goodwill and other intangibles, net.... 1,529 857 2,588(C) 4,974
Other assets........................... 1,256 194 1,450
------ ------ ------- ------
$ 9,082 $ 4,605 $ 2,588 $16,275
====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and current maturities of
long-term debt....................... $ 232 $ 195 $ $ 427
Other current liabilities.............. 1,240 108 1,348
Long-term debt......................... 3,362 1,950 2,082(D) 7,394
Deferred income taxes and other
liabilities.......................... 651 180 831
------ ------ ------- ------
5,485 2,433 2,082 10,000
------ ------ ------- ------
Minority interest...................... 228 332 69(E) 629
Class B Exchangeable preferred pro
forma shares, at redemption value.... 204 204
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest.... 1 1 2
Class A Exchangeable preferred pro
forma shares.........................
Corporation common stock............... 2,916 1 (2,915)(G) 2
Additional paid-in capital............. 1,938 3,628(E),(G),(H) 5,566
Cumulative translation adjustment...... (128) (128)
Retained earnings...................... 581 (304) (277)(H)
------ ------ ------- ------
3,369 1,636 437 5,442
------ ------ ------- ------
$ 9,082 $ 4,605 $ 2,588 $16,275
====== ====== ======= ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated
and Separate Consolidated Pro Forma Balance Sheet.
F-4
<PAGE> 114
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA TRUST
ITT TRUST ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Total current assets....................... $ $ 52 $ $ 52
Plant, property and equipment, net......... 2,785 2,785
Investments................................ 72 72
Mortgage and other notes receivable from
Corporation.............................. 536 3,047(F) 3,583
Goodwill and other intangibles, net........ 654 654
Other assets............................... 165 165
------ ------ ------ ------
$ $ 4,264 $ 3,047 $ 7,311
====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and current maturities of
long-term debt........................... $ $ 194 $ $ 194
Other current liabilities.................. 47 47
Long-term debt............................. 1,950 1,950
------ ------ ------
2,191 2,191
------ ------ ------
Minority interest.......................... 315 30(E) 345
Class B Exchangeable preferred pro forma
shares, at redemption value.............. 204 204
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest........ 1 1 2
Class A Exchangeable preferred pro forma
shares................................... -- --
Additional paid-in capital................. 1,773 3,016(E),(F) 4,789
Retained earnings.......................... (220) (220)
------ ------ ------ ------
1,554 3,017 4,571
------ ------ ------ ------
$ $ 4,264 $ 3,047 $ 7,311
====== ====== ====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-5
<PAGE> 115
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA CORPORATION
ITT CORPORATION ADJUSTMENTS AND ITT
--------- ----------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Total current assets............................ $ 1,302 $ 226 $ $ 1,528
Plant, property and equipment, net.............. 4,667 413 5,080
Investments..................................... 328 6 334
Goodwill and other intangibles, net............. 1,529 203 2,588(C) 4,320
Other assets.................................... 1,256 29 1,285
------ ---- ------ -------
$ 9,082 $ 877 $ 2,588 $12,547
====== ==== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and current maturities of
long-term debt................................ $ 232 $ 1 $ $ 233
Other current liabilities....................... 1,240 61 1,301
Mortgage and other notes payable to Trust....... 536 3,047(F) 3,583
Long-term debt.................................. 3,362 2,082(D) 5,444
Deferred income taxes and other liabilities..... 651 180 831
------ ---- ------ -------
5,485 778 5,129 11,392
------ ---- ------ -------
Minority interest............................... 228 17 39(E) 284
SHAREHOLDERS' EQUITY
Corporation common stock........................ 2,916 1 (2,915)(G) 2
Additional paid-in capital...................... 165 612(E),(F),(G),(H) 777
Cumulative translation adjustment............... (128) (128)
Retained earnings............................... 581 (84) (277)(H) 220
------ ---- ------ -------
3,369 82 (2,580) 871
------ ---- ------ -------
$ 9,082 $ 877 $ 2,588 $12,547
====== ==== ====== =======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-6
<PAGE> 116
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND SEPARATE
CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation, respectively. Unless the context otherwise requires, all references
to the "Trust" and the "Corporation" include the Trust and the Corporation and
those entities respectively owned or controlled by the Trust or the Corporation,
including Realty and Operating, respectively.
NOTE 2. ITT ACQUISITION
On October 19, 1997, ITT agreed to the Merger with Merger Sub, a subsidiary
of the Corporation. The terms of the Merger are set forth in the Merger
Agreement. In the Merger, each share of ITT's common stock, no par value,
together with the associated preferred share purchase right of ITT, will be
converted into the right to receive shares of common stock, par value $0.01 per
share, of the Corporation and shares of beneficial interest, par value $0.01 per
share, of the Trust aggregating $67.00 per share in value, subject to certain
collar provisions, and $15.00 in cash. As a result of the Merger, ITT will be
wholly owned by the Corporation and the Trust.
Accounting Treatment
Starwood Lodging will account for the Merger as a purchase in accordance
with Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. Although the Trust and the Corporation are issuing paired
shares to ITT stockholders and will be the surviving reporting companies
following the Merger, the Trust and the Corporation are considered the acquired
companies for accounting purposes because the ITT stockholders will represent
the majority shareholders of Starwood Lodging. The fair market value of the pro
forma paired shares and Partnership units held by the Starwood Lodging
shareholders and the Partnerships' unit holders, respectively (using the closing
stock price of $57.75 on October 27, 1997), is used as the valuation basis for
the combination. The assets and liabilities of Starwood Lodging are revalued to
their respective fair market values at the combination date. The pro forma
financial statements of Starwood Lodging reflect the combined operations from
the date of the combination. Certain reclassifications have been made to the pro
forma Starwood Lodging balance sheets to conform to the presentation of the ITT
balance sheet.
NOTE 3. PRO FORMA ADJUSTMENTS
(A) Represents ITT's pro forma balance sheet as of September 30, 1997
reflecting the sale of shares of Alcatel Alsthom owned by ITT, the sale of
ITT's 39.8% ownership interest in Madison Square Garden, certain
restructuring charges taken by ITT and costs associated with an unsolicited
tender offer by Hilton Hotel Corporation for shares of ITT (see page F-18
through F-21).
(B) Represents Starwood Lodging's pro forma combined consolidated and
separate consolidated balance sheets as of September 30, 1997, as adjusted
for the acquisition of Westin (see pages F-22 through F-28).
(C) Represents the purchase consideration in excess of the fair market
value of the combined net assets of Starwood Lodging. The amount
attributable to goodwill will be analyzed following the consummation of the
Merger to determine whether any amounts should be specifically allocated to
properties or other assets.
(D) Represents the additional debt to be incurred to finance (i) the
$15.00 per share cash portion of the purchase price of the shares to be
acquired from ITT stockholders and (ii) the cash necessary to retire
approximately 8.9 million ITT stock options.
(E) Represents the adjustment to minority interest to reflect the 6.1%
pro forma minority interest of the Partnership units plus the minority
interests of certain joint ventures.
F-7
<PAGE> 117
(F) Represents the consideration paid to the Trust by the Corporation
for the Trust's interest in ITT, net of a special dividend by the Trust
(and contribution to the Corporation by holders of paired shares
immediately prior to the Merger) of a portion of such consideration in the
expected amount of $1.5 billion.
(G) Represents a reclassification of ITT's common stock to additional
paid-in capital to conform to Starwood Lodging's par value of $0.01 per
share.
(H) Represents the elimination of the combined consolidated retained
earnings resulting from the payment of the $15.00 per share cash portion of
the consideration paid to ITT stockholders in connection with the Merger.
F-8
<PAGE> 118
STARWOOD LODGING TRUST
AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The following unaudited combined consolidated and separate consolidated pro
forma statements of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996 give effect as of January 1, 1996 to the
pending acquisitions of ITT and Westin. The pro forma information is based upon
historical information and does not purport to present what actual results would
have been had such transactions, in fact, occurred at January 1, 1996, or to
project results for any future period. Historical Trust and Corporation results
are for the nine months ended September 30, 1997 and the year ended December 31,
1996. The historical ITT results and Westin results are for the nine months
ended September 30, 1997 and the year ended December 31, 1996.
Historical Trust and Corporation results include the results of the
properties acquired in 1996 (the Westin in Washington, D.C. -- acquired on
January 4, a 58.2% interest in the Park Plaza in Boston, Massachusetts --
acquired on January 24, the Doubletree Guest Suites DFW Airport in Irving,
Texas, the Doubletree Guest Suites in Ft. Lauderdale, Florida and the Westin
Hotel in Tampa, Florida -- all three acquired on April 26, the Midland Hotel in
Chicago, Illinois -- acquired on March 22, the Clarion Hotel -- San Francisco
Airport in Milbrae, California -- acquired on April 25, the Westin at the
Philadelphia International Airport in Philadelphia, Pennsylvania -- acquired on
June 3, the Days Inn in Philadelphia, Pennsylvania -- acquired on July 1, a
portfolio of 8 hotels owned by an institution consisting of the Ritz Carlton in
Kansas City, Missouri, the Ritz Carlton in Philadelphia, Pennsylvania, the
Westin Hotel in Waltham, Massachusetts, the Westin LAX in Los Angeles,
California, the Westin Horton Plaza in San Diego, California, the Westin Hotel
Concourse in Atlanta, Georgia, the Doubletree Grand at Mall of America in
Bloomington, Minnesota and the Wyndham Hotel in Ft. Lauderdale, Florida -- all
acquired on August 12, a portfolio of 9 hotels owned by Hotels of Distinction
Ventures, Inc. consisting of the Hotel Park Tucson in Tucson, Arizona, the
Embassy Suites in Palm Desert, California, the Marque in Atlanta, Georgia, the
Arlington Park Hilton in Arlington Heights, Illinois, the Sheraton Needham in
Needham, Massachusetts, the Sheraton Minneapolis Metrodome in Minneapolis,
Minnesota, the Embassy Suites in St. Louis, Missouri, the Radisson Marque in
Winston-Salem, North Carolina (this property was sold in April, 1997) and the
Allentown Hilton in Allentown, Pennsylvania -- all acquired on August 16 except
the Sheraton Minneapolis Metrodome which closed on September 5, the Marriott
Forrestal Village in Princeton, New Jersey -- acquired on August 29, the Doral
Court and Doral Tuscany both in New York, New York -- acquired on September 19,
and a 93.5% interest in the Westwood Marquis Hotel & Gardens in Westwood,
California -- acquired on December 31) and the properties acquired in 1997 (the
Deerfield Beach Hilton in Deerfield Beach, Florida -- acquired on January 8, the
Radisson Denver South in Denver, Colorado -- acquired on January 17, the Embassy
Suites Hotel in Atlanta, Georgia, the BWI Airport Marriott in Baltimore,
Maryland, the Charleston Hilton North in Charleston, South Carolina, the Crowne
Plaza Edison in Edison, New Jersey, the Courtyard by Marriott Crystal City in
Arlington, Virginia, the Novi Hilton in Novi, Michigan, the Omni Waterside Hotel
in Norfolk, Virginia, the Park Ridge Hotel in King of Prussia, Pennsylvania, the
Sheraton Hotel in Long Beach, California, and the Sonoma County Hilton in Santa
Rosa, California -- all acquired on February 14, the Days Inn Lake Shore Drive
in Chicago, Illinois -- acquired February 21, the Hermitage Suites Hotel in
Nashville, Tennessee -- acquired on March 11, the Hotel De La Poste in New
Orleans, Louisiana -- acquired on March 12, the San Diego Marriott Suites in San
Diego, California -- acquired on April 3, the Tremont Hotel in Chicago,
Illinois -- acquired on April 4, the Raphael Hotel in Chicago,
Illinois -- acquired May 7, the Stamford Sheraton in Stamford,
Connecticut -- acquired on June 9, the Radisson Plaza Hotel in Southfield,
Michigan -- acquired on July 10, the Westin Regina Resort in Los Cabos, Mexico,
the Westin Regina Resort in Cancun, Mexico, and the Westin Regina Resort in
Puerto Vallarta, Mexico -- acquired on August 21, a portfolio of 15 hotels,
owned by Flatley Co./Tara Hotels, located in the Northeastern United
States -- acquired on September 11, the Crowne Plaza in New Orleans,
Louisiana -- acquired on September 16, and One Washington Circle in Washington,
D.C. -- acquired on September 30) from their respective dates of acquisition.
F-9
<PAGE> 119
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STARWOOD
STARWOOD PRO FORMA LODGING
LODGING ADJUSTMENTS AND ITT
PRO FORMA --------- ----------- ---------
ITT (B)
---------
(A)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 4,897 $ 911 $ $ 5,808
Costs and expenses:
Salaries, benefits and other operating.......... 3,567 556 4,123
Selling, general and administrative............. 600 59 659
Restructuring charge............................
Depreciation and amortization................... 220 170 48(C) 438
------ ---- ----- ------
4,387 785 48 5,220
------ ---- ----- ------
510 126 (48) 588
Interest expense, net............................. (126) (80) (117)(D) (323)
Miscellaneous income (expense), net............... 12 12
Provision for income taxes........................ (166) (12) 115(F) (63)
Minority interest................................. (23) (8) (6)(G) (37)
------ ---- ----- ------
Net income........................................ $ 207 $ 26 $ (56) $ 177
====== ==== ===== ======
Earnings per share................................ $ 1.75 $ 0.86
====== ======
Weighted average number of paired shares.......... 118 206
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-10
<PAGE> 120
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA TRUST
TRUST ADJUSTMENTS AND ITT
PRO FORMA --------- ----------- ---------
ITT (B)
---------
(A)
<S> <C> <C> <C> <C>
Revenues....................................... $ $ 245 $ 194(E) $ 439
Costs and expenses:
Selling, general and administrative.......... 7 7
Depreciation and amortization................ 143 143
---- ---- ---- -----
150 150
---- ---- ---- -----
95 194 289
Interest expense, net.......................... (80) (80)
Minority interest.............................. (3) (10)(G) (13)
---- ---- ---- -----
Net income..................................... $ $ 12 $ 184 $ 196
==== ==== ==== =====
Earnings per share............................. $ $0.95
==== =====
Weighted average number of shares of beneficial
interest..................................... 206
==== =====
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-11
<PAGE> 121
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA CORPORATION
CORPORATION ADJUSTMENTS AND ITT
PRO FORMA ----------- ----------- ---------
ITT (B)
---------
(A)
<S> <C> <C> <C> <C>
Revenues................................... $ 4,897 $ 893 $ $ 5,790
Costs and expenses:
Salaries, benefits and other operating... 3,567 752 4,319
Selling, general and administrative...... 600 52 652
Depreciation and amortization............ 220 27 48(C) 295
------ ---- ----- ------
4,387 831 48 5,266
------ ---- ----- ------
510 62 (48) 524
Interest expense, net...................... (126) (31) (311)(D)(E) (468)
Miscellaneous income (expense), net........ 12 12
Provision for income taxes................. (166) (12) 115(F) (63)
Minority interest.......................... (23) (5) 4(G) (24)
------ ---- ----- ------
Net income (loss).......................... $ 207 $ 14 $(240) $ (19)
====== ==== ===== ======
Earnings (loss) per share.................. $ 1.75 $ (0.09)
====== ======
Weighted average number of shares of common
stock.................................... 118 206
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-12
<PAGE> 122
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STARWOOD
STARWOOD PRO FORMA LODGING
LODGING ADJUSTMENTS AND ITT
PRO FORMA --------- ----------- ---------
ITT (B)
---------
(A)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 6,597 $ 776 $ $ 7,373
Costs and expenses:
Salaries, benefits and other operating.......... 4,755 475 5,230
Selling, general and administrative............. 838 68 906
Depreciation and amortization................... 276 143 64(C) 483
--------- --------- ----------- ---------
5,869 686 64 6,619
--------- --------- ----------- ---------
728 90 (64) 754
Interest expense, net............................. (138) (76) (156)(D) (370)
Provision for income taxes........................ (249) (10) 153(F) (106)
Minority interest................................. (40) (2) (11)(G) (53)
--------- --------- ----------- ---------
Net income........................................ $ 301 $ 2 $ (78) $ 225
======== ======== ========= ========
Earnings per share................................ $ 2.55 $ 1.19
======== ========
Weighted average number of paired shares.......... 118 189
======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-13
<PAGE> 123
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA TRUST
ITT TRUST ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Revenues....................................... $ $ 185 $ 259(E) $ 444
Costs and expenses:
Selling, general and administrative.......... 4 4
Depreciation and amortization................ 116 116
---- ---- ---- ----
120 120
---- ---- ---- ----
65 259 324
Interest expense, net.......................... (75) (75)
Minority interest.............................. (13)(G) (13)
---- ---- ---- ----
Net income..................................... $ $ (10) $ 246 $ 236
==== ==== ==== ====
Earnings per share............................. $ $1.25
==== ====
Weighted average number of shares of beneficial
interest..................................... 189
==== ====
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-14
<PAGE> 124
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA CORPORATION
ITT CORPORATION ADJUSTMENTS AND ITT
------------- --------------------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C>
Revenues.......................... $ 6,597 $ 754 $ $ 7,351
Costs and expenses:
Salaries, benefits and other
operating.................... 4,755 601 5,356
Selling, general and
administrative............... 838 64 902
Depreciation and amortization... 276 27 64(C) 367
------ ---- ---- ------
5,869 692 64 6,625
------ ---- ---- ------
728 62 (64) 726
Interest expense, net............. (138) (38) (415)(D)(E) (591)
Provision for income taxes........ (249) (10) 153(F) (106)
Minority interest................. (40) (2) 2(G) (40)
------ ---- ---- ------
Net income (loss)................. $ 301 $ 12 $(324) $ (11)
====== ==== ==== ======
Earnings (loss) per share......... $ 2.55 $ (0.06)
====== ======
Weighted average number of shares
of common stock................. 118 189
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-15
<PAGE> 125
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation, respectively. Unless the context otherwise requires, all references
to the "Trust" and the "Corporation" include the Trust and the Corporation and
those entities respectively owned or controlled by the Trust or the Corporation,
including Realty and Operating.
NOTE 2. ITT ACQUISITION
On October 19, 1997, ITT agreed to the Merger with Merger Sub, a subsidiary
of the Corporation. The terms of the Merger are set forth in the Merger
Agreement. In the Merger, each share of ITT's common stock, no par value,
together with the associated preferred share purchase right of ITT, will be
converted into the right to receive shares of common stock, par value $0.01 per
share, of the Corporation and shares of beneficial interest, par value $0.01 per
share, of the Trust aggregating $67.00 per share in value, subject to certain
collar provisions, and $15.00 in cash. As a result of the Merger, ITT will be
wholly owned by the Corporation and the Trust.
Accounting Treatment
Starwood Lodging will account for the Merger as a purchase in accordance
with Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. Although the Trust and the Corporation are issuing paired
shares to ITT stockholders and will be the surviving reporting companies
following the Merger, the Trust and the Corporation are considered the acquired
companies for accounting purposes because the ITT stockholders will represent
the majority shareholders of Starwood Lodging. The fair market value of the pro
forma paired shares and Partnership units held by the Starwood Lodging
shareholders and the Partnerships' unit holders, respectively (using the closing
stock price of $57.75 on October 27, 1997), is used as the valuation basis for
the combination. The assets and liabilities of Starwood Lodging are revalued to
their respective fair market values at the combination date. The pro forma
financial statements of the Starwood Lodging reflect the combined operations
from date of combination. Certain reclassifications have been made to Starwood
Lodging's pro forma statements of operations to conform to the presentation of
the ITT statements of income.
NOTE 3. PRO FORMA ADJUSTMENTS
(A) Represents ITT's pro forma statements of income for the nine months
ended September 30, 1997 and the year ended December 31, 1996 reflecting the
sale of shares of Alcatel Alsthom owned by ITT, the sale of ITT's 39.8%
ownership interest in Madison Square Garden, certain restructuring charges taken
by ITT and costs associated with an unsolicited tender offer by Hilton Hotel
Corporation for shares of ITT (see pages F-18 through F-21).
(B) Represents Starwood Lodging's combined consolidated and separate
consolidated pro forma statements of operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996, as adjusted for the
pending acquisition of Westin (see pages F-29 through F-39).
(C) Represents the amortization expense related to the goodwill recorded as
a result of the purchase consideration exceeding the fair market of the combined
net assets of Starwood Lodging. (See note (C) on page F-7).
(D) Represents interest expense, using an average interest rate of 7.5%, on
the additional debt incurred to finance (i) the $15.00 per share cash portion of
the purchase price of the shares to be acquired from ITT stockholders and (ii)
the cash necessary to retire approximately 8.9 million ITT stock options.
F-16
<PAGE> 126
(E) Represents interest expense, using an average interest rate of 8.5%, on
notes receivable, issued by the Corporation to the Trust, as consideration for
the Trust's interest in ITT.
(F) Represents the tax effect of the additional interest expense described
in notes (D) and (E) above.
(G) Represents the adjustment to the minority interest to reflect the
weighted average pro forma minority interest of the Partnership units and the
minority interests of certain joint ventures.
F-17
<PAGE> 127
ITT CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
SALE
OF
HISTORICAL WBIS+ PRO FORMA
---------- ----- ---------
(A)
<S> <C> <C> <C>
Total current assets.......................................... $1,302 $ $ 1,302
Plant, property and equipment................................. 4,667 4,667
Investments................................................... 433 (105) 328
Goodwill, net................................................. 1,529 1,529
Other assets.................................................. 1,256 1,256
------ ----- ------
$9,187 $(105) $ 9,082
====== ===== ======
Notes payable and current maturities of long-term debt........ $ 232 $ $ 232
Other current liabilities..................................... 1,240 1,240
Long-term debt................................................ 3,467 (105) 3,362
Deferred income taxes and other liabilities................... 651 651
Minority interest............................................. 228 228
Common stock.................................................. 2,916 2,916
Cumulative translation adjustment............................. (128) (128)
Retained earnings............................................. 581 581
------ ----- ------
$9,187 $(105) $ 9,082
====== ===== ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
F-18
<PAGE> 128
ITT CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SALE OF SALE OF SALE OF OTHER UNUSUAL
HISTORICAL ALCATEL MSG WBIS+ ITEMS PRO FORMA
---------- ------- ------- ------- ------------- ---------
(A) (A) (A)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $4,897 $ $ $ $ $ 4,897
Costs and expenses:
Salaries, benefits and other
operating.......................... 3,567 3,567
Selling, general and administrative... 600 600
Restructuring charge.................. 58 (58)(B)
Depreciation and amortization......... 220 220
------ ----- ----- --- ---- ------
4,445 (58) 4,387
------ ----- ----- --- ---- ------
452 58 510
Interest expense, net................... (161) 13 17 5 (126)
Gain on sale of Alcatel Alsthom
shares................................ 183 (183)
Gain on sale of investment in Madison
Square Garden......................... 200 (200)
Miscellaneous income (expense), net..... (35) (4) 5 46(B) 12
Provision for income taxes.............. (276) 72 75 (37)(C) (166)
Minority equity......................... (23) (23)
------ ----- ----- --- ---- ------
Net income.............................. $ 340 $ (98) $ (112) $10 $ 67 $ 207
====== ===== ===== === ==== ======
Earnings per share...................... $ 2.88 $ 1.75
====== ======
Weighted average number of shares....... 118 118
====== ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
F-19
<PAGE> 129
ITT CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SALE
SALE OF SALE OF OF OTHER UNUSUAL
HISTORICAL ALCATEL MSG WBIS+ ITEMS PRO FORMA
---------- -------- ------- ----- ------------- ---------
(A) (A) (A)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $6,597 $ $ $ $ 6,597
Costs and expenses:
Salaries, benefits and other
operating................ 4,755 4,755
Selling, general and
administrative........... 838 838
Depreciation and
amortization............. 276 276
------ ---- ---- --- ------ ------
5,869 5,869
------ ---- ---- --- ------ ------
728 728
Interest expense, net......... (230) 50 38 4 (138)
Miscellaneous income
(expense), net.............. 1 (7) 6
Provision for income taxes.... (210) (22) (13) (4) (249)
Minority equity............... (40) (40)
------ ---- ---- --- ------ ------
Net Income.................... $ 249 $ 28 $ 18 $ 6 $ 301
====== ==== ==== === ====== ======
Earnings per share............ $ 2.11 $ 2.55
====== ======
Weighted average number of
shares...................... 118 118
====== ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
F-20
<PAGE> 130
ITT CORPORATION
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
The unaudited pro forma consolidated financial statements may not be
indicative of the results that would have occurred if the transactions discussed
above had actually occurred on the dates indicated or which may be obtained in
the future. The unaudited pro forma consolidated financial statements should be
read in conjunction with the historical consolidated financial statements and
accompanying notes to such financial statements of ITT, which are incorporated
by reference herein to ITT's Annual Report on Form 10-K for the Year Ended
December 31, 1996 and ITT's Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1997 for which Starwood Lodging accepts no responsibility. Set
forth below is a discussion of the adjustments that are given effect in the
unaudited pro forma consolidated financial statements.
BALANCE SHEET
The accompanying unaudited consolidated pro forma balance sheet assumes
that the following adjustments occurred as of September 30, 1997.
(A) Pro forma effect is given to the sale of ITT's interest in WBIS+ at
its book value of $105 million. On May 12, 1997, ITT and Dow Jones &
Company, Inc. reached a definitive agreement to sell WBIS+, Channel 31
in New York City, to Paxson Communications Corporation ("Paxson") for
a purchase price of $257.5 million.
STATEMENTS OF INCOME
The accompanying unaudited consolidated pro forma statements of income
assume the following adjustments:
(A) Pro forma effect is given to the asset dispositions indicated in the
unaudited consolidated pro forma statements of income as if such
transactions had occurred at the beginning of the respective periods
presented.
(B) A $58 million pre-tax charge in connection with the restructuring of
the ITT's World Headquarters operations and a $46 million pre-tax
charge for costs associated with an unsolicited tender offer by Hilton
Hotels Corporation for shares of ITT's common stock are included in
"Other Unusual Items" for the nine months ended September 30, 1997.
(C) Represents the tax effects of the pro forma adjustments noted in notes
(A) and (B).
F-21
<PAGE> 131
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(UNAUDITED)
The following unaudited pro forma combined consolidated and separate
consolidated balance sheets are presented as if the acquisition of Westin had
occurred as of September 30, 1997.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets should be read in conjunction with the separate consolidated and
combined consolidated historical financial statements of the Trust and the
Corporation and the notes thereto included in Starwood Lodging's Joint Annual
Report on Form 10-K for the year ended December 31, 1996, and the unaudited
separate and combined financial statements and related notes of Starwood Lodging
included in its Joint Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997, each of which are
incorporated by reference in this Joint Proxy Statement/Prospectus. In
management's opinion, all pro forma adjustments necessary to reflect the effects
of the acquisition of Westin have been made.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets are not necessarily indicative of what the actual financial
position of Starwood Lodging would have been as of September 30, 1997, nor do
they purport to represent the future financial position of Starwood Lodging.
F-22
<PAGE> 132
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WESTIN PRO FORMA STARWOOD LODGING
ACQUISITION ADJUSTMENTS COMBINED
HISTORICAL ----------- ----------- ----------------
STARWOOD (B)
LODGING
COMBINED
----------
(A)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net....................... $ 32,215 $ $ $ 32,215
Hotel assets, net..................................... 2,323,657 874,618 3,198,275
---------- ----------- ----------- ----------------
2,355,872 874,618 3,230,490
Mortgage notes receivable, net........................ 79,465 79,465
Investments........................................... 1,691 75,850 77,541
---------- ----------- ----------- ----------------
Total real estate investments..................... 2,437,028 950,468 3,387,496
Cash and cash equivalents............................. 28,527 178,000 28,527
(178,000)
Accounts, interest and rent receivable................ 71,709 71,709
Notes receivable, net................................. 2,701 14,076 16,777
Inventories, prepaid expenses and other assets........ 55,633 865,056 180,000(E) 1,100,689
---------- ----------- ----------- ----------------
$2,595,598 $ 1,829,600 $ 180,000 $4,605,198
========== ========== =========== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of
credit.............................................. $1,217,861 $ 1,030,093 $(500,000)(C) $1,925,954
178,000
Mortgage and other notes payable...................... 218,558 218,558
Accounts payable and other liabilities................ 79,768 180,000(E) 259,768
Distributions payable................................. 28,447 28,447
---------- ----------- ----------- ----------------
1,544,634 1,208,093 (320,000) 2,432,727
---------- ----------- ----------- ----------------
Commitments and contingencies.........................
MINORITY INTEREST..................................... 258,926 48,993 24,768(C) 332,687
Class B exchangeable preferred pro forma shares; $.01
par value; authorized 10,000,000; outstanding
5,294,783, at redemption value...................... 203,849 203,849
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,725,852, 56,425,852 pro forma...... 457 107(C) 564
$.01 par value; authorized 10,000,000 Class A
Exchangeable preferred pro forma shares;
outstanding 6,285,783............................. 63 63
Corporation common stock,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,725,852, 56,425,852 pro forma...... 457 107(C) 564
Additional paid-in capital............................ 1,094,849 368,602 475,018(C) 1,938,469
Accumulated deficit................................... (303,725) (303,725)
---------- ----------- ----------- ----------------
792,038 368,665 475,232 1,635,935
---------- ----------- ----------- ----------------
$2,595,598 $ 1,829,600 $ 180,000 $4,605,198
========== ========== =========== ===============
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-23
<PAGE> 133
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
WESTIN PRO FORMA PRO FORMA
ACQUISITION ADJUSTMENTS TRUST
HISTORICAL ----------- ----------- ----------
TRUST (B)
----------
(A)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net...................... $ 9,925 $ $ $ 9,925
Hotel assets, net.................................... 2,091,246 694,118 2,785,364
---------- ----------- ----------- ----------
2,101,171 694,118 2,795,289
Mortgage notes receivable, net....................... 79,465 79,465
Mortgage notes receivable Corporation................ 209,642 209,642
Investments.......................................... 1,451 69,850 71,301
---------- ----------- ----------- ----------
Total real estate investments...................... 2,391,729 763,968 3,155,697
Cash and cash equivalents............................ 3,169 178,000 25,000(D) 3,169
(178,000) (25,000)(D)
Rent and interest receivable......................... 13,823 13,823
Notes receivable, net................................ 2,080 14,076 16,156
Notes receivable Corporation......................... 57,712 294,184 (25,000)(D) 326,896
Prepaid expenses and other assets.................... 22,693 726,295 748,988
---------- ----------- ----------- ----------
$2,491,206 $ 1,798,523 $ (25,000) $4,264,729
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of
credit............................................. $1,217,861 $ 1,030,093 $(475,000)(C) $1,925,954
178,000 (25,000)(D)
Mortgage and other notes payable..................... 217,606 217,606
Accounts payable and other liabilities............... 19,233 19,233
Distributions payable................................ 28,348 28,348
---------- ----------- ----------- ----------
1,483,048 1,208,093 (500,000) 2,191,141
---------- ----------- ----------- ----------
Commitments and contingencies........................
MINORITY INTEREST.................................... 247,804 46,543 21,629(C) 315,976
Class B exchangeable preferred pro forma shares; $.01
par value; authorized 10,000,000; outstanding
5,294,783, at redemption value..................... 203,849 203,849
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,725,852, 56,425,852 pro forma..... 457 107(C) 564
$.01 par value; authorized 10,000,000 Class A
Exchangeable preferred pro forma shares;
outstanding 6,285,783............................ 63 63
Additional paid-in capital........................... 979,885 339,975 453,264(C) 1,773,124
Accumulated deficit.................................. (219,988) (219,988)
---------- ----------- ----------- ----------
760,354 340,038 453,371 1,553,763
---------- ----------- ----------- ----------
$2,491,206 $ 1,798,523 $ (25,000) $4,264,729
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-24
<PAGE> 134
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
WESTIN PRO FORMA PRO FORMA
ACQUISITION ADJUSTMENTS CORPORATION
HISTORICAL ----------- ----------- -----------
CORPORATION (B)
-----------
(A)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net............... $ 22,290 $ $ $ 22,290
Hotel assets, net............................. 232,411 180,500 412,911
----------- ----------- ----------- -----------
254,701 180,500 435,201
Investments................................... 240 6,000 6,240
----------- ----------- ----------- -----------
Total real estate investments............ 254,941 186,500 441,441
Cash and cash equivalents..................... 25,358 25,000(C),(D) 25,358
(25,000)(D)
Accounts and interest receivable.............. 57,886 57,886
Notes receivable, net......................... 621 621
Inventories, prepaid expenses and other
assets...................................... 32,940 138,761 180,000(E) 351,701
----------- ----------- ----------- -----------
$ 371,746 $ 325,261 $ 180,000 $ 877,007
========= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable.............. $ 952 $ $ $ 952
Mortgage notes payable Trust.................. 209,642 209,642
Notes payable Trust........................... 57,712 294,184 (25,000)(D) 326,896
Accounts payable and other liabilities........ 60,535 180,000(E) 240,535
Distributions payable......................... 99 99
----------- ----------- ----------- -----------
328,940 294,184 155,000 778,124
----------- ----------- ----------- -----------
Commitments and contingencies.................
MINORITY INTEREST............................. 11,122 2,450 3,139(C),(D) 16,711
SHAREHOLDERS' EQUITY
Corporation common stock,
$.01 par value; authorized 100,000,000
shares; outstanding 45,725,852,
56,425,852 pro forma..................... 457 107(C),(D) 564
Additional paid-in capital.................... 114,964 28,627 21,754(C),(D) 165,345
Accumulated deficit........................... (83,737) (83,737)
----------- ----------- ----------- -----------
31,684 28,627 21,861 82,172
----------- ----------- ----------- -----------
$ 371,746 $ 325,261 $ 180,000 $ 877,007
========= ======== ========= =========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-25
<PAGE> 135
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
NOTE 1. BASIS OF PRESENTATION
(A) The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires all references to the "Trust"
and the "Corporation" include the Trust and the Corporation and those entities
respectively owned or controlled by the Trust or the Corporation, including
Realty and Operating, respectively.
NOTE 2. WESTIN ACQUISITION
(B) On September 9, 1997, the Company announced the execution of a
definitive agreement to acquire Westin for approximately $1.83 billion (using
the closing price of $49.4375 per paired share on September 8, 1997). As part of
the acquisition, Westin Worldwide will be merged into the Trust, the stock of
Seattle, Lauderdale and Denver (which own the Westin Hotel Seattle, the Westin
Hotel Fort Lauderdale and the Westin Hotel Tabor Center, respectively) will be
contributed to Realty and the stock of Atlanta and St. John (which own the
Westin Peachtree Plaza and the Westin Resort, St. John, respectively) will be
contributed to Operating. Also as part of the acquisition, certain assets of
Westin Worldwide, including portions of its management and franchising
operations, and of Seattle, Lauderdale and Denver are expected either to be
transferred to the Corporation and Operating or transferred into subsidiaries in
which the Trust will own nonvoting preferred stock and less than 10% of the
voting stock and the Corporation will own more than 90% of the voting stock.
The pro forma adjustments allocate Westin's assets between the Trust and
the Corporation in accordance with the terms of the acquisition. As a result,
all the properties owned by Westin (other than the Westin Peachtree Plaza and
the Westin Resort, St. John) are combined with the Trust. The following is a
list of the hotels that are wholly-owned by Westin:
<TABLE>
<CAPTION>
NAME CITY STATE TOTAL ROOMS
- ---------------------------------------------- ------------- ------------------- -----------
<S> <C> <C> <C>
Hotels owned as of December 31, 1996
The Westin Hotel Seattle...................... Seattle Washington 865
The Westin San Francisco Airport.............. San Francisco California 388
The Westin Hotel Cincinnati................... Cincinnati Ohio 448
The Westin Galleria and Oaks.................. Houston Texas 891
The Westin South Coast Plaza.................. Orange County California 396
The Westin Hotel Fort Lauderdale.............. Ft. Florida 293
Lauderdale
The Cherry Creek Inn.......................... Denver Colorado 320
-----------
Sub-total................................ 3,601
-----------
</TABLE>
<TABLE>
<CAPTION>
NAME CITY STATE/TERRITORY TOTAL ROOMS
- ---------------------------------------------- ------------- ------------------- -----------
<S> <C> <C> <C>
Hotels acquired since January 1, 1997
The Westin Hotel Indianapolis................. Indianapolis Indiana 573
The Westin Hotel Tabor Center................. Denver Colorado 420
The Westin Peachtree Plaza.................... Atlanta Georgia 1,068
The Westin Resort............................. St. John U.S. Virgin Islands 285
-----------
Sub-total................................ 2,346
-----------
Total.................................... 5,947
=========
</TABLE>
F-26
<PAGE> 136
In addition, Westin has joint venture interests in the following
properties:
<TABLE>
<CAPTION>
NAME/OWNERSHIP PERCENTAGE CITY STATE/PROVINCE TOTAL ROOMS
- ---------------------------------------------- ------------- ------------------- -----------
<S> <C> <C> <C>
The Westin Hotel O'Hare (49%)................. Chicago Illinois 525
The Westin Hotel Galleria (20%)............... Dallas Texas 431
The Westin Office Building (25%).............. Seattle Washington N/A(1)
The Westin London (10%)....................... London Ontario 329
</TABLE>
- -------------------------
(1) contains approximately 350,000 square feet
The acquisition price for Westin is expected to be allocated as follows (in
thousands):
<TABLE>
<CAPTION>
TRUST CORPORATION COMBINED
---------- ----------- ----------
<S> <C> <C> <C>
Wholly owned assets.................................... $ 694,118 $ 180,500 $ 874,618
Joint venture assets................................... 69,850 6,000 75,850
Notes receivable....................................... 14,076 -- 14,076
Other assets(1)........................................ 726,295 138,761 865,056
---------- ----------- ----------
Total assets...................................... $1,504,339 $ 325,261 $1,829,600
========= ========= =========
</TABLE>
- ---------------
(1) Other assets includes the value of existing management contracts, certain
intangible assets, and an amount allocated to a wholly owned captive
insurance company.
As partial consideration for the acquisition of Westin, the Company intends
to issue 6,285,783 shares of newly created Class A Exchangeable Preferred Stock
with an aggregate value of approximately $310.8 million (using the closing stock
price of $49.4375 per paired share on September 8, 1997) and 5,294,783 shares of
newly created Class B Exchangeable Preferred Stock with an aggregate value of
approximately $261.8 million (using the closing stock price of $49.4375 per
paired share on September 8, 1997). The Company also intends to issue 991,000
limited partnership units of the Partnerships with an aggregate value of
approximately $49.0 million (using the closing stock price of $49.4375 per
paired share on September 8, 1997), exchangeable on a one for one basis for
Class B Exchangeable Preferred Stock or paired shares. The Corporation expects
to borrow approximately $294.2 million from the Trust to partially finance the
acquisition of assets allocable to the Corporation.
Finally, the Company intends to assume approximately $1.030 billion of debt
and pay cash in the amount of approximately $178.0 million to be drawn down
under the Company's revolving line of credit. The Company expects to refinance
some of Westin's debt to obtain credit terms similar to the Company's existing
credit facilities.
NOTE 3. PRO FORMA ADJUSTMENTS
(C) The Company expects to issue, in a take-down from a shelf registration
statement to be filed with the Securities and Exchange Commission in connection
with a public offering, approximately 10.7 million paired shares of the Company
at an initial offering price of $49.4375 per paired share (using the closing
price per paired share on September 8, 1997) (the "Offering"). Total combined
net proceeds from the Offering of approximately $500 million, including
approximately $59.2 million attributable to minority interest, will be used
partially to fund the acquisition of Westin and to paydown existing
indebtedness.
(D) Reflects proceeds from the Offering to the Corporation which will be
used to reduce intercompany indebtedness to the Trust and will be used by the
Trust to pay down existing third-party indebtedness.
(E) Reflects estimated deferred tax liability expected to be recorded as a
result of the Westin acquisition.
F-27
<PAGE> 137
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The following unaudited combined consolidated and separate consolidated pro
forma statements of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996 give effect as of January 1, 1996 to the
pending acquisition of Westin. The pro forma information is based upon
historical information and does not purport to present what actual results would
have been had such transactions, in fact, occurred at January 1, 1996, or to
project results for any future period. Historical Trust and Corporation results
are for the nine months ended September 30, 1997 and the year ended December 31,
1996. The historical Westin results are for the nine months ended September 30,
1997 and the year ended December 31, 1996.
Historical Trust and Corporation results include the results of the
properties acquired in 1996 (the Westin in Washington, D.C. -- acquired on
January 4, a 58.2% interest in the Park Plaza in Boston, Massachusetts --
acquired on January 24, the Doubletree Guest Suites DFW Airport in Irving,
Texas, the Doubletree Guest Suites in Ft. Lauderdale, Florida and the Westin
Hotel in Tampa, Florida -- all three acquired on April 26, the Midland Hotel in
Chicago, Illinois -- acquired on March 22, the Clarion Hotel -- San Francisco
Airport in Milbrae, California -- acquired on April 25, the Westin at the
Philadelphia International Airport in Philadelphia, Pennsylvania -- acquired on
June 3, the Days Inn in Philadelphia, Pennsylvania -- acquired on July 1, a
portfolio of 8 hotels owned by an institution consisting of the Ritz Carlton in
Kansas City, Missouri, the Ritz Carlton in Philadelphia, Pennsylvania, the
Westin Hotel in Waltham, Massachusetts, the Westin LAX in Los Angeles,
California, the Westin Horton Plaza in San Diego, California, the Westin Hotel
Concourse in Atlanta, Georgia, the Doubletree Grand at Mall of America in
Bloomington, Minnesota and the Wyndham Hotel in Ft. Lauderdale, Florida -- all
acquired on August 12, a portfolio of 9 hotels owned by Hotels of Distinction
Ventures, Inc. consisting of the Hotel Park Tucson in Tucson, Arizona, the
Embassy Suites in Palm Desert, California, the Marque in Atlanta, Georgia, the
Arlington Park Hilton in Arlington Heights, Illinois, the Sheraton Needham in
Needham, Massachusetts, the Sheraton Minneapolis Metrodome in Minneapolis,
Minnesota, the Embassy Suites in St. Louis, Missouri, the Radisson Marque in
Winston-Salem, North Carolina (this property was sold in April, 1997) and the
Allentown Hilton in Allentown, Pennsylvania -- all acquired on August 16 except
the Sheraton Minneapolis Metrodome which closed on September 5, the Marriott
Forrestal Village in Princeton, New Jersey -- acquired on August 29, the Doral
Court and Doral Tuscany both in New York, New York -- acquired on September 19,
and a 93.5% interest in the Westwood Marquis Hotel & Gardens in Westwood,
California -- acquired on December 31) and the properties acquired in 1997 (the
Deerfield Beach Hilton in Deerfield Beach, Florida -- acquired on January 8, the
Radisson Denver South in Denver, Colorado -- acquired on January 17, the Embassy
Suites Hotel in Atlanta, Georgia, the BWI Airport Marriott in Baltimore,
Maryland, the Charleston Hilton North in Charleston, South Carolina, the Crowne
Plaza Edison in Edison, New Jersey, the Courtyard by Marriott Crystal City in
Arlington, Virginia, the Novi Hilton in Novi, Michigan, the Omni Waterside Hotel
in Norfolk, Virginia, the Park Ridge Hotel in King of Prussia, Pennsylvania, the
Sheraton Hotel in Long Beach, California, and the Sonoma County Hilton in Santa
Rosa, California -- all acquired on February 14, the Days Inn Lake Shore Drive
in Chicago, Illinois -- acquired February 21, the Hermitage Suites Hotel in
Nashville, Tennessee -- acquired on March 11, the Hotel De La Poste in New
Orleans, Louisiana -- acquired on March 12, the San Diego Marriott Suites in San
Diego, California -- acquired on April 3, the Tremont Hotel in Chicago,
Illinois -- acquired on April 4, the Raphael Hotel in Chicago,
Illinois -- acquired May 7, the Stamford Sheraton in Stamford,
Connecticut -- acquired on June 9, the Radisson Plaza Hotel in Southfield,
Michigan -- acquired on July 10, the Westin Regina Resort in Los Cabos, Mexico,
the Westin Regina Resort in Cancun, Mexico, and the Westin Regina Resort in
Puerto Vallarta, Mexico -- acquired on August 21, a portfolio of 15 hotels,
owned by Flatley Co./Tara Hotels, located in the Northeastern United
States -- acquired on September 11, the Crowne Plaza in New Orleans,
Louisiana -- acquired on September 16, and One Washington Circle in Washington,
D.C. -- acquired on September 30) from their respective dates of acquisition.
F-28
<PAGE> 138
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
STARWOOD PRO FORMA
LODGING W & S HOTEL LLC PRO FORMA STARWOOD LODGING
COMBINED & SUBSIDIARIES ADJUSTMENTS COMBINED
---------------- --------------- ----------- ----------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms.............................. $403,235 $ 110,869 $ 24,222 $538,326
Food & beverage.................... 157,260 51,566 12,641 221,467
Other.............................. 43,119 12,916 2,683 58,718
---------------- --------------- ----------- ----------------
Total.......................... 603,614 175,351 39,546(C) 818,511
Gaming............................... 11,392 11,392
Interest from mortgage and other
notes.............................. 10,576 3,128 13,704
Rent from leased hotel properties and
income from investments............ 701 1,196 1,897
Management fees and other income..... 6,726 60,162 (1,496)(G) 65,392
Gain (loss) on sales of real estate
investments and non-recurring
items.............................. (221) 13,423 (13,423)(H) (221)
---------------- --------------- ----------- ----------------
632,788 253,260 24,627 910,675
---------------- --------------- ----------- ----------------
EXPENSES
Hotel operations:
Rooms.............................. 98,004 23,391 5,773 127,168
Food & beverage.................... 118,058 36,798 8,780 163,636
Other.............................. 200,856 68,939 13,124 282,919
---------------- --------------- ----------- ----------------
416,918 129,128 27,677(C) 573,723
(1,496)(G) (1,496)
(1,832)(I) (1,832)
---------------- --------------- ----------- ----------------
Total.......................... 416,918 129,128 24,349 570,395
Gaming............................... 12,554 12,554
Interest............................. 41,139 67,049(J) 80,438
(27,750)(K)
Depreciation and amortization........ 104,271 65,240(L) 169,511
Administrative and general........... 19,002 13,290 32,292
---------------- --------------- ----------- ----------------
593,884 142,418 128,888 865,190
---------------- --------------- ----------- ----------------
Income from operations before income
taxes and minority interest........ 38,904 110,842 (104,261) 45,485
Provision for income taxes........... 12,370(M) 12,370
---------------- --------------- ----------- ----------------
Income from operations before
minority interest.................. 38,904 $ 110,842 $(116,631) 33,115
================= ===========
Minority interest (N)................ 10,627 7,561
---------------- ----------------
Income from operations............... $ 28,277 $ 25,554
================ ================
Income from operations per Paired
Share (O).......................... $ 0.60 $ 0.37
================ ================
Weighted average number of Paired
Shares............................. 46,830 69,111
================ ================
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-29
<PAGE> 139
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL W & S HOTEL LLC PRO FORMA PRO FORMA
TRUST & SUBSIDIARIES ADJUSTMENTS TRUST
---------------- --------------- ----------- ----------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Rents from Corporation.......... $157,571 $ $ 38,884(D) $196,455
Interest from Corporation....... 9,776 21,198(E) 30,974
Interest from mortgage and other
notes......................... 10,576 3,128 13,704
Rent from leased hotel
properties and income from
investments................... 701 1,196 1,897
Other income.................... 1,853 1,853
Gain on sale of real estate
investments and non-recurring
items......................... 283 13,423 (13,423)(H) 283
---------------- --------------- ----------- ----------------
180,760 17,747 46,659 245,166
---------------- --------------- ----------- ----------------
EXPENSES
Interest........................ 41,012 67,049(J) 80,311
(27,750)(K)
Depreciation and amortization... 88,204 55,059(L) 143,263
Administrative and general...... 7,031 7,031
---------------- --------------- ----------- ----------------
136,247 94,358 230,605
---------------- --------------- ----------- ----------------
Income from operations before
minority interest............. 44,513 $17,747 $ (47,699) 14,561
============= =========
Minority interest (N)........... 9,957 2,790
---------------- ----------------
Income from operations.......... $ 34,556 $ 11,771
============= =============
Income from operations per share
(O)........................... $ 0.73 $ 0.17
============= =============
Weighted average number
of shares..................... 46,830 69,111
============= =============
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-30
<PAGE> 140
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS CORPORATION
HISTORICAL W & S HOTEL LLC ----------- -------------------
CORPORATION & SUBSIDIARIES
----------- ---------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms............................ $ 403,235 $ 110,869 $ 24,222 $ 538,326
Food & beverage.................. 157,260 51,566 12,641 221,467
Other............................ 43,119 12,916 2,683 58,718
----------- --------------- ----------- -------------------
Total......................... 603,614 175,351 39,546(C) 818,511
Gaming............................. 11,392 11,392
Management fees and other income... 4,873 60,162 (1,496)(G) 63,539
Loss on sales of real estate
investments...................... (504) (504)
----------- --------------- ----------- -------------------
619,375 235,513 38,050 892,938
----------- --------------- ----------- -------------------
EXPENSES
Hotel operations:
Rooms............................ 98,004 23,391 5,773 127,168
Food & beverage.................. 118,058 36,798 8,780 163,636
Other............................ 200,856 68,939 13,124 282,919
----------- --------------- ----------- -------------------
416,918 129,128 27,677(C) 573,723
(1,496)(G) (1,496)
(1,832)(I) (1,832)
----------- --------------- ----------- -------------------
Total......................... 416,918 129,128 24,349 570,395
Gaming............................. 12,554 12,554
Rent to Trust...................... 157,571 38,884(D) 196,455
Interest to Trust.................. 9,776 21,198(E) 30,974
Interest........................... 127 127
Depreciation and amortization...... 16,067 10,181(L) 26,248
Administrative and general......... 11,971 13,290 25,261
----------- --------------- ----------- -------------------
624,984 142,418 94,612 862,014
----------- --------------- ----------- -------------------
Income (loss) before income taxes
and minority interest............ (5,609) 93,095 (56,562) 30,924
Provision for income taxes......... 12,370(M) 12,370
----------- --------------- ----------- -------------------
Income before minority interest.... (5,609) $ 93,095 $ (68,932) 18,554
============= =========
Minority interest(N)............... 670 4,771
----------- -------------------
Net income (loss).................. $ (6,279) $ 13,783
========= ===============
Net income (loss) per share(O)..... $ (0.13) $ 0.20
========= ===============
Weighted average number of
shares........................... 46,830 69,111
========= ===============
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-31
<PAGE> 141
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
W & S HOTEL PRO FORMA
LLC PRO FORMA STARWOOD LODGING
& ADJUSTMENTS COMBINED
SUBSIDIARIES ----------- ------------------
HISTORICAL -------------
STARWOOD LODGING
COMBINED (B)
----------------
(A)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms................................... $260,175 $ 102,091 $ 65,559 $427,825
Food & beverage......................... 94,816 52,036 33,551 180,403
Other................................... 30,119 14,245 7,743 52,107
---------------- ------------- ----------- ----------
Total............................... 385,110 168,372 106,853(C) 660,335
Gaming.................................... 23,630 23,630
Interest from mortgage and other notes.... 11,262 1,712 12,974
Rent from leased hotel properties and
income from investments................. 822 5,036 (3,406)(F) 2,452
Management fees and other income.......... 3,424 69,693 (753)(G) 72,364
Gain on sales of real estate
investments............................. 4,290 4,290
---------------- ------------- ----------- ----------
428,538 244,813 102,694 776,045
---------------- ------------- ----------- ----------
EXPENSES
Hotel operations:
Rooms................................... 67,017 23,221 15,655 105,893
Food & beverage......................... 72,696 36,569 23,503 132,768
Other................................... 135,302 73,270 35,759 244,331
---------------- ------------- ----------- ----------
275,015 133,060 74,917(C) 482,992
(753)(G) (753)
(997)(I) (997)
---------------- ------------- ----------- ----------
Total............................... 275,015 133,060 73,167 481,242
Gaming.................................... 21,834 21,834
Interest.................................. 23,337 89,397(J) 75,734
(37,000)(K)
Depreciation and amortization............. 55,745 86,986(L) 142,731
Administrative and general................ 16,495 23,990 40,485
---------------- ------------- ----------- ----------
392,426 157,050 212,550 762,026
---------------- ------------- ----------- ----------
Income before income taxes and
minority interest....................... 36,112 87,763 (109,856) 14,019
Provision for income taxes................ 9,803(M) 9,803
---------------- ------------- ----------- ----------
Income before minority interest........... 36,112 $ 87,763 $ (119,659) 4,216
============= ==========
Minority interest (N)..................... 10,238 2,460
---------------- ----------
Net income................................ $ 25,874 $ 1,756
============== =================
Net income per Paired Share (O)........... $ 0.87 $ 0.03
============== =================
Weighted average number of Paired
Shares.................................. 29,884 52,165
============== =================
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-32
<PAGE> 142
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
W & S HOTEL LLC PRO FORMA PRO FORMA
& SUBSIDIARIES ADJUSTMENTS TRUST
HISTORICAL --------------- ----------- ---------------
TRUST (B)
----------------
(A)
<S> <C> <C> <C> <C>
REVENUE
Rents from Corporation............. $ 87,593 $ $ 38,394(D) $ 125,987
Interest from Corporation.......... 9,084 28,264(E) 37,348
Interest from mortgage and other
notes............................ 11,262 1,712 12,974
Rent from leased hotel properties
and income from investments...... 822 5,036 (3,406)(F) 2,452
Other income....................... 2,008 2,008
Gain on sale of real estate
investments...................... 4,290 4,290
---------------- ------- ----------- ---------------
115,059 6,748 63,252 185,059
---------------- ------- ----------- ---------------
EXPENSES
Interest........................... 23,088 89,397(J) 75,485
(37,000)(K)
Depreciation and amortization...... 42,517 73,411(L) 115,928
Administrative and general......... 4,134 4,134
---------------- ------- ----------- ---------------
69,739 125,808 195,547
---------------- ------- ----------- ---------------
Income (loss) before minority
interest......................... 45,320 $ 6,748 $ (62,556) (10,488)
============= =========
Minority interest (N).............. 11,731 (498)
---------------- ---------------
Net income (loss).................. $ 33,589 $ (9,990)
============= ============
Net income (loss) per share (O).... $ 1.12 $ (0.19)
============= ============
Weighted average number of
shares........................... 29,884 52,165
============= ============
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations
F-33
<PAGE> 143
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
W & S HOTEL LLC PRO FORMA PRO FORMA
& SUBSIDIARIES ADJUSTMENTS CORPORATION
HISTORICAL --------------- ----------- ---------
CORPORATION (B)
-----------
(A)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms........................................ $ 260,175 $ 102,091 $ 65,559 $427,825
Food & beverage.............................. 94,816 52,036 33,551 180,403
Other........................................ 30,119 14,245 7,743 52,107
----------- --------------- ----------- ---------
Total.................................... 385,110 168,372 106,853(C) 660,335
Gaming......................................... 23,630 23,630
Management fees and other income............... 1,416 69,693 (753)(G) 70,356
----------- --------------- ----------- ---------
410,156 238,065 106,100 754,321
----------- --------------- ----------- ---------
EXPENSES
Hotel operations:
Rooms........................................ 67,017 23,221 15,655 105,893
Food & beverage.............................. 72,696 36,569 23,503 132,768
Other........................................ 135,302 73,270 35,759 244,331
----------- --------------- ----------- ---------
275,015 133,060 74,917(C) 482,992
(753)(G) (753)
(997)(I) (997)
----------- --------------- ----------- ---------
Total.................................... 275,015 133,060 73,167 481,242
Gaming......................................... 21,834 21,834
Rent to Trust.................................. 87,593 38,394(D) 125,987
Interest to Trust.............................. 9,084 28,264(E) 37,348
Interest....................................... 249 249
Depreciation and amortization.................. 13,228 13,575(L) 26,803
Administrative and general..................... 12,361 23,990 36,351
----------- --------------- ----------- ---------
419,364 157,050 153,400 729,814
----------- --------------- ----------- ---------
Income (loss) before income taxes and minority
interest..................................... (9,208) 81,015 (47,300) 24,507
Provision for income taxes..................... 9,803(M) 9,803
----------- --------------- ----------- ---------
Income before minority interest................ (9,208) $ 81,015 $ (57,103) 14,704
================= ===========
Minority interest (N).......................... (1,493) 2,958
----------- ---------
Net income (loss).............................. $ (7,715) $ 11,746
=========== ==========
Net income (loss) per share (O)................ $ (0.26) $ 0.22
=========== ==========
Weighted average number of shares.............. 29,884 52,165
=========== ==========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-34
<PAGE> 144
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires, all references herein to the
"Company" refer to the Trust and the Corporation, and all references to the
"Trust" and the "Corporation" include the Trust and the Corporation and those
entities respectively owned or controlled by the Trust or the Corporation,
including Realty and Operating.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) Reflects the Company's historical statements of operations. Results of
operations for properties sold or pending sale are not considered material to
the pro forma presentation. The historical statements of operations for the year
ended December 31, 1996 exclude the impact of extraordinary items.
(B) Reflects Westin's historical statements of operations excluding
depreciation and amortization, interest expense and provision for income taxes
which are reflected as pro forma adjustments. The following is a reconciliation
of the historical results of Westin in the pro forma statements of operations to
the unaudited statement of operations for the nine months ended September 30,
1997 and to the audited statement of operations for the year ended December 31,
1996:
<TABLE>
<S> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
Income before depreciation and amortization, interest and provision for income
taxes per pro forma combined statement of operations............................ $110,842
Depreciation and amortization..................................................... 36,402
Interest expense.................................................................. 34,536
Provision for income taxes........................................................ 16,295
------
Net income per unaudited statement of operations.................................. $ 23,609
======
FOR THE YEAR ENDED DECEMBER 31, 1996:
Income before depreciation and amortization, interest and provision for income
taxes per pro forma combined statement of operations............................ $ 87,763
Depreciation and amortization..................................................... 42,566
Interest expense.................................................................. 41,965
Provision for income taxes........................................................ 3,904
------
Net loss per audited statement of operations...................................... $ (672)
======
</TABLE>
F-35
<PAGE> 145
Listed below are the effects each wholly-owned hotel had on the combined
pro forma statements of operations for the nine months ended September 30, 1997
and the year ended December 31, 1996 (in thousands):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
HOTEL REVENUES EXPENSES OVER EXPENSES
- ----------------------------------------------------- -------- -------- -------------
<S> <C> <C> <C>
The Westin Hotel Seattle............................. $ 35,816 $ 22,320 $13,496
The Westin Hotel San Francisco Airport............... 19,058 13,039 6,019
The Westin Hotel Cincinnati.......................... 15,547 11,719 3,828
The Westin Hotel Galleria and Oaks................... 34,573 30,494 4,079
The Westin South Coast Plaza......................... 14,878 12,775 2,103
The Westin Hotel Fort Lauderdale..................... 8,377 6,862 1,515
The Cherry Creek Inn................................. 6,033 4,109 1,924
The Westin Hotel Indianapolis (acquired March 4,
1997).............................................. 16,566 10,873 5,693
The Westin Hotel Tabor Center (acquired June 24,
1997).............................................. 7,114 4,400 2,714
The Westin Peachtree Plaza (acquired June 4, 1997)... 17,389 12,537 4,852
The Westin Resort St. John (acquired May 15,
1997)(1)...........................................
-------- -------- -------
Total........................................... $175,351 $129,128 $46,223
======== ======== =======
</TABLE>
- ---------------
(1) Hotel closed for renovation due to hurricane damage.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
OVER
HOTEL REVENUES EXPENSES EXPENSES
- --------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
The Westin Hotel Seattle................................. $ 45,547 $ 32,013 $13,534
The Westin Hotel San Francisco Airport................... 21,905 16,463 5,442
The Westin Hotel Cincinnati.............................. 20,672 16,014 4,658
The Westin Hotel Galleria and Oaks....................... 43,880 39,018 4,862
The Westin South Coast Plaza............................. 18,147 15,106 3,041
The Westin Hotel Fort Lauderdale......................... 11,500 9,665 1,835
The Cherry Creek Inn..................................... 6,721 4,781 1,940
-------- -------- ---------
Total............................................... $168,372 $133,060 $35,312
======== ======== =======
</TABLE>
F-36
<PAGE> 146
Listed below are the effects each joint venture had on the combined pro
forma statements of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996 (in thousands):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
WESTIN
O'HARE GALLERIA SIXTH & VINWEST HOTEL
HOTEL HOTEL VIRGINIA LONDON ONTARIO,
VENTURE VENTURE PROPERTIES INC.(1) TOTAL
------- -------- ---------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues........................ $23,400 $ 22,403 $7,443 $4,810 $58,056
Operating expenses........................ 17,491 14,485 3,527 4,524 40,027
Depreciation and amortization............. 2,156 2,736 1,960 319 7,171
------- -------- ---------- ------- -------
Operating income.......................... 3,753 5,182 1,956 (33) 10,858
Interest expense.......................... 1,714 4,336 1,738 318 8,106
Other expense (income).................... (30) (55) 23 (62)
------- -------- ---------- ------- -------
Net income (loss)....................... 2,039 876 273 (374) 2,814
------- -------- ---------- ------- -------
Westin ownership percentage............... 49% 20% 25% 10%
------- -------- ---------- ------- -------
Westin Share.............................. $ 990 $ 175 $ 68 $ (37) $ 1,196
======= ======= ======= =========== =======
</TABLE>
- -------------------------
(1) Westin acquired an interest in this property in February, 1997.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WESTIN
ARIZONA O'HARE GALLERIA SIXTH &
BILTMORE HOTEL HOTEL VIRGINIA
PARTNERS(1) VENTURE VENTURE PROPERTIES TOTAL
----------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues.......................... $55,653 $29,395 $30,586 $8,446 $124,080
Operating expenses.......................... 39,847 22,268 20,124 4,067 86,306
Depreciation and amortization............... 5,298 2,029 3,344 2,114 12,785
----------- ------- ------- ---------- --------
Operating income............................ 10,508 5,098 7,118 2,265 24,989
Interest expense............................ 5,851 2,214 5,638 2,418 16,121
Other expense............................... 150 150
----------- ------- ------- ---------- --------
Net income (loss)......................... 4,657 2,884 1,330 (153) 8,718
----------- ------- ------- ---------- --------
Westin ownership percentage................. 50% 49% 20% 25%
----------- ------- ------- ---------- --------
2,328 1,402 266 (38) 3,958
Preferred return............................ 1,078 1,078
----------- ------- ------- ---------- --------
Westin Share................................ $ 3,406 $ 1,402 $ 266 $ (38) $ 5,036
======== ======= ======= ======= ========
</TABLE>
- -------------------------
(1) Ownership interest sold in February, 1997 (see footnotes F and H below).
(C) Since January 1, 1997 Westin has acquired four hotel properties
including the 573-room Westin Hotel Indianapolis in Indianapolis, Indiana
acquired on March 4, 1997; the 285-room Westin Resort, St. John on the U.S.
Virgin Islands acquired on May 15, 1997; the 1,068-room Westin Peachtree Plaza
in Atlanta, Georgia acquired on June 4, 1997; and the 420-room Westin Hotel
Tabor Center in Denver, Colorado acquired on June 24, 1997.
F-37
<PAGE> 147
Listed below are the pro forma adjustments necessary to show the effect on
the results of operations of the acquired hotels as if they had been acquired at
January 1, 1996:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
OVER
HOTEL REVENUES EXPENSES EXPENSES
- ---------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
The Westin Hotel Tabor Center................................... $ 11,854 $ 8,531 $ 3,323
The Westin Hotel Indianapolis................................... 3,215 2,832 383
The Westin Peachtree Plaza...................................... 24,477 16,314 8,163
The Westin Resort St. John(1)...................................
-------- -------- ---------
Total......................................................... $ 39,546 $ 27,677 $11,869
======= ======= =======
</TABLE>
- -------------------------
(1) Hotel closed for renovation due to hurricane damage.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
OVER
HOTEL REVENUES EXPENSES EXPENSES
- ---------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
The Westin Hotel Tabor Center................................... $ 23,131 $ 16,456 $ 6,675
The Westin Hotel Indianapolis................................... 25,606 18,276 7,330
The Westin Peachtree Plaza...................................... 58,116 40,185 17,931
The Westin Resort St. John(1)...................................
-------- -------- ---------
Total......................................................... $106,853 $ 74,917 $31,936
======== ======= =======
</TABLE>
- -------------------------
(1) Hotel closed for renovation due to hurricane damage.
(D) The Trust intends to lease the hotels it will acquire to the
Corporation under leases that provide for annual base or minimum rents plus
contingent or percentage rents based on the gross revenue of the properties and
are accounted for as operating leases.
(E) Reflects interest expense on funds borrowed by the Corporation from the
Trust to acquire certain assets in the Westin transaction including the Westin
Peachtree Plaza in Atlanta, Georgia and the Westin Resort St. John on the U.S.
Virgin Islands.
(F) Reflects the elimination of joint venture income related to the sale,
during February 1997, of Westin's 50% ownership investment in the Biltmore Hotel
Partners.
(G) Reflects the elimination of franchise fees paid by the Company to
Westin on seven Westin hotels owned by the Company as of September 30, 1997
including the Westin Los Angeles Airport in Los Angeles, California; the Westin
Horton Plaza in San Diego, California; the Westin Washington in Washington, DC;
the Westin Tampa Airport in Tampa, Florida; the Westin Atlanta North in Atlanta,
Georgia; the Westin Philadelphia Airport in Philadelphia, Pennsylvania and the
Westin Waltham in Waltham, Massachusetts.
(H) Reflects the elimination of non-recurring items including gains on
disposal of investments in partnership and hotel companies, gains on curtailment
of benefit plans, a litigation settlement charge and miscellaneous income and
expense.
(I) Reflects the elimination of franchise fees incurred by the Company on
hotels the Company intends to convert to Westins. These franchise fees represent
franchise fees incurred from the date the hotel was acquired until the end of
each period presented and therefore may not represent a full period of franchise
fees expense.
F-38
<PAGE> 148
(J) Reflects the addition of interest expense at the Company's current
weighted average borrowing rate (7.4%) on the $1.030 billion of assumed debt and
the $178.0 million cash drawn down to acquire Westin.
(K) Reflects the reduction of interest expense due to the pay down of
approximately $500.0 million of debt with the net proceeds of a public offering
of approximately 10.7 million paired shares at $49.4375 per paired share (using
the closing price per paired share on September 8, 1997).
(L) Reflects depreciation and amortization expense on the Company's basis
in the assets acquired in the Westin transaction.
(M) Reflects the estimated income tax expense on the pro forma Corporation
results using an effective income tax rate of 40%.
(N) Reflects the minority interests of the partners in the income of the
Partnerships.
(O) Net income (loss) per paired share has been computed using the weighted
average number of paired shares and equivalent paired shares outstanding and
includes Class A and Class B Exchangeable Preferred Stock expected to be issued
as partial consideration for the Westin acquisition (see footnote B to the
unaudited combined consolidated and separate consolidated pro forma balance
sheets) and common stock expected to be issued pursuant to a public offering
(see footnote K above). All paired share information has been adjusted to
reflect a 3-for-2 stock split effective January 27, 1997.
F-39
<PAGE> 149
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
STARWOOD LODGING CORPORATION,
CHESS ACQUISITION CORP.,
STARWOOD LODGING TRUST
AND
ITT CORPORATION
DATED AS OF OCTOBER 19, 1997
<PAGE> 150
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I
THE MERGER............................................................................. 1
Section 1.1 The Merger............................................................ 1
Section 1.2 Effective Time........................................................ 1
Section 1.3 Effects of the Merger................................................. 1
Section 1.4 Charter and By-laws; Directors........................................ 1
Section 1.5 Conversion of Securities.............................................. 2
Section 1.6 The Parent Companies to Make Certificates Available................... 3
Section 1.7 Dividends; Transfer Taxes; Withholding................................ 3
Section 1.8 No Fractional Securities.............................................. 4
Section 1.9 Return of Exchange Fund............................................... 4
Section 1.10 Adjustment of Exchange Ratio.......................................... 4
Section 1.11 No Further Ownership Rights in Company Common Stock................... 5
Section 1.12 Closing of Company Transfer Books..................................... 5
Section 1.13 Lost Certificates..................................................... 5
Section 1.14 Further Assurances.................................................... 5
Section 1.15 Closing............................................................... 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT COMPANIES AND SUB............................. 6
Section 2.1 Organization, Standing and Power...................................... 6
Section 2.2 Capital Structure..................................................... 6
Section 2.3 Authority............................................................. 7
Section 2.4 Consents and Approvals; No Violation.................................. 8
Section 2.5 Sec Documents and Other Reports....................................... 9
Section 2.6 Registration Statement and Joint Proxy Statement...................... 9
Section 2.7 Absence of Certain Changes or Events.................................. 10
Section 2.8 Permits and Compliance................................................ 10
Section 2.9 Tax Matters........................................................... 10
Section 2.10 Actions and Proceedings............................................... 11
Section 2.11 Compliance with Worker Safety and Environmental Laws.................. 11
Section 2.12 Liabilities........................................................... 12
Section 2.13 Intellectual Property................................................. 12
Section 2.14 Opinion of Financial Advisor.......................................... 12
Section 2.15 Required Vote of Parent and Trust Stockholders........................ 12
Section 2.16 REIT Status........................................................... 13
Section 2.17 Brokers............................................................... 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................... 13
Section 3.1 Organization, Standing and Power...................................... 13
Section 3.2 Capital Structure..................................................... 13
Section 3.3 Authority............................................................. 14
Section 3.4 Consents and Approvals; No Violation.................................. 14
Section 3.5 SEC Documents and Other Reports....................................... 15
Section 3.6 Registration Statement and Joint Proxy Statement...................... 15
Section 3.7 Absence of Certain Changes or Events.................................. 16
Section 3.8 Permits and Compliance................................................ 16
Section 3.9 Tax Matters........................................................... 16
Section 3.10 Actions and Proceedings............................................... 17
</TABLE>
i
<PAGE> 151
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 3.11 Certain Agreements.................................................... 17
Section 3.12 ERISA................................................................. 17
Section 3.13 Compliance with Worker Safety and Environmental Laws.................. 19
Section 3.14 Liabilities........................................................... 19
Section 3.15 Intellectual Property................................................. 20
Section 3.16 Rights Agreement...................................................... 20
Section 3.17 Parachute Payments to Disqualified Individuals........................ 20
Section 3.18 Opinion of Financial Advisor.......................................... 20
Section 3.19 State Takeover Statutes............................................... 20
Section 3.20 Required Vote of Company Stockholders................................. 20
Section 3.21 Brokers............................................................... 20
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................. 20
Section 4.1 Conduct of Business by the Company Pending the Merger................. 20
Section 4.2 Conduct of Business by the Parent Companies Pending the Merger........ 22
Section 4.3 No Solicitation....................................................... 23
Section 4.4 Third Party Standstill Agreements..................................... 24
Section 4.5 Pre-Merger Transactions............................................... 24
Section 4.6 Post-Merger Transactions.............................................. 25
ARTICLE V
ADDITIONAL AGREEMENTS.................................................................. 25
Section 5.1 Stockholders Meetings................................................. 25
Section 5.2 Filings; Other Actions................................................ 25
Section 5.3 Comfort Letters....................................................... 26
Section 5.4 Access to Information................................................. 26
Section 5.5 Compliance with the Securities Act.................................... 27
Section 5.6 Stock Exchange Listings............................................... 27
Section 5.7 Fees and Expenses..................................................... 27
Section 5.8 Company Stock Options................................................. 28
Section 5.9 Reasonable Efforts.................................................... 28
Section 5.10 Public Announcements.................................................. 29
Section 5.11 Transfer and Gains Tax................................................ 29
Section 5.12 State Takeover Laws................................................... 29
Section 5.13 Indemnification; Directors and Officers Insurance..................... 29
Section 5.14 Notification of Certain Matters....................................... 30
Section 5.15 Employees............................................................. 30
Section 5.16 Rights Agreement...................................................... 31
Section 5.17 Regulatory Matters.................................................... 31
Section 5.18 New Jersey Trust...................................................... 31
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER..................................................... 32
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger............ 32
Section 6.2 Conditions to Obligation of the Company to Effect the Merger.......... 33
Section 6.3 Conditions to Obligations of Parent, Sub and Trust to Effect the 33
Merger................................................................
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER...................................................... 34
Section 7.1 Termination........................................................... 34
Section 7.2 Effect of Termination................................................. 35
Section 7.3 Amendment............................................................. 35
Section 7.4 Waiver................................................................ 35
</TABLE>
ii
<PAGE> 152
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VIII
GENERAL PROVISIONS..................................................................... 36
Section 8.1 Non-Survival of Representations and Warranties........................ 36
Section 8.2 Notices............................................................... 36
Section 8.3 Interpretation........................................................ 36
Section 8.4 Counterparts.......................................................... 37
Section 8.5 Entire Agreement; No Third-Party Beneficiaries........................ 37
Section 8.6 Governing Law......................................................... 37
Section 8.7 Assignment............................................................ 37
Section 8.8 Severability.......................................................... 37
Section 8.9 Enforcement of this Agreement......................................... 37
Section 8.10 Trust................................................................. 37
</TABLE>
iii
<PAGE> 153
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of October 19, 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 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:
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 Articles of Merger. The filing of the
Articles of Merger shall be made on the date of the Closing (as defined in
Section 1.15).
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,
<PAGE> 154
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.
(c) Parent and Trust shall use all reasonable efforts to cause the Board of
Directors of Parent and the Board of Trustees of Trust to be increased in size,
effective at the Effective Time, by three members, in the case of the Board of
Directors of Parent, and by one member, in the case of the Board of Trustees of
Trust, with such four new members being individuals selected by the Company
(with notice of such selection to be given to the Parent Companies within 30
days after the date hereof) from the members of the Board of Directors of the
Company.
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 canceled 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 (as defined in Section
3.2)) shall be converted into validly issued, fully paid and nonassessable
shares of common stock, no par value, of the Surviving Corporation.
(c) (i) Subject to the provisions of Sections 1.8 and 1.10 hereof,
each share of Company Common Stock (including restricted shares of Company
Common Stock issued under Company Plans (as defined below)) issued and
outstanding immediately prior to the Effective Time (other than shares to
be canceled in accordance with Section 1.5(b)) together with the associated
Right shall as of the Effective Time be converted into the right to receive
the Exchange Ratio (as defined below) of validly issued, fully paid and
nonassessable Paired Shares and cash in an amount equal to $15.00, without
interest. All such shares of Company Common Stock (and the associated
Rights), when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist and each
holder of a certificate representing any such shares (and the associated
Rights) shall cease to have any rights with respect thereto, except the
right to receive (A) any dividends and other distributions in accordance
with Section 1.7, (B) certificates representing the Paired Shares into
which such shares (and the associated Rights) are converted, (C) cash into
which such shares are converted pursuant to this Section 1.5(c) 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 1.6 and 1.8.
(ii) 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) $67.00 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
2
<PAGE> 155
defined in Section 5.1); provided, however, that in no event shall the
Exchange Ratio be (A) greater than an amount equal to $67.00 divided by
$53.263 or (B) less than an amount equal to $67.00 divided by $61.263. The
"Market Price" of a Paired Share on any date means the average of the daily
closing 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) for the 20 consecutive NYSE trading days (the
"Averaging Period") immediately preceding such date.
Section 1.6 The Parent Companies to Make Certificates Available.
(a) Exchange of Certificates. The Parent Companies shall authorize Bankers
Trust Company (or such other person or persons as shall be acceptable to the
Parent Companies and the Company) to act as the Exchange Agent hereunder (the
"Exchange Agent"). As soon as practicable after the Effective Time, the Parent
Companies shall deposit with the Exchange Agent, in trust for the holders of
shares of Company Common Stock converted in the Merger, certificates
representing the Paired Shares issuable and cash payable pursuant to Section
1.5(c) in exchange for outstanding shares of Company Common Stock, cash required
to make payments in lieu of any fractional shares pursuant to Section 1.8 and
cash or other property to pay or make any dividends or distributions pursuant to
Section 1.7 (such cash and 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. The Exchange Agent shall deliver the Paired Shares
contemplated to be issued and the cash payable pursuant to Section 1.5(c) and
cash or other property distributable pursuant to Section 1.7 out of the Exchange
Fund.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each record holder of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock converted in the Merger (the
"Certificates"), a letter of transmittal in form reasonably acceptable to the
Company (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon actual delivery of the
Certificates to the Exchange Agent, and shall contain instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing Paired Shares, cash payable pursuant to Section 1.5(c) and cash or
other property distributable pursuant to Sections 1.7 and 1.8). 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 and cash into which the shares (and the associated
Rights) represented by the surrendered Certificate shall have been converted at
the Effective Time pursuant to this Article I, cash in lieu of any fractional
Paired Shares in accordance with Section 1.8 and any dividends or other
distributions in accordance with Section 1.7, and any Certificate so surrendered
shall forthwith be canceled. 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.
Section 1.7 Dividends; Transfer Taxes; Withholding. 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 Section 1.6, and no cash
payment pursuant to Section 1.5(c) or 1.8 will be paid to any such person until
such person shall so surrender the related Certificate or Certificates. Subject
to the effect of applicable law, there shall be paid to each record holder of a
new certificate representing such 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; (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; and
(iii) at the time of such surrender
3
<PAGE> 156
or as promptly as practicable thereafter, the amount of any cash payable
pursuant to Section 1.5(c) or 1.8 to which such holder is entitled pursuant to
Section 1.8. In no event shall the person entitled to receive such dividends or
other distributions or cash be entitled to receive interest on such dividends or
other distributions or cash. If any certificate representing 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 1.8 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), rounded to
the nearest cent, determined by multiplying (i) the average of the per share
closing prices on the New York Stock Exchange, Inc. (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 Section 1.6, Section 1.7 and this Section 1.8.
For purposes of paying such cash in lieu of fractional shares, all Certificates
surrendered for exchange by a Company 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 1.9 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, any cash payable pursuant to Sections 1.5(c) or 1.8 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 1.10 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
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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 1.11 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 1.5(c), 1.7 and 1.8) 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 1.12 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or the Parent, such Certificates shall be
canceled and exchanged as provided in this Article I.
Section 1.13 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
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, any cash payable pursuant to Section 1.5(c) or 1.8 to which the holders
thereof are entitled and any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 1.7.
Section 1.14 Further Assurances. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.15 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.
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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, 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
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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 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 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 (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
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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 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,
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(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.
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
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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, 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
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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 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
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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 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. sec.
9601 et seq., RCRA, 42 U.S.C. sec. 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 sec. 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 the date hereof,
to the effect that, as of the date hereof, the consideration to be paid by the
Parent Companies in the Merger is fair to the Parent Companies from a financial
point of view, a copy of which opinion has been delivered to the Company.
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
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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. and Starwood Capital Group L.L.C., 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.
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,
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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 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
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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 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,
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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 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
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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 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 orbusiness 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
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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.
(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 otherwisemay 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.
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(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 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. sec.
9601 et seq., RCRA, 42 U.S.C. sec. 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 sec. 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
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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 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 the date hereof, to the effect
that, as of the date hereof, 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, a copy of which opinion has been delivered to the Parent
Companies.
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. and Lazard Freres & Co. LLC, 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
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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 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
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(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 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) 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
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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;
(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
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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 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 promptly 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), 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).
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(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 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, 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 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
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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.
(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
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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.
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
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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 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 (x) the exercise price per share of Company Common Stock immediately
prior to the Effective Time divided by the Exchange Ratio, reduced by (y) the
cash amount of the per share merger consideration payable pursuant to Section
1.5(c). 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
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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 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 1.7) 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
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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 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.
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(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 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, (B) any Governmental Entity with
jurisdiction in respect of Gaming Laws (other than New Jersey), (C) the Federal
Communications Commission and (D) 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.
(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.
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<PAGE> 185
(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:
(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
33
<PAGE> 186
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.
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;
34
<PAGE> 187
(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.
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.
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<PAGE> 188
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
(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
36
<PAGE> 189
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".
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, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof. This
Agreement, except for the provisions of Section 5.8 and Section 5.13, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
Section 8.6 Governing Law. Except to the extent that the laws of the State
of 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.
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.
37
<PAGE> 190
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
38
<PAGE> 191
ANNEX B
[BEAR STEARNS LETTERHEAD]
October 19, 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 Agreement and Plan of Merger to be dated as of October
19, 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
between 1.094 and 1.258 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"), depending on the price of the Paired Shares, and $15.00 in
cash, without interest (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;
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;
<PAGE> 192
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> 193
Annex C
[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> 194
[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> 195
[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> 196
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Certain provisions of the MGCL provide that Starwood Lodging may, and in
some circumstances must, indemnify the trustees, directors and officers of
Starwood Lodging against liabilities and expenses incurred by such person by
reason of the fact that such person was serving in such capacity, subject to
certain limitations and conditions set forth in the statute. The Corporation
Articles and the Trust Declaration provide that the Corporation and the Trust
shall indemnify its directors, trustees and officers to the extent permitted by
the MGCL.
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 Piper & Marbury L.L.P.
8.1++ Opinion of Sidley & Austin as to certain United States federal income tax
consequences.
8.2++ Opinion of Cravath, Swain & Moore as to certain United States federal income tax
consequences.
23.1* Consent of Coopers & Lybrand L.L.P.
</TABLE>
II-1
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- -------------------------------------------------------------------------------------
<C> <S>
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 Piper & Marbury L.L.P. (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.
</TABLE>
- ---------------
++ To be filed by amendment.
* Filed herewith.
(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. and Lazard Freres & Co. LLC are
included as Annexes B and C, respectively, to the Joint Proxy
Statement/Prospectus.
ITEM 21. 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
II-2
<PAGE> 198
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the 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.
II-3
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Phoenix,
State of Arizona, on the 4th day of November, 1997.
STARWOOD LODGING TRUST
By: /s/ RONALD C. BROWN
------------------------------------
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints Ronald C. Brown and Madison F. Grose, and each of them, as his
attorneys-in-fact, with full power of substitution and resubstitution, to
execute in the name and on behalf of such person, individually and in the
capacity stated below, and to file all amendments and post-effective amendments
to this Registration Statement, which amendment or amendments may make such
changes in and additions to this Registration Statement as such
attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman, Chief Executive November 4, 1997
- ------------------------------------------ Officer and Trustee
Barry S. Sternlicht (Principal Executive Officer)
/s/ GARY M. MENDELL President and Trustee November 4, 1997
- ------------------------------------------
Gary M. Mendell
/s/ RONALD C. BROWN Senior Vice President November 4, 1997
- ------------------------------------------ (Principal Financial and
Ronald C. Brown Accounting Officer)
/s/ STEVEN R. GOLDMAN Senior Vice President November 4, 1997
- ------------------------------------------ and Trustee
Steven R. Goldman
/s/ BRUCE W. DUNCAN Trustee November 4, 1997
- ------------------------------------------
Bruce W. Duncan
/s/ MADISON F. GROSE Trustee November 4, 1997
- ------------------------------------------
Madison F. Grose
</TABLE>
II-4
<PAGE> 200
<TABLE>
<C> <S> <C>
/s/ ROGER S. PRATT Trustee November 4, 1997
- ------------------------------------------
Roger S. Pratt
/s/ STEPHEN R. QUAZZO Trustee November 4, 1997
- ------------------------------------------
Stephen R. Quazzo
/s/ DANIEL H. STERN Trustee November 4, 1997
- ------------------------------------------
Daniel H. Stern
</TABLE>
II-5
<PAGE> 201
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Phoenix,
State of Arizona, on the 4th day of November, 1997.
STARWOOD LODGING CORPORATION
By: /s/ ERIC A. DANZIGER
------------------------------------
Eric A. Danziger
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints Eric A. Danziger and Alan M. Schnaid, and each of them, as his
attorneys-in-fact, with full power of substitution and resubstitution, to
execute in the name and on behalf of such person, individually and in the
capacity stated below, and to file all amendments and post-effective amendments
to this Registration Statement, which amendment or amendments may make such
changes in and additions to this Registration Statement as such
attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman of the Board November 4, 1997
- ------------------------------------------ and Director
Barry S. Sternlicht
/s/ ERIC A. DANZIGER President and Chief Executive November 4, 1997
- ------------------------------------------ Officer (Principal Executive
Eric A. Danziger Officer)
/s/ ALAN M. SCHNAID Vice President and Corporate November 4, 1997
- ------------------------------------------ Controller (Principal
Alan M. Schnaid Financial and Accounting
Officer)
/s/ JONATHAN D. EILIAN Director November 4, 1997
- ------------------------------------------
Jonathan D. Eilian
/s/ BRUCE M. FORD Director November 4, 1997
- ------------------------------------------
Bruce M. Ford
/s/ GRAEME W. HENDERSON Director November 4, 1997
- ------------------------------------------
Graeme W. Henderson
</TABLE>
II-6
<PAGE> 202
<TABLE>
<C> <S> <C>
/s/ EARLE F. JONES Director November 4, 1997
- ------------------------------------------
Earle F. Jones
/s/ MICHAEL A. LEVEN Director November 4, 1997
- ------------------------------------------
Michael A. Leven
/s/ JEAN MARC-CHAPUS Director November 4, 1997
- ------------------------------------------
Jean Marc-Chapus
/s/ DANIEL W. YIH Director November 4, 1997
- ------------------------------------------
Daniel W. Yih
</TABLE>
II-7
<PAGE> 203
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 Piper & Marbury L.L.P.
8.1++ Opinion of Sidley & Austin as to certain United States federal income tax
consequences.
8.2++ Opinion of Cravath, Swain & 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 Piper & Marbury L.L.P. (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.
</TABLE>
- ---------------
++ To be filed by amendment.
* Filed herewith.
II-8
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement
of Starwood Lodging Trust and Starwood Lodging Corporation on Form S-4 being
filed under the Securities Act of 1933, as amended, of our report dated February
21, 1997 on our audits of the separate and combined consolidated financial
statements and financial statement schedules as of December 31, 1996 and 1995
and for each of the two years in the period ended December 31, 1996, appearing
in the Joint Annual Report on Form 10-K, as amended, of Starwood Lodging Trust
and Starwood Lodging Corporation (collectively, the "Company") for the year
ended December 31, 1996, of our report dated August 29, 1997 (except for Note 9
for which the date is September 10, 1997) on our audit of the combined financial
statements of The 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 of our report dated February 6, 1997, on our audit of 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. We also consent to the reference to
our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
November 4, 1997
