<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1998
REGISTRATION NOS. 333-40077 AND 333-40077-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) ORGANIZATION)
52-0901263 52-1193298
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES) OFFICES)
RONALD C. BROWN ALAN M. SCHNAID
SENIOR VICE PRESIDENT AND VICE PRESIDENT AND CORPORATE CONTROLLER
CHIEF FINANCIAL OFFICER 2231 E. CAMELBACK ROAD, SUITE 400
STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
2231 E. CAMELBACK ROAD, SUITE 410 PHOENIX, ARIZONA 85016
PHOENIX, ARIZONA 85016 (602) 852-3900
(602) 852-3900 (NAME, AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER,
(NAME, AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE INCLUDING AREA CODE, OF AGENT FOR SERVICE)
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
COPIES TO:
LAURA A. LOFTIN, ESQ.
KENNETH H. LEVIN, ESQ.
SIDLEY & AUSTIN
555 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90013
(213) 896-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares of beneficial interest, $0.01 par value, of Starwood
Hotels & Resorts paired with Shares
of Common Stock, $0.01 par value, of Starwood Hotels &
Resorts Worldwide, Inc. (3).................................
- --------------------------------------------------------------------------------------------------------------------
Shares of Preferred Stock, $0.01 par value, of Starwood
Hotels & Resorts............................................
that may be paired with
Shares of Preferred Stock, $0.01 par value, of Starwood
Hotels & Resorts, Worldwide, Inc............................
- --------------------------------------------------------------------------------------------------------------------
Debt Securities(4)..........................................
- --------------------------------------------------------------------------------------------------------------------
Guarantees of Debt Securities(5)............................
- --------------------------------------------------------------------------------------------------------------------
Warrants to Purchase Paired Common Shares, Preferred Shares
or Debt Securities..........................................
- --------------------------------------------------------------------------------------------------------------------
Convertible Notes...........................................
- --------------------------------------------------------------------------------------------------------------------
Total............................................... $3,000,000,000 $278,939
====================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee, which is
calculated in accordance with Rule 457(o). Not specified as to each class of
securities to be registered hereunder pursuant to General Instruction II(D)
to Form S-3 under the Securities Act of 1933 (the "Securities Act").
(2) Pursuant to Rule 429(b) under the Securities Act, the registration fee
hereunder is offset by fees of (i) $499,877 previously paid with this
Registration Statement and (ii) $106,184 previously calculated and paid in
connection with the registration of $338,416,900 of securities on the 1995
Registration Statement and the 1996 Registration Statement (each as defined
below).
(3) In no event will the aggregate offering price of all Paired Common Shares
issued from time to time pursuant to this Registration Statement exceed
$500,000,000. The aggregate amount of Paired Common Shares registered
hereunder is further limited to that permissible under Rule 415(a)(4) under
the Securities Act.
(4) If any Debt Securities are issued at an original issue discount, then the
offering price of such securities shall be in such greater principal amount
as shall result in an aggregate initial offering price not to exceed
$3,000,000,000.
(5) No separate consideration will be received from purchasers of Debt
Securities with respect to these guarantees and no registration fee is
attributable to the guarantees of the Debt Securities.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
Pursuant to the provisions of Rule 429, the form of prospectus set forth
herein also relates to the Registrants' (i) Registration Statement on Form S-3
filed on November 16, 1995 (Nos. 33-64335 and 33-64335-01) (the "1995
Registration Statement") and (ii) Registration Statement on Form S-3 filed on
October 3, 1996 (Nos. 333-13411 and 333-13411-01) (the "1996 Registration
Statement"). This Registration Statement also constitutes Post-Effective
Amendment No. 2 to the 1995 Registration Statement and Post-Effective Amendment
No. 1 to the 1996 Registration Statement.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED MARCH 10, 1998
PROSPECTUS
<TABLE>
<S> <C>
STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
$350,000,000 $2,650,000,000
</TABLE>
COMMON STOCK, PREFERRED STOCK, DEBT SECURITIES, WARRANTS AND CONVERTIBLE NOTES
Starwood Hotels & Resorts, a Maryland real estate investment trust (the
"Trust"), and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation
(the "Corporation," and together with the Trust, the "Company") may from time to
time offer in one or more series or issuances securities with an aggregate
public offering price of up to $2,500,000,000 (or its equivalent in another
currency based on the exchange rate at the time of sale): (i) shares of
beneficial interest, $.01 par value, of the Trust (the "Trust Shares") and
shares of common stock, $.01 par value, of the Corporation (the "Corporation
Shares") that are "paired" and traded as units consisting of one Trust Share and
one Corporation Share (the "Paired Common Shares"); (ii) shares of preferred
stock, $.01 par value, of the Trust (the "Trust Preferred Shares") and shares of
preferred stock, $.01 par value, of the Corporation (the "Corporation Preferred
Shares" and, with the Trust Preferred Shares, the "Preferred Shares") that may,
but are not required to, be "paired" with preferred stock of the other entity;
(iii) secured or unsecured debt securities of the Trust or the Corporation
consisting of notes, debentures or other evidences of indebtedness (the "Debt
Securities"), that may, but are not required to, be paired with Debt Securities
of the other entity and that may be either senior debt securities ("Senior
Securities") or subordinated debt securities ("Subordinated Securities") (iv)
(A) warrants to purchase Trust Shares and warrants to purchase Corporation
Shares that are "paired" and traded as units consisting of one warrant to
purchase Trust Shares and one warrant to purchase a like number of Corporation
Shares, (B) warrants to purchase Trust Preferred Shares or Corporation Preferred
Shares, or (C) warrants to purchase Debt Securities (collectively, the
"Warrants"); and (iv) convertible notes of the Trust or the Corporation that may
be issued to underwriters to facilitate an underwritten public offering of
equity securities of the Trust or the Corporation ("Convertible Notes"). The
Preferred Shares may be issued as exchangeable and/or convertible Preferred
Shares exchangeable for or convertible into Debt Securities or Paired Common
Shares. Debt Securities may be issued as convertible and/or exchangeable Debt
Securities, convertible into or exchangeable for Paired Common Shares or
Preferred Shares. The payment obligations under any series of Debt Securities
issued by the Trust or the Corporation may be guaranteed by the other entity
("Guarantees"). The Paired Common Shares, Preferred Shares, Debt Securities,
Warrants and Convertible Notes (collectively, the "Securities") may be offered,
separately or together, in one or more separate series or issuances and in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement"). Of the $3,000,000,000
aggregate initial public offering price of the Securities, up to $350,000,000
will be offered by the Trust and up to $2,650,000,000 will be offered by the
Corporation. In no event will the aggregate offering price of all Paired Common
Shares offered from time to time pursuant to this Registration Statement exceed
$500,000,000.
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Paired Common Shares, the
number of shares, purchase price and the terms of the offer and sale thereof;
(ii) in the case of Preferred Shares, the specific title and stated value, any
dividend, liquidation, redemption, conversion, voting and other rights, and any
initial public offering price; (iii) in the case of Debt Securities and
Guarantees thereof, if any, the specific title, aggregate principal amount,
currency, form (which may be registered or bearer, or certificated or global),
authorized denominations, maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the issuer or
repayment at the option of the holder, terms for sinking fund payments,
covenants and any initial public offering price, and (iv) in the case of
Warrants, the duration, offering price, securities purchasable upon exercise,
exercise price and detachability, if applicable. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Securities, in each case as may be appropriate to preserve
the status of the Trust as a real estate investment trust ("REIT") for United
States federal income tax purposes.
The Paired Common Shares are listed on the New York Stock Exchange (the
"NYSE") under the symbol "HOT." Any Paired Common Shares offered and sold
pursuant to a Prospectus Supplement will be listed on the NYSE. On March 9, 1998
the last reported sale price of the Paired Common Shares on the NYSE was $51.875
per Paired Common Share. The Company has not determined whether any Preferred
Shares, Debt Securities or Warrants that may be offered hereby well be listed on
any exchange or trade on the NASDAQ System or in the over-the-counter market. If
the Company decides to seek such listing or trading of any Securities, the
applicable Prospectus Supplement will disclose such exchange or market. The
applicable Prospectus Supplement also will contain information, where
applicable, about certain material United States federal income tax
considerations relating to the Securities covered by such Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, THE NEVADA GAMING
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 GAMING
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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The Securities may be offered by the Company directly, through agents
designated from time to time by the Trust or the Corporation or to or through
underwriters or dealers. Certain terms of the offering and sale of Securities,
including, where applicable, the names of any underwriters, dealers or agents,
any applicable commissions, discounts and other items constituting compensation
to such underwriters, dealers or agents, and the prices to the Company from such
sale, will be set forth in the accompanying Prospectus Supplement. The Company
reserves the sole right to accept, and together with the Company's agents, from
time to time, to reject in whole or in part any proposed purchase of the
Securities to be made directly or through agents. See "Plan of Distribution" for
information regarding possible indemnification arrangements for underwriters,
dealers and agents.
No Securities may be sold without delivery of a Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
IN CONNECTION WITH THE OFFERING OR CERTAIN OFFERED SECURITIES, CERTAIN
PERSONS PARTICIPATING IN SUCH OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE EFFECT THE MARKET PRICES OF SUCH
SECURITIES OR OTHER SECURITIES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ NATIONAL MARKET, THE OVER-THE-COUNTER MARKET, OR OTHERWISE, SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Trust and the Corporation are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy or information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy or information statements and other information can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission at Seven 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 materials also can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Such reports, proxy or information statements and other information
concerning the Trust and the Corporation can also be inspected and copied at the
offices of the New York Stock Exchange, Public Reference Section, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document filed as an exhibit to the Registration Statement
are not necessarily complete, and in each instance, reference is made to the
copy of such contract or other document so filed, each such statement being
qualified in all respects by such reference. For further information with
respect to the Trust, the Corporation and the Securities offered hereby,
reference is made to the Registration Statement and exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (SEC File Nos.
1-6828 and 1-7959) with the Commission under the Exchange Act are incorporated
in this Prospectus by reference and are made a part hereof:
1. The 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 and the Form 10-K/A2
dated December 18, 1997 (collectively, the "Starwood Lodging Form 10-K").
2. The Joint Quarterly Reports on Form 10-Q for the periods ended March 31,
1997, June 30, 1997 and September 30, 1997 (as amended by the Form 10-Q/A
dated November 10, 1997).
3. The Joint Current Reports on Form 8-K dated February 10, 1997 (as amended by
the Form 8-K/A dated December 18, 1997), February 14, 1997, March 20, 1997,
March 21, 1997, September 9, 1997 (and Exhibit 2 thereto) (as amended by the
Form 8-K/A dated December 18, 1997), September 10, 1997 (as amended by the
Form 8-K/A dated December 18, 1997), October 21, 1997 (as amended by the Form
8-K/A dated October 29, 1997), November 12, 1997 (as amended by the Form
8-K/A dated December 18,
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<PAGE> 4
1997 and the Form 8-K/A dated January 7, 1998), November 13, 1997, January
15, 1988, February 3, 1998, February 24, 1998, March 6, 1998 and March 10,
1998.
4. The description of the Paired Common Shares contained in the Company's
Registration Statement on Form 8-A filed with the Commission on October 3,
1986.
Each document filed by the Trust or the Corporation (i) subsequent to the
date of the initial Registration Statement of which this Prospectus is a part
and prior to the effectiveness of such Registration Statement and (ii)
subsequent to the date of this Prospectus, in each case, pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination of the
offering made hereby, shall be deemed to be incorporated by reference in this
Prospectus and shall be part hereof from the date of filing of such document.
Any statement contained herein or in any Prospectus Supplement or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus and any Prospectus
Supplement to the extent that a statement contained in this Prospectus (in the
case of a statement in a previously-filed document incorporated or deemed to be
incorporated by reference herein), in any Prospectus Supplement or in any other
subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or any Prospectus
Supplement.
Copies of all documents incorporated herein by reference, other than
exhibits to such documents not specifically incorporated by reference therein,
will be provided without charge to each person to whom this Prospectus is
delivered, upon oral or written request to Starwood Hotels & Resorts Worldwide,
Inc., 2231 E. Camelback Road, Suite 400, Phoenix, Arizona 85016; Attention: Alan
M. Schnaid, telephone number 602-852-3900.
3
<PAGE> 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including documents incorporated by reference herein,
contains, and the accompanying Prospectus Supplement may contain,
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements include statements
regarding intent, beliefs or current expectations with respect to the matters
discussed in this Prospectus. Shareholders are cautioned that such
forward-looking statements involve known and unknown 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, certain risks associated with the integration of the
Company's acquisition of ITT Corporation and Westin Hotels & Resorts Worldwide,
Inc. and its affiliates; completion of 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 Prospectus
and in the annual, quarterly and current reports and proxy statements of the
Trust and the Corporation incorporated by reference herein.
THE COMPANY
The Company is a fully integrated owner/operator of primarily full-service
hotels and a "paired share REIT." The Company consists of the Trust, which has
owned hotel assets since 1969, and the Corporation, which has managed hotel
assets since 1980; the common shares of the Trust and the Corporation are
"paired" or "stapled" together on a one-for-one basis and may only be held or
transferred as Paired Common Shares. As of December 31, 1997, the Company owned,
operated and managed a geographically diversified portfolio of hotel assets,
including fee, ground lease and first mortgage interests in 121 hotel properties
containing over 33,000 rooms located in 34 states, the District of Columbia,
Mexico and the United Kingdom. Ninety-eight of such hotels are operated under
licensing, membership, franchise or management agreements with national hotel
organizations, including Westin(TM), Marriott(TM), Hilton(TM), Sheraton(TM),
Omni(TM), Doubletree(TM), Embassy Suites(R), Ritz Carlton(TM), Harvey(TM),
Radisson(TM), Holiday Inn(R), Residence Inn(TM), Days Inn(TM), Best Western(TM),
Ramada(TM), Clarion and Quality Inn(TM). None of the foregoing organizations
(other than Westin and Sheraton) nor any of their respective parents,
subsidiaries, divisions or affiliates has endorsed or approved this Prospectus
or any Prospectus Supplement or any sale of Securities.
Prior to January 1, 1998, the Trust and the Corporation conducted
substantially all of their respective businesses and operations through SLT
Realty Partnership (the "Realty Partnership") and SLC Operating Partnership (the
"Operating Partnership" and together with the Realty Partnership, the
"Partnerships"). The Trust is the sole general partner of the Realty
Partnership, whose business consists of leasing hotels and making loans to the
Operating Partnership; the Corporation is the managing general partner of the
Operating Partnership, which owns and operates hotels, including hotels leased
from the Realty Partnership; the Operating Partnership also manages hotels owned
by third parties and franchises hotels. As of the date of this Prospectus, the
Company owns an approximately 93.6% general partnership in each of the
Partnerships. The remaining 6.4% interest in each of the Partnerships is owned
predominantly by Starwood Capital Group, L.L.C. and certain of its affiliates
("Starwood Capital").
Under the REIT qualification requirements of the Internal Revenue Code of
1986, as amended (the "Code") and the United States Treasury regulations
promulgated thereunder (the "Treasury Regulations"), REITs generally must lease
their hotels to third party lessee/operators. Since such leases must be
structured so that the third party operator captures a portion of each hotel's
current cash flow and future growth, the shareholders of a typical hotel REIT do
not receive all of the economic benefits of both hotel ownership and hotel
operations. Leases may create conflicts of interest between the REIT and the
operator of each hotel, particularly when insiders of the REIT own an economic
interest in the operator. The "paired share" structure eliminates potential
conflicts of interest between the hotel owner and the hotel operator. The
Company's shareholders own both the owner (the Trust), and the lessee/operator
(the Corporation) of the Company's
4
<PAGE> 6
hotels. Therefore, the Company's shareholders retain the economic benefits of
both the lease payments received by the Trust and the operating profits realized
by the Corporation while maintaining the tax benefits of the Trust's REIT
status. Although the Code has prohibited the pairing of shares between a REIT
and an operating company since 1983, this rule does not apply to the Company
because its paired structure has existed since 1980.
The Trust was organized in 1969 as a Maryland real estate investment trust.
The Trust's executive offices are located at 2231 East Camelback Road, Suite
410, Phoenix, Arizona 85016; telephone (602) 852-3900. The Corporation is a
Maryland corporation formed in 1980. The Corporation's executive offices are
located at 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016;
telephone (602) 852-3900.
In furtherance of the Company's strategy to enhance, expand and diversify
its hotel portfolio and to develop or acquire one or more global brands, on
January 2, 1998 the Company acquired Westin Hotels & Resorts Worldwide, Inc. and
certain affiliated entities (collectively, "Westin"), and on February 23, 1998
the Corporation acquired ITT Corporation ("ITT").
Acquisition of ITT. On February 23, 1998, pursuant to an Amended and
Restated Agreement and Plan of Merger dated as of November 12, 1997, among the
Trust, the Corporation, Chess Acquisition Corp., a newly formed, wholly owned
subsidiary of the Company ("Chess Acquisition"), and ITT, Chess was merged with
and into ITT (the "ITT Merger"). As a result of the ITT Merger, ITT became a
wholly owned subsidiary of the Corporation, and all outstanding shares of the
common stock, no par value of ITT ("ITT Common Stock"), together with the
associated preferred share purchase rights, (other than shares held by ITT or
the Company, were converted into the right to receive an aggregate of
126,716,121 Paired Shares and $2.992 billion in cash. In addition, each holder
of shares of ITT Common Stock became entitled to receive for each share of ITT
Common Stock converted in the ITT Merger additional cash consideration in the
amount of $0.37 per Paired Common Share as interest for the period from January
31, 1998 through February 23, 1998.
In connection with the ITT Merger, the Company borrowed an aggregate of
approximately $5.6 billion from a group of financial institutions arranged by
Bankers Trust Company, Chase Securities Inc. and Lehman Brothers, Inc., which
borrowings were used to fund the cash portion of the acquisition price of ITT
and to refinance a portion of the Company's and ITT's existing indebtedness.
ITT conducts its hotel and gaming business through its subsidiaries ITT
Sheraton Corporation ("Sheraton"), Ciga, S.p.A ("Ciga") and Caesars World, Inc.
("Caesars"). ITT's revenues from hotel operations are derived worldwide from
hotels that are owned, leased or managed by Sheraton under the brand names
"Sheraton" and "The Luxury Collection" and ITT's 70.3% ownership interest in
Ciga, which owns a group of luxury hotels in Europe. ITT also earns franchise
fees by licensing the "Sheraton" and "Four Points Hotels" brands to owners of
independent hotels. As of December 31, 1997, Sheraton and Ciga owned or leased
approximately 65 hotels in 18 countries and Sheraton managed or had agreements
to manage approximately 130 additional hotels and had approximately 215
franchised properties. ITT's gaming operations are marketed under either the
"Caesars" or "Sheraton" brand name and service mark and as of December 31, 1997
were conducted at Caesars Palace and the Desert Inn Resort and Casino in Las
Vegas (Nevada), Caesars Atlantic City in Atlantic City (New Jersey), Caesars
Tahoe in Stateline, Nevada, the Sheraton Casino in Tunica, Mississippi; and
various other casino/hotel operations in Halifax and Sydney, Nova Scotia; Lima,
Peru; Cairo, Egypt; Windsor, Ontario and Townsville, Australia.
As of the date of this Prospectus, ITT is seeking to sell the Desert Inn
Resort & Casino, and the Company is exploring a range of disposition strategies
for ITT's post-secondary technical education business, including a public
offering of a portion of ITT's 83.3% equity interest in ITT Educational
Services, Inc. ("ITT Educational"), the subsidiary that conducts such business.
As a part of this disposition strategy, on February 13. 1998, ITT Educational
filed a registration statement with the Securities and Exchange Commission for
the sale by ITT of up 12,650,000 shares of the common stock of ITT Educational.
In February 1998, ITT disposed of its telephone directories publishing business
(conducted through ITT's subsidiary ITT World Directories, Inc.) to VNU, an
international publishing and information company based in The Netherlands, for a
total gross consideration valued at $2.1 billion. Proceeds from the disposition
of ITT
5
<PAGE> 7
World Directories were used in part to acquire certain indebtedness of the Trust
and thereby reduce the Company's debt incurred to fund the acquisition of ITT.
Acquisition of Westin. On January 2, 1998, pursuant to a Transaction
Agreement (the "Transaction Agreement") among the Trust, the Corporation and the
Partnerships (collectively, the "Starwood Entities"), WHWE L.L.C. ("WHWE"),
Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation
("Nomura"), Juergen Bartels ("Bartels" and, together with WHWE, Woodstar and
Nomura, the "Members"), Westin Worldwide, W&S Lauderdale Corp. ("Lauderdale"),
W&S Seattle Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"),
W&S Denver Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta" and, together with
Westin Worldwide, Lauderdale, Seattle, St. John and Denver, "Westin") and W&S
Hotel L.L.C., the Starwood Entities acquired Westin.
As of December 31, 1997, Westin owned, managed, franchised or represented
97 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, 37 are managed, 28 are franchised
and 15 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
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 provides reservation and marketing services to the represented
hotels, but does not allow these properties to use the Westin name.
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 W&S Hotel L.L.C. in May 1995, and grew
to its current 108 first class hotel and resort properties throughout the world
through a combination of its own development efforts and working with other
hotel owners to enable Westin to serve as manager, franchisor or representative.
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.
Pursuant to the Transaction Agreement, Westin Worldwide was 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) were converted into an
aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $.01 per
share, of the Trust ("Class A EPS"), 5,294,783 Class B Exchangeable Preferred
Shares, par value $.01 per share, of the Trust ("Class B EPS") and cash in the
amount of $177.9 million. The Transaction Agreement provided 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 capital expenditures made
by Westin between the date the Transaction Agreement was signed and the closing
date.
Concurrent with the Westin Merger, (i) the stockholders of Lauderdale,
Seattle and Denver contributed all the outstanding shares of such companies to
the Realty Partnership and the Realty Partnership issued to such stockholders an
aggregate of 597,844 units of limited partnership interest of the Realty
Partnership; (ii) the Realty Partnership assumed, repaid or refinanced the
indebtedness of Lauderdale, Seattle and Denver and assumed $147.2 million of
indebtedness incurred by the Members prior to such contributions; (iii) the
stockholders of Atlanta and St. John contributed all the outstanding shares of
such companies to the Operating Partnership and the Operating Partnership issued
to such stockholders an aggregate of 393,156 units of limited partnership
interest of the Operating Partnership; (iv) the Operating Partnership assumed or
repaid the indebtedness of Atlanta and St. John and assumed $6.0 million of
indebtedness incurred by the
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<PAGE> 8
Members prior to such contributions; and (v) the Realty Partnership loaned
Atlanta approximately $34.2 million.
The Class A EPS, Class B EPS and limited partnership units in the
Partnerships ("Units") 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 are directly or indirectly
exchangeable on a one-for-one basis (subject to certain adjustments) for Paired
Common Shares, subject to the right of the Company to elect to pay cash in lieu
of issuing such shares. The limited partnership units are also exchangeable for
shares of Class B EPS on a one-for-one basis. In addition, shares of Class B EPS
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.
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<PAGE> 9
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Company will use the net proceeds from any sale of Securities for general
business purposes, which may include working capital, capital expenditures,
acquisitions or investments or the repayment, refinancing, redemption or
repurchase of then existing indebtedness or then outstanding capital stock. Net
proceeds also may be used by the Company to make loans to the Partnerships or to
purchase additional Partnership equity securities. Except as otherwise provided
in the applicable Prospectus Supplement, the Partnerships intend to use any such
net proceeds for working capital and other general business purposes, which may
include the reduction of certain outstanding indebtedness, the financing of
future acquisitions and the improvement of certain properties in their
respective portfolios. At such time as a particular series or issuance of
Securities is offered, the Prospectus Supplement relating to those Securities
will set forth the intended use of the net proceeds from the sale of those
Securities by the Company and, if applicable, the Partnerships.
Pending the application of the net proceeds, the Company (or, to the extent
such net proceeds are provided to the Partnerships, the Partnerships) will
invest such net proceeds in interest-bearing accounts and short-term,
interest-bearing securities that, in the case of the Trust or the Realty
Partnership, are consistent with the Trust's intention to qualify for taxation
as a REIT. Such investments may include obligations of the Government National
Mortgage Association, other governmental and government agency securities,
certificates of deposit, interest-bearing bank deposits and mortgage loan
participations.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------
1997 1996 1995 1994 1993
- ---- ----- ----- ---- ----
<S> <C> <C> <C> <C>
1.87 2.30x 2.31x .74x* .54x*
</TABLE>
- ---------------
* Earnings were inadequate to cover fixed charges by $7,032,000 in 1993 and
$4,663,000 in 1994.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For purposes of this calculation, earnings consist of income
from continuing operations before income taxes and fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized) and
amortization of debt issuance costs.
As of December 31, 1997, the Company had not issued any preferred stock;
therefore, the Company's ratios of earnings to combined fixed charges and
preferred stock dividends for the periods indicated were the same as the ratios
presented above.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an indenture and one or more
indentures supplemental thereto (collectively, the "Indenture") to be executed
by the Trust or the Corporation, as the case may be, as issuer the Corporation,
as guarantor (if applicable), and a trustee to be identified in the applicable
Prospectus Supplement, as trustee, (a "Trustee"). The terms of the Debt
Securities will include those stated in the Indenture and those made a part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") as in
effect on the date of the Indenture. The Debt Securities will be subject to all
such terms, and potential purchasers of the Debt Securities are referred to the
Indenture and the TIA for a statement thereof. A copy of the proposed form of
the Indenture has been filed as an exhibit to the Registration Statement.
The following statements relating to the Debt Securities and the Indenture
are summaries and do not purport to be complete. Such summaries may make use of
certain terms defined in the Indenture and are qualified in their entireties by
reference to the Indenture. As set forth below, certain other specific term of
any series of Debt Securities will be described in the applicable Prospectus
Supplement. To the extent that any
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<PAGE> 10
one or more particular terms of the Debt Securities described in a Prospectus
Supplement differs from one of the terms described herein, the term described
herein shall be deemed to have been superseded by such term or terms of the
Prospectus Supplement.
GENERAL
The Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time in
or pursuant to authority granted by a resolution of the governing board of the
Trust or the Corporation, respectively, or as established in the Indenture. All
Debt Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series.
The Prospectus Supplement relating to the series of Debt Securities being
offered will set forth the following specific terms thereof:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities been
offered and any limit on the aggregate principal amount of such Debt
Securities;
(3) whether such Debt Securities are Senior Securities or Subordinated
Securities or any combination thereof;
(4) whether such Debt Securities will be guaranteed by the Trust or
the Corporation and if applicable, the form and terms of any such
Guarantee;
(5) the price or prices (expressed as a percentage of the aggregate
principal amount thereof) at which such Debt Securities will be issued and,
if other than the stated principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of the
maturity thereof, or (if applicable) the portion of the principal amount of
such Debt Securities that is convertible into Paired Common Shares or
Preferred Shares, or the method by which any such portion shall be
determined;
(6) if convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Paired Common Shares or Preferred Shares receivable
on conversion;
(7) the date or dates (or the method for determining such date or
dates) on which the principal of such Debt Securities will be payable;
(8) the rate or rates (which may be fixed or variable) per annum or,
if applicable, or the method by which such rate or rates shall be
determined, at which such Debt Securities will bear interest, if any; the
date or dates (or the method for determining such date or dates) from which
any such interest on such Debt Securities will accrue; the dates on which
any such interest will be payable; the record dates for the determination
of the persons to whom such interest shall be payable; and the basis upon
which interest shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(9) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable and such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange; and where notices or demands to or upon the Trust or the
Corporation, as the case may be, may be served in respect of such Debt
Securities, any applicable Guarantee and the Indenture;
(10) the provisions, if any, relative to any security provided for
such Debt Securities;
(11) the period or periods within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Trust or the
Corporation, as the case may be, if the issuer is to have such an option;
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<PAGE> 11
(12) the obligation, if any, of the issuer to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof; and the period or periods
within which, the price or prices at which and the terms and conditions
upon which such Debt Securities will be redeemed, repaid or purchased, as a
whole or in part, pursuant to such obligation;
(13) if other than United States dollars, the currency or currencies
in which such Debt Securities are denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(14) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies), and the manner in which such
amounts shall be determined;
(15) the covenants and events of default or covenants of such Debt
Securities, to the extent different from or in addition to those described
herein;
(16) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(17) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations in which such Debt Securities
may be usable, if other than denominations of $1,000 and any integral
multiple thereof and, if in bearer form, the denominations thereof and
terms and conditions relating thereto;
(18) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein, or any modification thereof;
(19) whether and under what circumstances the Trust or the
Corporation, as the case may be, will pay additional amounts on such Debt
Securities in respect of any tax, assessment or governmental charge and, if
so, whether such issuer will have the option to redeem such Debt Securities
in lieu of making such payment; and
(20) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be due and payable upon declaration of acceleration of the maturity
thereof ("Original Issue Discount Securities"). If material or applicable,
special United States federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in the applicable Prospectus Supplement, the Indenture will not contain
any other provisions that would limit the ability of either the Trust or the
Corporation to incur indebtedness or that would afford holders of the Debt
Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Trust or the Corporation, the management of the Trust
or the Corporation, or any affiliate of any such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar transaction
involving the Trust or the Corporation that may adversely affect the holders of
the Debt Securities. Restrictions on ownership and transfers of the Paired
Common Shares and Preferred Shares are designed to preserve the Trust's status
as a REIT and, therefore, may act to prevent or hinder a change of control. See
"Description of Paired Common Shares -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares" and "Description of Preferred
Shares -- Ownership Limits; Restrictions on Transfer; Repurchase and Redemption
of Shares." Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the events of default or covenants that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
GUARANTEES
Debt securities issued by the Trust may be guaranteed by the Corporation;
Debt Securities issued by the Corporation may be guaranteed by the Trust.
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<PAGE> 12
Either the Trust or the Corporation may unconditionally and irrevocably
guarantee, on a senior or subordinated basis, the due and punctual payment of
principal of, premium, if any, and interest on Debt Securities issued by the
other entity, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
The applicability and terms of any such guarantee relating to a series of Debt
Securities will be set forth in the Prospectus Supplement relating to such Debt
Securities.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series consisting of registered securities (other than
registered securities issued in global form, which may be of any denomination),
will be issuable in denominations of $1,000 and any integral multiple thereof.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on Debt Securities will be
payable at the corporate trust office of the Trustee, the address of which will
be stated in the applicable Prospectus Supplement; provided, however, that, at
the option of the Trust or the Corporation, as the case may be, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds (except that payment by wire transfer of immediately
available funds will be required with respect to principal of (and premium, if
any) and interest on all Global Securities).
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the relevant regular record date
and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the applicable
Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee. In addition,
subject to certain limitations imposed upon Debt Securities issued in book-entry
form, the Debt Securities of any series may be surrendered for conversion or
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for conversion, registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but the Trustee, the Trust or the
Corporation may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Trust or the Corporation, as the case may be, with
respect to any series of Debt Securities, such entity may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Trust or the
Corporation, as the case may be, will be required to maintain a transfer agent
in each place of payment for such series. The Trust or the Corporation, as the
case may be, may at any time designate additional transfer agents with respect
to any series of Debt Securities.
Neither the Trust, the Corporation nor the Trustee will be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of the Debt Securities to be redeemed and ending at the close of
business on (A) if such Debt Securities are issuable only in registerable form,
the day of the mailing of the relevant notice of redemption, and (B) if such
Debt Securities are issuable as bearer securities, the day of the first
publication of the relevant notice of redemption or, if such Debt Securities are
also issuable as registered securities and there is no publication, the mailing
of the relevant notice of redemption, or (ii) to register the transfer of or
exchange any security issued in registerable form so selected for redemption in
whole or in part, except, in the case of any registered security
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<PAGE> 13
to be redeemed in part, the portion thereof not to be redeemed, or (iii) to
exchange any bearer security so selected for redemption except that such a
bearer security may be exchanged for a registered security of that series and
like tenor, on the condition that such registered security shall be
simultaneously surrendered for redemption, or (iv) to issue, register the
transfer of or exchange any Debt Security which has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
Any of the Trust and the Corporation may consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity, provided that (a) either the Trust or the Corporation, as the case
may be, shall be the continuing entity, or the successor entity (if other than
the Trust or the Corporation, as the case may be) formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium, if
any) and interest on all the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the applicable indenture (b) immediately after giving effect to such
transaction, no event of default under the Indenture, and no event which, after
notice or the lapse of time, or both, would become such an event of default,
shall have occurred and be continuing; and (c) an officer's certificate and
legal opinion covering such conditions shall be delivered to the Trustee.
If this Prospectus is being delivered in connection with a series of Debt
Securities that provides for the optional redemption, prepayment or conversion
of such Debt Securities upon the occurrence of a change of control of the
Company, the applicable Prospectus Supplement will disclose: (i) the effects
that such provisions may have in deterring certain mergers, tender offers or
other takeover attempts, as well as any possible adverse effect on the market
price of the Company's securities or the ability to obtain additional financing
in the future; (ii) that the Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other applicable securities laws in
connection with such provisions and any related offers by the Company and, to
the extent that convertible securities are the subject of a Prospectus
Supplement, that the Company will comply with Rule 13e-4 under the Exchange Act;
(iii) whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such Debt Securities
may be effectively subordinated; (iv) any limitations on the Company's financial
or legal ability to repurchase such Debt Securities upon the triggering of an
event risk provision requiring such a repurchase or offer to repurchase; (v) the
impact, if any, under the governing instrument of the failure to repurchase,
including whether such failure to make any required repurchases in the event of
that change of control will create an event of default with respect to such Debt
Securities or will become an event of default only after the continuation of
such failure for a specified period of time after written notice is given to the
Company by the trustee or to the Company and the trustee by the holders of a
specified percentage in aggregate principal amount of such Debt Securities then
outstanding; (vi) that there can be no assurance that sufficient funds will be
available at the time of the triggering of an event risk provision to make any
required repurchases; (vii) if such Debt Securities are to be subordinated to
other obligations of the Company or its subsidiaries that would be accelerated
upon the triggering of a change in control, fundamental change or poison put
feature, the material effect thereof on the change in control, fundamental
change or poison put option and such Debt Securities; (viii) the extent that
there is a definition of "Change in Control" that includes the concept of "all
or substantially all," a quantification of such term or, in the alternative, the
established meaning of the phrase under the applicable governing law of the
Indenture. If an established meaning for the phrase is not available, then the
effects of such an uncertainty on the ability of a holder of such Debt
Securities to determine when a "Change of Control" has occurred; and (ix) if
applicable, whether the "Change of Control" provisions will be triggered if
change in control of the Board of Directors occurs as a result of a proxy
contest involving the solicitation of revocable proxies.
CERTAIN COVENANTS
Existence. Except as permitted under "--Merger, Consolidation or Sale,"
each of the Trust and the Corporation will be required to do or cause to be done
all things necessary to preserve and keep in full force
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<PAGE> 14
and effect its existence, rights and franchises; provided, however, that each of
the Trust and the Corporation will not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business.
Maintenance of Properties. Each of the Trust and the Corporation will be
required to cause all of its material properties used or useful in the conduct
of its business or the business of any subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and to cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Trust or the
Corporation, as the case may be, may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that each of the Trust and the Corporation will not be
required to continue the operation or maintenance of any such property or
prevented from disposing of such property if it determines that such
discontinuance or disposal is desirable in the conduct of the business.
Insurance. Each of the Trust and the Corporation will be required to, and
will be required to cause each of its subsidiaries to, keep all of its insurable
properties insured against loss or damage at least equal to their then full
insurable value with insurers of recognized responsibility.
Payment of Taxes and Other Claims. Each of the Trust and the Corporation,
as the case may be, will be required to pay or discharge or cause to be paid or
discharged before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges levied or imposed upon it or any subsidiary
or upon its income, profits or property or that of any subsidiary, and (ii) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a material lien upon the property of the Trust, the Corporation or any
subsidiary; provided, however, that the Trust and the Corporation, as the case
may be, will not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
Provision of Financial Information. Whether or not the Trust or the
Corporation, as the case may be, is subject to Section 13 or 15(d) of the
Exchange Act, the Trust or the Corporation, as the case may be, will, be
required within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject to (i) transmit by
mail to all Holders of its Debt Securities, as their names and addresses appear
in the security register for such Debt Securities, without cost to such Holders,
copies of the annual reports and quarterly reports that the Trust or the
Corporation, as the case may be, would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Trust or
the Corporation, as the case may be, were subject to such Sections and (ii) file
with any Trustee copies of the annual reports, quarterly reports and other
documents that the Trust or the Corporation, as the case may be, would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Trust or the Corporation, as the case may be, were subject
to such Sections and (iii) promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective holder.
Additional Covenants. Any additional or different covenants of the Trust or
the Corporation with respect to any series of Debt Securities will be set forth
in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (b) default in the payment of the principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance, or breach, of any other covenant of
the Trust or the Corporation contained in the Indenture (other than a covenant
added to such Indenture solely for the benefit of a series of Debt Securities
issued thereunder other than such series), such default having continued for 60
days after written notice as provided in such Indenture; (e) default in the
payment of an aggregate principal amount exceeding a specified amount of any
evidence of indebtedness of the Trust or the
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<PAGE> 15
Corporation, as the case may be, or any mortgage, indenture or other instrument
under which such indebtedness is issued or by which such indebtedness is
secured, such default having occurred after the expiration of any applicable
grace period and having resulted in the acceleration of the maturity of such
indebtedness, but only if such indebtedness is not discharged or such
acceleration is not rescinded or annulled; (f) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Trust or the Corporation, as the case may be, or any Significant
Subsidiary or any of their respective property; and (g) any other event of
default provided with respect to a particular series of Debt Securities. The
term "Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Trust or the
Corporation, as the case may be.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or indexed securities, such portion of the principal
amount as may be specified in the terms thereof) of all of the Debt Securities
of that series to be due and payable immediately by written notice thereof to
the Trust or the Corporation, as the case may be (and to the applicable Trustee
if given by the holders). However, at any time after such a declaration of
acceleration with respect to Debt Securities of such series (or of all Debt
Securities then outstanding under the Indenture, as the case may be) has been
made, but before a judgment or decree for payment of the money due has been
obtained by the applicable Trustee, the holders of not less than a majority in
principal amount of outstanding Debt Securities of such series (or of all Debt
Securities then outstanding under the Indenture, as the case may be) may rescind
and annul such declaration and its consequences if (a) the Trust or the
Corporation, as the case may be, shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
outstanding under any Indenture, as the case may be), plus certain fees,
expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal of (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the Indenture, as the case may be)
have been cured or waived as provided in the Indenture. The Indenture will also
provide that the holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series (or of all Debt Securities then
outstanding under the Indenture, as the case may be) may waive any past default
with respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium, if any) or interest on any Debt
Security or such series or (y) in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
holder of each outstanding Debt Security affected thereby.
Each Trustee will be required to give notice to the holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default has been cured or waived; provided, however, that such Trustee may
withhold notice to the holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified responsible officers of such Trustee consider such
withholding to be in the interest of such holders.
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to the
applicable Indenture or for any remedy thereunder, except in the case of failure
of the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of Debt
Securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on such Debt Securities at the respective
due dates thereof.
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under the Indenture at the request or direction of any
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holders of any series of Debt Securities then outstanding under the Indenture,
unless such holders shall have offered to the Trustee thereunder reasonable
security or indemnity. The holders of not less than a majority in principal
amount of the outstanding Debt Securities of any series (or of all Debt
Securities then outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
such Trustee in personal liability or which may be unduly prejudicial to the
holders of Debt Securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Trust or the
Corporation, as the case may be, will be required to deliver to each Trustee a
certificate, signed by one of several specified officers of the Company, stating
whether or not such officer has knowledge of any default under the Indenture
and, if so, specifying each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities or series of outstanding Debt
Securities which are affected by such modification or amendment, provided,
however, that no such modification or amendment may, without the consent of the
holder of each such Debt Security affected thereby: (a) change the stated
maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security; (b) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any such Debt Security; (c) change the place
of payment, or the coin or currency, for payment of principal of, premium, if
any, or interest on any such Debt Security; (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any such Debt
Security; (e) reduce the above-stated percentage of outstanding Debt Securities
of any series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in such
Indenture; (f) modify any of the provisions set forth in such Indenture relating
to subordination; (g) change the redemption provisions set forth in such
Indenture in a manner adverse to the holders of Debt Securities; or (h) modify
any of the foregoing provisions or any of the provisions relating to the waiver
of certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the holder of such Debt
Security.
The holders of not less than a majority in principal amount of a series of
outstanding Debt Securities have the right to waive compliance by the Trust or
the Corporation, as the case may be, with certain covenants relating to such
series of Debt Securities in the Indenture.
Modifications and amendments of the Indenture will be permitted to be made
by the Trust or the Corporation, as the case may be, and the respective Trustee
thereunder without the consent of any holder of Debt Securities for any of the
following purposes: (i) to evidence the succession of another person to the
Trust, or the Corporation, as the case may be, as obligor under the Indenture;
(ii) to add to the covenants of the Trust or the Corporation, as the case may
be, for the benefit of the holders of all or any series of Debt Securities or to
surrender any right or power conferred upon the Trust or the Corporation, as the
case may be, in such Indenture; (iii) to add events of default for the benefit
of the holders of all or any series of Securities; (iv) to add or change any
provisions of the Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, provided that such action
shall not adversely affect the interests of the holders of the Debt Securities
of any series in any material respect; (v) to change or eliminate any provisions
of the Indenture, provided that any such change or elimination shall become
effective only when there are no Debt Securities outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series, including the provisions and
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procedures, if applicable, for the conversion of such Debt Securities into
Paired Common Shares or Preferred Shares of the Company; (viii) to provide for
the acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Trustee; (ix)
to cure any ambiguity, defect or inconsistency in an Indenture, provided that
such action shall not adversely affect the interests of holders of Debt
Securities of any series in any material respect; or (x) to supplement any of
the provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities or of any
applicable Guarantees, provided that such action shall not adversely affect the
interests of the holders of the Debt Securities of any series in any material
respect.
The Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the United States dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the United States dollar equivalent on the
issue date of such Debt Security of the amount determined as provided in clause
(i) above), (iii) the principal amount of an indexed security that shall be
deemed outstanding shall be the principal face amount of such indexed security
at original issuance, unless otherwise provided with respect to such indexed
security pursuant to such indenture, and (iv) Debt Securities owned by the
Trust, the Corporation or any other obligor upon the Debt Securities or any
affiliate of the Trust, the Corporation or of such other obligor shall be
disregarded.
The Indenture will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting will be permitted to be called at any
time by the Trustee, and also, upon request, by the Trust, the Corporation, or
other obligor of such Debt Securities or the holders of at least 10% in
principal amount of the outstanding Debt Securities of such series, in any such
case upon notice given as provided in the Indenture. Except for any consent that
must be given by the holder of each Debt Security affected by certain
modifications and amendments of the Indenture, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum is present will
be permitted to be adopted by the affirmative vote of the holders of a majority
in principal amount of the outstanding Debt Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a specified
percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the holders of such specified percentage in principal amount of the outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series, will constitute a quorum.
Notwithstanding the foregoing provisions, the Indenture will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other
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<PAGE> 18
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture.
SUBORDINATION
Senior Securities will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Trust or the Corporation, as applicable.
Upon any distribution to creditors of the Trust or the Corporation, as the
case may be, in a liquidation, dissolution or reorganization, the payment of the
principal of and interest on any Subordinated Securities will be subordinated to
the extent provided in the Indenture in right of payment to the prior payment in
full of all Senior Debt (as defined below), but the obligation of the Trust or
the Corporation, as the case may be, to make payment of the principal and
interest on such Subordinated Securities will not otherwise be affected. No
payment of principal or interest will be permitted to be made on Subordinated
Securities at any time if a default on Senior Debt exists that permits the
holders of such Senior Debt to accelerate its maturity and the default is the
subject of judicial proceedings or the Trust or the Corporation, as the case may
be, receives notice of the default. By reason of such subordination, in the
event of a distribution of assets upon insolvency, certain general creditors of
the Trust or the Corporation, as the case may be, may recover more, ratably,
than holders of Subordinated Securities.
Unless otherwise specified in the applicable Prospectus Supplement, Senior
Debt will be defined in the Indenture as the principal of and interest on, or
substantially similar payments to be made by the Trust or the Corporation, as
the case may be, in respect of, the following, whether outstanding at the date
of execution of the indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Trust or the Corporation, as the case may be, for money
borrowed or represented by purchase-money obligations, (b) indebtedness of the
Trust or the Corporation, as the case may be, evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (c) obligations of the Trust or the
Corporation, as the case may be, as lessee under leases of property either made
as part of any sale and leaseback transaction to which the Trust or the
Corporation, as the case may be, is a party or otherwise, (d) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (e) indebtedness, obligations and liabilities of
others in respect of which the Trust or the Corporation, as the case may be, is
liable contingently or otherwise to pay or advance money or property or as
guarantor, endorser or otherwise or which the Trust or the Corporation, as the
case may be, has agreed to purchase or otherwise acquire, and (f) any binding
commitment of the Trust or the Corporation, as the case may be, to fund any real
estate investment or to fund any investment in any entity making such real
estate investment, in each case other than (1) any such indebtedness, obligation
or liability referred to in clauses (a) through (f) above as to which, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is expressly provided that such indebtedness, obligation or
liability is not superior in right of payment to the subordinated Securities or
ranks pari passu with the Subordinated Securities, (2) any such indebtedness,
obligation or liability which is subordinated to indebtedness of the Trust or
the Corporation, as the case may be, to substantially the same extent as or to a
greater extent than the Subordinated Securities are subordinated, and (3) the
Subordinated Securities. There will not be any restrictions in the Indenture
relating to Subordinated Securities upon the creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the most recent fiscal
quarter of the Trust or Corporation, as the case may be.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Trust or the Corporation, as the case may be, may be permitted under
the Indenture to discharge certain obligations to holders of any series of Debt
Securities that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with the Trustee, in trust,
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funds in such currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are payable in an amount
sufficient to pay the entire indebtedness on such Debt Securities in respect of
principal (and premium, if any) and interest to the date of such deposit (if
such Debt Securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
An Indenture may provide that, if certain provisions thereof are made
applicable to the Debt Securities of or within any series pursuant to the
Indenture, each of the Trust or the Corporation, as the case may be, may elect
either (a) to defease and be discharged from any and all obligations with
respect to such Debt Securities except for the obligation to pay additional
amounts, if any, upon the occurrence of certain events of tax, assessment or
governmental charge with respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities and to hold
moneys for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to such Debt Securities under certain sections, of the
Indenture (including the restrictions described under "Certain Covenants") and,
if provided pursuant to the Indenture, its obligations with respect to any other
covenant, and any omission to comply with such obligations will not constitute a
default or an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Trust or the
Corporation, as the case may be, with the Trustee, in trust, of an amount, in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such Debt Securities, and
any mandatory sinking fund or analogous payments thereon, an the scheduled due
dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Trust or the Corporation, as the case may be, has delivered to the
Trustee an opinion of counsel (as specified in the applicable indenture) to the
effect that the holders of such Debt Securities will not recognize income, gain
or loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to United States federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
applicable Indenture.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government that issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, and that, in either case, are
not callable or redeemable at the option of the issuer thereof, and will also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Trust or the Corporation, as the case may be, has deposited funds and/or
Government Obligations to effect defeasance or covenant defeasance with respect
to Debt Securities of any series, (a) the holder of a Debt Security of such
series is entitled to, and does elect pursuant to the Indenture or the terms of
such Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of such
Debt Security, or (b) a Conversion Event (as defined below) occurs in respect of
the currency,
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currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public institution
of or within the international banking community, (ii) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Community or (iii) any currency unit or
composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance will be made in United States dollars.
In the event the Trust or the Corporation, as the case may be, effects
covenant defeasance with respect to any Debt Securities and such Debt Securities
are declared due and payable because of the occurrence of any Event of Default
other than the Event of Default described in clause (d) under "Events of
Default, Notice and Waiver" with respect to specified sections of the Indenture
(which sections would no longer be applicable to such Debt Securities) or
described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there had been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their stated maturity but may not be sufficient to pay
amounts due on such Debt Securities at the time of the acceleration resulting
from such Event of Default. However, the Trust or the Corporation, as the case
may be, would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Debt Securities
is convertible into Paired Common Shares or Preferred Shares will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include whether such Debt Securities are convertible into Paired Common Shares
or Preferred Shares, the conversion price (or manner of calculation thereof),
the conversion period, provisions as to whether conversion will be at the option
of the holders or the Trust or the Corporation, as the case may be, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Debt Securities and
any restrictions on conversion, including restrictions directed at maintaining
the Trust's REIT status.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary ("the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
REGARDING THE TRUSTEE
The Indenture will provide that there may be more than one Trustee
thereunder. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor
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Trustee may be appointed to act with respect to such series. In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by a Trustee may be taken by each such Trustee with respect to, and only
with respect to, the one or more series of Debt Securities for which it is
Trustee under the Indenture.
GENERAL DESCRIPTION OF CAPITAL STOCK
GENERAL
The Declaration of Trust authorizes the Trust to issue 1.35 billion shares
of beneficial interests in the Trust, consisting of (i) one billion Trust
Shares, (ii) 200 million excess trust shares, with a par value of $0.01 per
share ("Excess Trust Shares"), (iii) 100 million trust preferred shares, par
value $0.01 per share ("Trust Preferred Shares"), and (iv) 50 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 1.35 billion, the
Declaration of Trust grants the Board of Trustees the power to create and
authorize the issuance of Trust Preferred Shares in one or more classes or
series, having such voting rights, such rights to dividends and distribution and
rights in liquidation, such conversion, exchange and redemption rights and such
designations, preferences and participations and other limitations and
restrictions as are not prohibited by the Declaration of Trust or applicable law
and as are specified by the Board of Trustees in its discretion. As of February
28, 1998, 187,107,584 Trust Shares and 33,863,750 Trust Preferred Shares were
issued and outstanding, and no Excess Trust Shares or Excess Trust Preferred
Shares were had been issued.
The Articles of Incorporation authorize the Corporation to issue 1.35
billion shares, consisting of (i) one billion Corporation Shares, (ii) 50
million shares of excess common stock, with a par value of $0.01 per share
("Excess Corporation Common Stock"), (iii) 200 million shares of preferred
stock, with a par value of $0.01 per share ("Corporation Preferred Shares"), and
(iv) 100 million shares of excess preferred stock, with a par value of $0.01 per
share ("Excess Corporation Preferred Stock" and, together with the Excess
Corporation Common Stock, the "Excess Corporation Stock"). The Corporation
Preferred Shares are issuable in classes or series with such rights,
preferences, privileges and restrictions as the Board of Directors may
determine, including voting rights, redemption provisions, dividend rates,
liquidation preferences and conversion rights. As of February 28, 1998,
187,107,584 Corporation Shares were issued and outstanding, and no shares of
Excess Corporation Common Stock, Corporation Preferred Shares or shares of
Excess Corporation Preferred Stock had been issued.
DESCRIPTION OF PREFERRED SHARES
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which a Prospectus
Supplement may relate. The statements below describing the Preferred Shares are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Declaration of Trust and the Articles of
Incorporation and any amendment to the Declaration of Trust or the Articles of
Incorporation designating terms of a series of Preferred Shares (a "Designating
Amendment").
The Trust may authorize and issue Trust Preferred Shares without the
issuance by the Corporation of corresponding shares, and the Corporation may
authorize and issue Corporation Preferred Shares without the issuance by the
Trust of corresponding shares. Furthermore, the Pairing Agreement does not limit
the power of the Boards of the Trust and the Corporation to independently
determine the rights, preferences and restrictions of such shares. However, if
either the Trust or the Corporation were to issue Preferred Shares for which the
other entity did not issue corresponding (i.e., paired) shares in an amount such
that greater than 50% of such entity's beneficial equity interests were
represented by such unpaired Preferred Shares, then the Trust and the
Corporation could lose their status as "grandfathered" from the application of
Section 269B of
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the Code and thus jeopardize the Trust's ability to qualify as a REIT. (See
"Federal Income Taxation of the Trust -- Background.") Neither the Trust nor the
Corporation intends to issue unpaired Preferred Shares in excess of such
limitation.
TERMS
Subject to the limitations prescribed by the Declaration of Trust and the
Articles of Incorporation, respectively, each of the Board of Trustees and the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Shares and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of such board. The Preferred Shares will, when issued, be
fully paid and nonassessable by the Trust or the Corporation, as the case may be
(except as described under "-- Shareholder Liability" below). The authorized
Trust Preferred Shares are available for issuance from time to time in the
discretion of the Trust's Board of Trustees, and the authorized Corporation
Preferred Shares are available for issuance from time to time in the discretion
of the Corporation's Board of Directors, without shareholder or stockholder
approval.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares and whether
such Preferred Shares are paired;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), periodic and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for redemption, if applicable, of such Preferred
Shares;
(7) The provision for a sinking fund, if any, for such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange.
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Paired Common Shares, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
depositary shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to
such Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Trust or the Corporation, respectively;
(14) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Trust or the Corporation, respectively; and
(15) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Trust as a REIT.
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RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Trust or the Corporation,
respectively, rank (i) senior to all classes or series of Paired Common Shares
and to any other equity securities ranking junior to such Preferred Shares; (ii)
on a parity with all equity securities issued by the Trust or the Corporation,
respectively, the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Shares; and (iii) junior to all
equity securities issued by the Trust or the Corporation, respectively, the
terms of which specifically provide that such equity securities rank senior to
the Preferred Shares. The term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees or the Board of Directors, as
the case may be, out of the respective assets of the Trust or the Corporation
legally available for payment, cash dividends at such rates and on such dates as
will be set forth in the applicable Prospectus Supplement. Each such dividend
shall be payable to holders of record as they appear on the share transfer books
of the Trust or the Corporation, as the case may be, on such record dates as
shall be fixed by the Board of Trustees or the Board of Directors.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement, if the Board of Trustees or the Board of
Directors fails to declare a dividend payable on a dividend payment date on any
series of the Preferred Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Trust or the Corporation, as the case may be, will have no obligation to
pay the dividend accrued for such period, whether or not dividends on such
series are declared payable on any future dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Trust or
the Corporation, as the case may be, of any other series ranking, as to
dividends, on a parity with or junior to the Preferred Shares of such series for
any period unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the Preferred Shares of such series for all past dividend
periods and the then current dividend period or (ii) if such series of Preferred
Shares does not have a cumulative dividend, full dividends for the then current
dividend period have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such payment on the
Preferred Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of Preferred
Shares ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per share of
Preferred Shares of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Preferred Shares of such series (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Shares does not have a cumulative dividend) and such other series of Preferred
Shares bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on Preferred
Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series
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have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in shares of Paired Common Shares or
other capital shares ranking junior to the Preferred Shares of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Paired Common
Shares, or any other capital shares of the Trust or the Corporation, as the case
may be, ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation, nor shall any shares of Paired
Common Shares, or any other capital shares of the Trust or the Corporation, as
the case may be, ranking junior to or on a parity with the Preferred Shares of
such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the Trust
or the Corporation, as the case may be, except by conversion into or exchange
for other capital shares of the Trust or the Corporation, as the case may be,
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Trust or the Corporation, as the case may be, as a whole or in part, in each
case upon the terms, at the times and at the redemption prices set forth in such
Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that will be redeemed by the Trust or the Corporation, as the
case may be, in each year commencing after a date to be specified, at a
redemption price per share to be specified, together with an amount equal to all
accrued and unpaid dividends thereon (which shall not, if such Preferred Shares
do not have a cumulative dividend, include any accumulation in respect of unpaid
dividends for prior dividend periods) to the date of redemption. The redemption
price may be payable in cash or other property, as specified in the applicable
Prospectus Supplement. If the redemption price for Preferred Shares of any
series is payable only from the net proceeds of the issuance of capital shares
of the Trust or the Corporation, as the case may be, the terms of such Preferred
Shares may provide that, if no such capital shares shall have been issued or to
the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Shares will
automatically and mandatorily be converted into the applicable capital shares of
the Trust or the Corporation, as the case may be, pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends of the Preferred Shares of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of any
series of Preferred Shares shall be redeemed unless all outstanding Preferred
Shares of such series are simultaneously redeemed; provided, however, that the
foregoing will not prevent the purchase or acquisition of Preferred Shares of
such series to preserve the REIT status of the Trust or pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding Preferred
Shares of such series. In addition, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all outstanding
shares of any series of Preferred Shares have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividends periods and the then current dividend
period, and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, the
Trust or the Corporation, as the case may be, shall not purchase or otherwise
acquire directly or indirectly any shares of Preferred Shares of such series
(except by conversion into or exchange for capital shares of the Trust or the
Corporation, as the case may be, ranking
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junior to the Preferred Shares of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Shares of such series to preserve the REIT
status of the Trust or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Trust or the Corporation, as the case may be, and such shares
may be redeemed pro rata from the holders of record of such shares in proportion
to the number of such shares held or for which redemption is requested by such
holder (with adjustments to avoid redemption of fractional shares) or by lot in
a manner determined by the Trust or the Corporation, as the case may be.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Trust or the Corporation, as the case may be. Each notice will state: (i)
the redemption date, (ii) the number of shares and series of the Preferred
Shares to be redeemed; (iii) the redemption price; (iv) the place or places
where certificates for such Preferred Shares are to be surrendered for payment
of the redemption price; (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date; and (vi) the date upon which the
holder's conversion rights, if any, as to such shares will terminate, if fewer
than all the shares of Preferred Shares of any series are to be redeemed, the
notice mailed to each such holder thereof also will specify the number of shares
of Preferred Shares to be redeemed from each such holder. If notice of
redemption of any Preferred Shares has been given and if the funds necessary for
such redemption have been set aside by the Trust or the Corporation, as the case
may be, in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, and all rights of the holders of such
shares will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust or the Corporation, as the case may be, then, before
any distribution or payment shall be made to the holders of any Paired Common
Shares or any other class or series of capital shares of the Trust or the
Corporation, as the case may be, ranking junior to the Preferred Shares in the
distribution of assets upon any liquidation, dissolution or winding up of the
Trust or the Corporation, as the case may be, the holders of each series of
Preferred Shares will be entitled to receive out of assets of the Trust or the
Corporation, as the case may be, legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which will not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Shares will have no right or claim to any of
the remaining assets of the Trust or the Corporation, as the case may be. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Trust or the Corporation, as the case
may be, are insufficient to pay the amount of the liquidating distributions on
all outstanding Preferred Shares and the corresponding amounts payable on all
shares of other classes or series of capital shares of the Trust or the
Corporation, as the case may be, ranking on a parity with the Preferred Shares
in the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of capital shares will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Trust or the Corporation, as the
case may be, will be distributed among the holders of any other classes or
series of capital shares ranking junior to the Preferred Shares upon
liquidation, dissolution or winding up, according to their respective rights and
preferences and in each case according to their respective number of shares. For
such purposes, the consolidation or merger of the Trust or the Corporation, as
the case may be, with or into any other corporation, trust or entity, or the
sale, lease or conveyance of all or substantially all of the property or
business of the Trust or the Corporation, as the case may be, will not be
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deemed to constitute a liquidation, dissolution or winding up of the Trust or
the Corporation, as the case may be.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Shares shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Shares (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
trustees of the Trust or directors of the Corporation, as the case may be, at a
special meeting called by the holders of record of at least ten percent (10%) of
any series of Preferred Shares so in arrears (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of the shareholders) or at the next annual meeting of stockholders. Trustees or
directors so elected shall serve until the next annual meeting or until their
respective successors are elected and qualify, or if sooner until all dividends
in arrears have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire board of the Trust or
the Corporation, as the case may be, will be increased by two trustees or
directors.
Unless provided otherwise for any series of Preferred Shares, so long as
any shares of Preferred Shares remain outstanding, the Trust or the Corporation,
as the case may be, may not, without the affirmative vote or consent of the
holders of at least two-thirds of the shares of each series of Preferred Shares
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (such series voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of any class or series of capital stock
ranking prior to such series of Preferred Shares with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up or reclassify any authorized capital stock of the Trust or the Corporation,
as the case may be, into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Declaration of
Trust or the Articles of Incorporation or the Designating Amendment for such
series of Preferred Shares, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Shares or the holders
thereof; provided, however, with respect to the occurrence of any of the Events
set forth in (ii) above, so long as the Preferred Shares remain outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Trust or the Corporation, as the case may be, may
not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Shares and provided further that (x) any
increase in the amount of the authorized Preferred Shares or the creation or
issuance of any other series of Preferred Shares, or (y) any increase in the
amount of authorized shares of such series or any other series of Preferred
Shares, in each case ranking on a parity with or junior to the Preferred Shares
of such series with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up will not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares have been
redeemed or called for redemption and sufficient funds have been deposited in
trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Paired Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Paired Common Shares into which the shares of Preferred Shares are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders or the
Trust or the Corporation, as the case may be, the events requiring an
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adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Shares and any restrictions
on conversion, including restrictions directed at maintaining the Trust's REIT
status.
TRUST PREFERRED SHARES
In connection with the Westin acquisition, 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 Class A EPS, shares
of Class A EPS have a par value of $.01 per share and have the following rights,
designations, preferences, participations and other limitations and
restrictions.
DIVIDEND RIGHTS. The holders of Class A EPS are 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
Shares, when and if declared by the Trustee 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 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 Liquidating 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, will 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 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.
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EXCHANGE RIGHTS. Shares of Class A EPS are 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 Shares") or the REIT Requirements, the Trust
may either (x) deliver to such holder the maximum number of Paired Shares that
may be delivered without causing such a violation (the "Delivered Shares", with
the number of Requested Shares in excess of the Delivered Shares being referred
to herein as the "Excess Shares"), together with either the Cash Equivalent of
the Excess Shares or an Exchange Promissory Note (as defined below) in a
principal amount equal to such Cash Equivalent of the Excess Shares or (y)
deliver to such holder the Cash Equivalent of the Requested Shares. If 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 is 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.
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VOTING RIGHTS. Except as required by law, the holders of Class A EPS are
entitled to vote on any matter on which the holders of Trust Common Shares are
entitled to vote. Each share 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 largest whole
number of Class A Underlying Trust Shares for which such shares of Class A EPS
could be exchanged at such time.
CLASS B EPS. Under the Articles Supplementary creating the Class B EPS,
shares of Class B EPS have a par value of $.01 per share and have the following
rights, designations, preferences, participations and other limitations and
restrictions:
DIVIDEND RIGHTS. The holders of Class B EPS are 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 Rights").
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 Rights, 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 is 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 B Exchange Right in
respect to the shares of Class A EPS issuable upon exercise of such Class B
Exchange Right) are referred to as the "Class B Underlying Paired Shares", with
the Corporation Shares component of such Class B Underlying Paired Shares being
referred to as the "Class B Underlying Corporation Shares" and the Trust Shares
component of such Class B Underlying Paired Shares being referred to as the
"Class B Underlying Trust Shares". In addition, in the event of the occurrence
of any capital reorganization or reclassification of the Class A EPS, or
consolidation or merger of the Trust with another corporation, trust or other
entity, or the sale, transfer or lease of all or substantially all of the assets
of the Trust to another person, is effected in such a way that holders of Class
A EPS will be entitled to receive stock, securities or other assets with respect
to or in exchange for Class A EPS, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or lease, the Class B
Exchange Right and the Trust Redemption Right shall be modified so that, upon
exercise thereof, the Class B EPS will be exchanged for the kind and amount of
stock, securities or other assets which the holders of such Class B EPS would
have owned or been entitled to receive immediately after the transaction if such
holders had exchanged their Class B EPS into the shares of Class A EPS
immediately prior to the effective date of such transaction, subject to further
adjustment upon the occurrence of the events described above.
If there are any accrued but undeclared Class B Preferred Dividends in
respect of the shares of Class B EPS subject to an exchange request, the number
of shares of Class A EPS issuable pursuant to such exchange shall be increased
by a number of shares equal to (i) the amount of such accrued but undeclared
dividends divided by (ii) the product of (A) the average closing price of the
Paired Shares on the NYSE during the five trading days preceding the date of
delivery of such Class A Exchange Notice multiplied by (B) the number of
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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 person 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.
VOTING RIGHTS. Except as required by law, the holders of Class B EPS are
entitled to vote on any matter on which the holders of Trust Common 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 cash a number of votes equal to the largest whole
number of Class B Underlying Trust Shares for which such shares of Class A EPS
could be indirectly exchanged at such time (assuming the exercise of the Class B
Conversion Right and the concurrent exercise of the Class A Exchange Right with
respect to the shares of Class A EPS issuable upon exercise of such Class B
Conversion Right).
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF SHARES
As discussed below under "Description of Paired Common Shares -- Ownership
Limits; Restrictions on Transfer; Repurchase and Redemption of Shares," for the
Trust to qualify as a REIT under the Code, the Trust must meet several
requirements concerning the ownership of its shares. To assist the Trust in
meeting this requirement, the Trust may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the Trust's
outstanding equity securities, including any Preferred Shares of the Trust.
Therefore, the Designating Amendment for each series of Preferred Shares may
contain provisions restricting the ownership and transfer of the Preferred
Shares. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Shares.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF PAIRED COMMON SHARES
GENERAL
All Paired Common Shares offered hereby will be duly authorized, fully paid
and nonassessable. Subject to the preferential rights of any other shares or
series of shares of beneficial interest and to the provisions of the Declaration
of Trust regarding Excess Trust Shares and the Articles of Incorporation
regarding Excess Corporation Stock, holders of Paired Common Shares will be
entitled to receive dividends if, as and when authorized and declared by the
Board of Trustees or the Board of Directors, as the case may be, out of assets
legally available therefor and to share ratably in the assets of the Trust or
the Corporation legally available for
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distribution to its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Trust or the Corporation.
The Paired Common Shares currently outstanding are listed for trading on
the New York Stock Exchange (the "NYSE"). The Trust and the Corporation will
apply to the NYSE to list the additional Paired Common Shares to be sold
pursuant to any Prospectus Supplement, and the Trust and the Corporation
anticipate that such shares will be so listed.
Subject to the provisions of the Declaration of Trust regarding Excess
Trust Shares and the Articles of Incorporation regarding Excess Corporation
Stock, each outstanding Paired Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees or directors, and, except as otherwise required by law or except as
provided with respect to any other class or series of shares of beneficial
interest of the Trust (including the Class A EPS and the Class B EPS) or shares
of stock of the Corporation, the holders of such Paired Common Shares will
possess the exclusive voting power. There is no cumulative voting in the
election of trustees or directors, which means that the holders of a majority of
the outstanding Paired Common Shares can elect all of the trustees or directors
then standing before election and the holders of the remaining shares of
beneficial interest, if any, will not be able to elect any trustees or
directors.
Holders of Paired Common Shares have no conversion, sinking fund,
redemption or preemptive rights to subscribe for any securities of the Trust of
the Corporation, as the case may be. 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.
Subject to the preference 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
Declaration of Trust regarding Excess Shares and the Articles of Incorporation
regarding Excess Corporation Stock, Paired Common Shares will have equal
dividend, distribution, liquidation and other rights, and will have no
preference, exchange, or appraisal rights except as expressly required by the
Maryland statute governing real estate investment trusts formed under Maryland
law (the "Maryland REIT Law") and the Maryland General Corporation Law, as
amended (the "MGCL").
THE PAIRING AGREEMENT
The Trust and the Corporation have entered into an agreement dated June 25,
1980, as amended (the "Pairing Agreement") pursuant to which all outstanding
Trust Shares and Corporation Shares are "paired" on a one-for-one basis. The
following is a summary of certain provisions of the Pairing Agreement. This
summary does not purport to be complete and is qualified in its entirety by
reference to the text of the Pairing Agreement, a copy of which is incorporated
by reference as an exhibit to the Registration Statement.
Transfer of Paired Common Shares. Under the Pairing Agreement, Trust Shares
are transferable only together with an equal number of Corporation Shares, and
Corporation Shares are transferable only together with an equal number of Trust
Shares. Certificates evidencing Trust Shares and Corporation Shares are required
by the Pairing Agreement to include a reference to this transfer restriction.
The Declaration of Trust and the Articles of Incorporation contain similar
restrictions on the transfer of Trust Shares and Corporation Shares, as well as
other restrictions on the transfer and ownership of Trust Shares and Corporation
Shares. The Pairing Agreement also provides that any Excess Trust Shares and any
Excess Corporation Stock which may be issued will be paired in the same manner
as the Trust Shares and Corporation Shares are paired.
Issuance of Shares. Under the Pairing Agreement, the Trust may not issue
Trust Shares and the Corporation may not issue Corporation Shares unless
provision is made for the acquisition by the same person of the same number of
shares of the other entity. The Trust and the Corporation must agree on the
manner and basis of allocating the consideration to be received upon such
issuance, or on the payment by one entity to the other of cash or other
consideration in lieu of a portion of the consideration to be received upon
issuance of such Paired Common Shares.
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Share Dividends, Reclassifications and other Similar Events. Neither the
Trust nor the Corporation may declare or pay any dividend or other distribution
payable in Trust Shares or Corporation Shares, issue any rights or warrants to
purchase Trust Shares or Corporation Shares, or subdivide, combine or otherwise
reclassify such shares, unless the other entity concurrently takes the same
action.
Amendment and Termination. The Pairing Agreement may be amended by the
Board of Trustees and the Board of Directors, provided that an amendment
permitting the separate issuance and transfer of Trust Shares and Corporation
Shares must be approved by a majority of each of the outstanding Trust Shares
and the outstanding Corporation Shares. The Pairing Agreement may be terminated
only with the affirmative vote of the holders of a majority of each of the
outstanding Trust Shares and the outstanding Corporation Shares. Upon such
termination, the Trust Shares and the Corporation Shares could be delisted by
the NYSE if the Trust and the Corporation, respectively, did not as separate
entities then meet the listing requirements of such Exchange.
Preferred Shares. The Trust may authorize and issue other classes or series
of shares of beneficial interest in addition to the Trust Shares without the
issuance by the Corporation of corresponding shares, and the Corporation may
authorize and issue shares of Corporation Preferred Stock without the issuance
by the Trust of corresponding shares. Furthermore, the Pairing Agreement does
not limit the power of the Boards of the Trust and the Corporation to
independently determine the rights, preferences and restrictions of such shares.
MARYLAND TAKEOVER LEGISLATION
Under the MGCL, certain "business combinations" (including mergers,
consolidations, share exchanges, or, in certain circumstances, asset transfers
or issuances or reclassifications of equity securities) between a Maryland
corporation or a Maryland real estate investment trust and any person who
beneficially owns 10% or more of the voting power of the corporation's or
trust's shares or an affiliate of the corporation or trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting shares
of the corporation or trust (an "Interested Stockholder") or an affiliate
thereof, are prohibited or restricted unless exempted. The Company has exempted
all "business combinations" involving any party from the business combination
provisions of the MGCL.
Under Maryland law, under certain circumstances "control shares" of a
Maryland corporation or a Maryland real estate investment trust acquired in a
"control share acquisition" may have no voting rights. The Company has exempted
all control share acquisitions involving any person from the MGCL.
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF SHARES
The Declaration of Trust and the Articles of Incorporation provide that,
subject to certain exceptions specified in the Declaration of Trust and the
Articles of Incorporation, no one person or group of related persons may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
8.0% of the capital stock, whether measured by vote, value or number of Paired
Common Shares (the "Ownership Limitation") (other than for shareholders who
owned in excess of 8.0% as of January 31, 1995 (the date the reorganization of
the Company (the "Reorganization") closed), who may not so own or be deemed to
own more than the lesser of 9.9% or the number of Paired Common Shares they held
on such date) of the outstanding Paired Common Shares or Preferred Shares which
may be issued, or any combination thereof. The Board of Trustees and the Board
of Directors may waive the Ownership Limitation if evidence satisfactory to the
Board of Trustees and the Board of Directors and the tax counsel to the Trust
and the Corporation is presented that such ownership will not jeopardize the
Trust's status as a REIT. As a condition of such waiver, each of the Board of
Trustees and the Board of Directors may require opinions of counsel satisfactory
to it and/or an undertaking from the applicant with respect to preserving the
REIT status of the Trust. If shares which would cause the Trust to be
beneficially owned by fewer than 100 persons are issued or transferred to any
person, such issuance or transfer shall be null and void and the intended
transferee will acquire no rights to the stock. Any acquisition of capital stock
of the Trust or the Corporation and continued holding or ownership of capital
stock of the Trust or the Corporation constitutes, under the Declaration of
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Trust and the Articles of Incorporation, a continuous representation of
compliance with the Ownership Limitation.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of Paired Common Shares or Preferred Shares
in violation of the Ownership Limitation, such transfer with respect to that
number of shares that would be owned by the transferee in excess of the
Ownership Limitation would be deemed void ab initio and such Paired Common
Shares or Preferred Shares would automatically be exchanged for Excess Shares or
Excess Preferred Stock, respectively (collectively, "Excess Stock"), authorized
by the Declaration of Trust and the Articles of Incorporation, according to
rules set forth in the Declaration of Trust and the Articles of Incorporation,
to the extent necessary to ensure that the purported transfer or other event
does not result in ownership of Paired Common Shares or Preferred Shares or
Excess Stock in violation of the Ownership Limitation. Any purported transferee
or other purported holder of Excess Stock is required to give written notice to
the Trust and the Corporation of a purported transfer or other event that would
result in the issuance of Excess Stock.
Any Excess Trust Shares and Excess Corporation Stock which may be issued
will be "paired" in the same manner that the Trust Shares and the Corporation
Shares are currently paired. Excess Stock is not Treasury stock but rather
continues as issued and outstanding capital stock of the Trust and the
Corporation. While outstanding, Excess Stock will be held in trust. The trustees
of such trusts shall be appointed by the Trust and the Corporation and shall be
independent of the Trust, the Corporation and the holder of Excess Stock. The
beneficiary of such trust shall be one or more charitable organizations selected
by the trustee. If, after the purported transfer or other event resulting in an
exchange of Paired Common Shares or Preferred Shares for Excess Stock and prior
to the discovery by the Trust and the Corporation of such exchange, dividends or
distributions are paid with respect to the Paired Common Shares or Preferred
Shares that were exchanged for Excess Stock, then such dividends or
distributions are to be repaid to the trustee upon demand for payment to the
charitable beneficiary. While Excess Stock is held in trust, an interest in that
trust may be transferred by the trustee only to a person whose ownership of
Paired Common Shares or Preferred Shares will not violate the Ownership
Limitation, at which time the Excess Stock will be automatically exchanged for
the same number of Paired Common Shares or Preferred Shares of the same type and
class as the Paired Common Shares or Preferred Shares for which the Excess Stock
was originally exchanged. The Declaration of Trust and the Articles of
Incorporation contain provisions that are designed to ensure that the purported
transferee or other purported holder of the Excess Stock may not receive in
return for such a transfer an amount that reflects any appreciation in the
Paired Common Shares or Preferred Shares for which such Excess Stock was
exchanged during the period that such Excess Stock was outstanding. Any amount
received by a purported transferee or other purported holder in excess of the
amount permitted to be received must be turned over to the charitable
beneficiary of the trust. If the foregoing restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee or holder of any Excess Stock may be deemed, at the
option of the Trust and the Corporation, to have acted as an agent on behalf of
the Trust and the Corporation in acquiring or holding such Excess Stock and to
hold such Excess Stock on behalf of the Trust and the Corporation.
The Declaration of Trust and the Articles of Incorporation further provide
that the Trust and the Corporation may purchase, for a period of 90 days during
the time the Excess Stock is held in trust, all or any portion of the Excess
Stock from the original transferee-shareholder at the lesser of the price paid
for the Paired Common Shares or Preferred Shares by the purported transferee (or
if no notice of such purchase price is given, at a price to be determined by the
Board of Trustees and the Board of Directors, in their sole discretion, but no
lower than the lowest market price of such stock (based on the market price of
the Paired Common Shares or Preferred Shares) at any time during the period in
which the Excess Stock is held in trust) and the closing market price for the
Paired Common Shares or Preferred Shares on the date the Trust and the
Corporation exercise their option to purchase. The 90-day period begins on the
date of the violative transfer if the original transferee-shareholder gives
notice to the Trust and the Corporation of the transfer or (if no notice is
given) the date the Board of Trustees and the Board of Directors determine that
a violative transfer has been made.
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The Ownership Limitation will not be removed automatically even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limitation would require an amendment to the Declaration of Trust and the
Articles of Incorporation. Amendments to the Declaration of Trust and to the
Articles of Incorporation generally require the affirmative vote of holders
owning a majority of the outstanding Trust Shares and Corporation Shares
respectively, except that changes to the Ownership Limitation require two-thirds
approval. In addition to preserving the Trust's status as a REIT, the Ownership
Limitation may have the effect of precluding an acquisition of control of the
Trust and the Corporation without the approval of the Board of Trustees and the
Board of Directors.
All persons who own, directly or by virtue of the attribution provisions of
the Code, 5% or more (or such other percentage as may be required by the Code or
regulations promulgated thereunder) of the outstanding Paired Common Shares,
Preferred Shares or Excess Stock must file an affidavit with the Trust and the
Corporation containing the information specified in the Declaration of Trust and
the Articles of Incorporation before January 30 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Trust and the
Corporation in writing such information with respect to the direct, indirect and
constructive ownership of shares as the Board of Trustees or the Board of
Directors deems necessary to comply with the provisions of the Declaration of
Trust and the Articles of Incorporation or the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Paired Common Shares is
ChaseMellon Shareholder Services L.L.C., Los Angeles, California.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Shares or Paired Common Shares. Warrants may be issued independently
or together with Debt Securities, Preferred Stock or Paired Common Shares
offered by any Prospectus Supplement and may be attached to or separate from
such Securities. Each series of Warrants will be issued under a separate warrant
agreement (a "Warrant Agreement") to be entered into between the Company and a
bank or trust company, as warrant agent (the "Warrant Agent"), all as set forth
in the Prospectus Supplement relating to the particular issue of offered
Warrants. The Warrant Agent will act solely as an agent of the Company in
connection with the Warrants of such series and will not assume any obligation
or relationship of agency or trust for or with any holders or beneficial owners
of Warrants. The following summaries of certain provisions of the Warrant
Agreements and Warrants do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
Warrant Agreement and the Warrant certificates relating to each series of the
Warrants which will be filed with the Commission and incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
at or prior to the time of the issuance of such series of Warrants.
The applicable Prospectus Supplement will describe the terms of such
Warrants, including the following where applicable: (i) the title of such
Warrants; (ii) the aggregate number of such Warrants; (iii) the price or prices
at which such Warrants will be issued; (iv) the currencies in which the price of
such Warrants may be payable; (v) the designation, aggregate principal amount
and terms of the securities purchasable upon exercise of such Warrants; (vi) the
designation and terms of the series of Debt Securities, Preferred Shares or
Paired Common Shares with which such Warrants are being offered and the number
of such Warrants being offered with each such security; (vii) the date, if any,
on and after which such Warrants and the related securities will be transferable
separately; (viii) the price at which and currency or currencies, including
composite currencies, in which the securities purchasable upon exercise of such
Warrants may be purchased; (ix) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (x) any material United States federal income tax
consequences; (xi) the terms, if any, on which the Company may accelerate the
date by which the Warrants must be exercised; and
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(xii) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
DESCRIPTION OF CONVERTIBLE NOTES
In order to facilitate an underwritten offering by the Company of Paired
Common Shares or any other equity securities of the Trust or the Corporation,
underwriters may purchase a series of Starwood Lodging Convertible Notes (the
"Convertible Notes"). The Convertible Notes will be automatically converted into
Paired Common Shares or other equity securities (at a conversion price equal to
the public offering price of the Paired Common Shares or such other securities,
as the case may be) upon certification to the Note Trustee (defined below) of
the transfer of beneficial ownership of the Convertible Notes to any person or
entity which is not an underwriter or a selected dealer in the offering or an
affiliate of any of either. The automatic conversion will take place without
physical delivery of the Convertible Notes to any transferee of an underwriter,
selected dealer or affiliate: such transferee will receive only a certificate
for the Paired Common Shares issued upon such conversion. The structure of such
an offering is designed to avoid the possibility that the underwriters, selected
dealers and the affiliates of either, or any of them, acquire 8.0% or more of
the Paired Common Shares in violation of the Ownership Limitation. See
"Description of Paired Common Shares -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares."
Because the Convertible Notes automatically will be converted into Paired
Common Shares upon sale to the public, no market for the Convertible Notes is
expected to develop. The following description of the Convertible Notes is
provided in the event that any Convertible Notes are acquired and held by any
underwriter, selected dealer or affiliate of any of either, in whose hands the
Convertible Notes do not automatically convert into Paired Common Shares.
The Convertible Notes are to be issued under an indenture (the "Note
Indenture") to be dated as of the date of such underwritten offering between the
Company and the trustee (the "Note Trustee"). The following statements relating
to the Convertible Notes and the Note Indenture are summaries, do not purport to
be complete and are qualified in their entirety by reference to the Convertible
Notes and the Note Indenture.
The Convertible Notes will not bear interest. The Convertible Notes will be
issued in registered form in denominations of the same dollar amount as a
multiple of the public offering price of the Paired Common Shares and will be
unsecured, several obligations of the Trust and the Corporation maturing on the
date six months after the date of issuance of such series of Convertible Notes.
At the option of the Company, the maturity date of the Convertible Notes may be
extended at any time or from time to time, by written notice to the Note Trustee
prior to the maturity date, including any extension thereof, to a date not later
than the second anniversary of the initial maturity date.
There are no redemption or sinking fund provisions applicable to the
Convertible Notes and the Convertible Notes are not subject to redemption prior
to maturity by the Trust and the Corporation or either of them.
The following are Events of Default under the Note Indenture: failure of
the Trust or the Corporation to pay principal owing by it in respect of any
Convertible Note when due; failure of the Trust or the Corporation to comply
with any of its other agreements in the Convertible Notes or the Note Indenture,
continued for 90 days after notice is given as provided in the Note Indenture;
and certain events of bankruptcy, insolvency or reorganization. If an Event of
Default occurs and is continuing, either the Note Trustee or the holders of at
least 25% in aggregate principal amount of the Convertible Notes outstanding may
declare the entire principal amount of the Convertible Notes to be due and
payable immediately.
The Note Indenture provides that, subject to the duty of the Note Trustee
during default to act with the required standard of care, the Note Trustee will
be under no obligation to exercise any of its rights or powers under the Note
Indenture unless it shall have received reasonable security and indemnity from
the holders of the Convertible Notes against any costs, expenses or liabilities.
Subject to such provisions for the indemnification of the Note Trustee, the
holders of a majority in aggregate principal amount of the outstanding
Convertible Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Note Trustee or
exercising any trust or power conferred on the Note Trustee.
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The Note Indenture does not require the Company to furnish to the Note
Trustee any periodic evidence as to the absence of any default under the Note
Indenture or the compliance by the Company with the terms of the Note Indenture.
The Note Indenture or the Convertible Notes may be amended or supplemented
without the consent of the noteholders in certain circumstances and with the
consent of holders of at least a majority of the principal amount of the
Convertible Notes at the time outstanding, subject to certain exceptions. Any
past default, or compliance with any provision may be waived with the consent of
the holders of a majority of the principal amount of the Convertible Notes at
the time outstanding.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations that may be relevant to a prospective holder of Securities. This
summary is for information purposes only and is not tax advice. Except as
discussed below, no ruling or determination letters from the Internal Revenue
Service (the "IRS") or opinions of counsel have been rendered or will be
requested by the Company on any tax issue connected with this Registration
Statement. This summary is based upon the Code, as currently in effect,
applicable Treasury Regulations thereunder and judicial and administrative
interpretations thereof, all of which are subject to change, including changes
that may be retroactive.
The tax treatment of a holder of any of the Securities will vary depending
upon the terms of the specific securities acquired by such holder, as well as
such holder's particular situation. The discussion below addresses federal
income tax considerations to holders of Paired Common Shares. Federal income tax
considerations relevant to holders of Securities other than Paired Common Shares
will be provided in the applicable Prospectus Supplement relating thereto. This
summary does not purport to deal with all aspects of taxation that may be
relevant to particular holders of Paired Common Shares or other Securities in
light of their personal investment or tax circumstances. Sidley & Austin,
counsel for the Company, will, if specified in the applicable Prospectus
Supplement, opine on certain Federal income tax consequences with respect to the
Paired Common Shares for the Company and the shareholders and stockholders of
the Company. Such opinion would not be binding on the IRS or any court and no
assurance could be given that the IRS would not challenge the propriety of part
or all of such opinion or that such a challenge would not be successful. Such
opinion of Sidley & Austin would rely upon and would be premised on the accuracy
of statements and representations of the Company concerning its business and
properties, ownership, organization, sources of income, future operations,
levels of distributions and recordkeeping, and the judgments of the Company with
respect to the fair market value of its real estate assets, the relative value
of the Trust Shares and the Corporation Shares to the value of the Paired Common
Shares, the reasonableness of the guaranty fee to be paid by the Corporation to
the Trust with respect to indebtedness incurred by the Corporation in connection
with the acquisition of ITT, and the ability of the Corporation to have arranged
for debt financing for the ITT Acquisition without a guaranty of the Trust.
Except as specifically provided, the discussion below does not address foreign,
state, or local tax consequences, nor does it specifically address the tax
consequences to taxpayers subject to special treatment under the federal income
tax laws (including dealers in securities, foreign persons, life insurance
companies, tax-exempt organizations, financial institutions, and taxpayers
subject to the alternative minimum tax). The discussion below assumes that the
Paired Common Shares are or will be held as capital assets within the meaning of
Section 1221 of the Code. No assurance can be given that legislative, judicial
or administrative changes will not affect the accuracy of any statements in this
Prospectus with respect to transactions entered into or contemplated prior to
the effective date of such changes.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.
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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. The Ruling does not impose any
continuing limitations on the Trust or the Corporation. 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(a)(3) 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(a)(3) of the Code has not
applied to the Trust and the Corporation (since the Trust Shares and the
Corporation Shares were paired prior to that date), and the Ruling's conclusions
were not adversely affected thereby.
In 1994, the Trust requested and received a determination letter from the
IRS (the "IRS Letter"). The IRS Letter provided that the Trust's failure to send
the shareholder demand letters required by the REIT Provisions (defined below)
terminated its election to be taxed as a REIT beginning with the Trust's taxable
year ended December 31, 1991 and permitted the Trust to re-elect to be taxed as
a REIT commencing with its taxable year ended December 31, 1995. The IRS Letter
also directed the Trust to file amended federal income tax returns for its
taxable years ended December 31, 1991 and 1992 as a C corporation (and not as a
REIT) and to file its federal income tax returns for its taxable years ended
December 31, 1993 and 1994 as a C corporation. The Trust has filed such returns.
Because the Trust had net losses for federal income tax purposes and did not pay
any dividends during its taxable years ended December 31, 1991, 1992, 1993 and
1994, the IRS Letter did not result in the Trust owing any federal income tax.
The Trust has instituted REIT compliance controls that are intended to prevent
the reoccurrence of any such failure to comply with the reporting and
recordkeeping requirements for REITs. In February 1998, the Clinton
Administration proposed several provisions that would limit the operations of
REITs, including a provision that, if enacted, would limit the ability of the
Company to manage property that it acquires after the effective date of such
proposal and make it more difficult for the Company to acquire hotels in the
future in the same manner as the Company has in the past. In addition, the
Chairman of the Ways and Means Committee of the United States House of
Representatives announced in November 1997 that, although he has no plan to
repeal the existing "grandfathering" of paired share REITs such as that of the
Trust, the staff of the Committee will look into the issue of whether
restrictions should be placed on such REITs. No assurance can be given that new
legislation, new regulations or new administrative interpretations with respect
to the grandfathering rules will not be adopted.
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 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 issuance of any of the Securities, and if specified in the
applicable Prospectus Supplement, 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 Provisions and its proposed method of operation will enable it to
continue to comply with the REIT
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Provisions for its taxable year ending December 31, 1998 and future taxable
years. It must be emphasized that 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. No assurance can be given that the actual results of the
Trust's operation for any particular taxable year will satisfy such
requirements. Further, the anticipated federal income tax treatment described in
this Prospectus may be changed, perhaps retroactively, by legislative,
administrative, or judicial action at any time. For a discussion of the tax
consequences of failure to qualify as a REIT, see "-- Failure to Qualify,"
below.
As long as the Trust qualifies for taxation as a REIT, except in the
circumstances set forth in the following paragraph it 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 will be
subject to federal income or excise tax in the following circumstances. 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 will be subject to the
"alternative minimum tax" on its items of tax preference, if any. Third, if the
Trust has (i) net income from the sale or other disposition of "foreclosure
property" (which is, in general, property acquired on foreclosure or otherwise
on default on a loan secured by such property or a lease of such property) or
(ii) other non-qualifying income from foreclosure property, it will be subject
to tax at the highest corporate rate on such income. Fourth, if the Trust has
net income from "prohibited transactions" (which are, in general, certain sales
or other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax. Fifth, if the Trust should fail to satisfy the
75% gross income test or the 95% gross income test (as discussed below), but
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Trust fails the 75% or
95% test, multiplied by a fraction intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust will be subject to a
4% excise tax on the excess of such required distributions over the amounts
actually distributed. Seventh, pursuant to IRS Notice 88-19, if the Trust has a
net unrealized built-in gain, with respect to any asset (a "Built-in Gain
Asset") held by the Trust on January 1, 1995 or acquired by 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 that it acquired additional
Built-in-Gain Assets as a result of the Westin Acquisition and, thus, direct or
indirect sales of such Built-in-Gain Assets by the Trust after 1994 in excess of
available loss carryforwards will result in a federal income tax liability to
the Trust.
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REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Trust must elect to be so treated and must meet
on a continuing basis certain requirements (as discussed below) relating to the
Trust's organization, sources of income, nature of assets, and distribution of
income to shareholders.
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for the REIT Provisions; (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (defined in the
Code to include certain entities); (vii) as of the close of the taxable year,
has no earnings and profits accumulated in any non-REIT year; (viii) is not
electing to be taxed as a REIT prior to the fifth taxable year which begins
after the first taxable year for which its REIT status terminated or was revoked
or the IRS has waived the applicability of such waiting period; (ix) that has
the calendar year as its taxable year; and (x) that meets certain other tests,
described below, regarding the nature of its income and assets. The REIT
Provisions provide that conditions (i) to (iv), inclusive, must be met during
the entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. Conditions (v) and (vi) will not apply until after
the first taxable year for which an election is made by the REIT to be taxed as
a REIT.
The Trust believes that it satisfies conditions (i) through (x) described
in the immediately preceding paragraph. 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 which ended before January 1, 1998, in order to
maintain its election to be taxed as a REIT, the Trust must also maintain
certain records and request certain information from its shareholders designed
to disclose the actual ownership of its stock. The Trust believes that it has
complied and will comply with these requirements.
If a REIT owns a "Qualified REIT Subsidiary," the Code provides that such
Qualified REIT Subsidiary is disregarded for federal income tax purposes, and
all assets, liabilities and items of income, deduction and credit of the
Qualified REIT Subsidiary are treated as assets, liabilities and such items of
the REIT itself. A Qualified REIT Subsidiary is a corporation all of the capital
stock of which is owned by the REIT and, for taxable years beginning on or
before August 5, 1997, has been owned by the REIT from the commencement of such
corporation's existence. Unless the context otherwise requires, all references
to the Trust in this "Federal Income Tax Considerations" section include the
Trust's Qualified REIT Subsidiaries.
As part of the acquisition of Westin, the Realty Partnership acquired
substantially all of the stock of Seattle, Lauderdale and Denver, which
corporations 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, certain of
the assets of Westin, including third party management, franchise and
representation agreements and certain trademarks and other intangible property
are held by corporations (the "Management Subsidiaries") of which the Trust or
the Realty Partnership 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 is
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
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same character in the hands of the REIT for purposes of satisfying the gross
income tests and the asset tests, described below. Similar treatment applies
with respect to lower-tier partnerships which the REIT indirectly owns through
its interests in higher-tier partnerships. Thus, the Trust's proportionate share
of the assets, liabilities and items of income of the Realty Partnership and the
other partnerships and limited liability companies in which the Trust owns a
direct or indirect interest (collectively, the " Realty Subsidiary Entities"),
will be treated as assets, liabilities and items of income of the Trust for
purposes of applying the gross income 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. Sidley &
Austin has advised the Company, however, that 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, in such a
case, the Trust would lose its REIT status.
Paired Shares. Section 269B(a)(3) 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(a)(3) 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(a)(3) does not apply, however, if the shares of the REIT and the non-REIT
were paired on or before June 30, 1983 and the REIT was taxable as a REIT on or
before June 30, 1983. As a result of this grandfathering rule, Section
269B(a)(3) has not applied to the Trust and the Corporation. This grandfathering
rule does not, by its terms, require that the Trust be taxed as a REIT at all
times after June 30, 1983. Prior to the issuance of any of the Securities, and
if specified in the applicable Prospectus Supplement, Sidley & Austin will
render an opinion to the effect that the IRS Letter and the termination of the
Trust's REIT election for the taxable years ended December 31, 1991 through 1994
did not result in Section 269B(a)(3) becoming applicable to the Trust. There
are, however, no judicial or administrative authorities interpreting this
grandfathering rule. Therefore, Sidley & Austin's opinion would be based solely
on the literal language of the statutory grandfathering rule.
Sidley & Austin has advised the Company that, even though Section
269B(a)(3) 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 would only be upheld
if the separate corporate identities of the Trust and the Corporation are a sham
or unreal. Not all of the trustees of the Trust are also directors of the
Corporation and no individual serves as an officer of both the Trust and the
Corporation. In addition, the Trust, the Corporation, the Realty Partnership,
the Operating Partnership, the Realty Subsidiary Entities and the partnerships
or limited liability companies owned in whole or in part by the Operating
Partnership (collectively, the "Operating Subsidiary Entities") have separate
creditors and are subject to different state law licensing and regulatory
requirements. The Trust and the Corporation have represented that they and the
Realty Partnership, the Operating Partnership, and the entities in which they
own a direct or indirect interest will each maintain separate books and records
and all material transactions among them have been and will be negotiated and
structured with the intention of achieving an arm's-length result. Prior to the
issuance of any of the Securities, and if specified in the applicable Prospectus
Supplement, 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, and certain of the
entities in which they own a direct or indirect interest are controlled by the
same interests. As a result, the IRS could, pursuant to Section 482 of the Code,
seek to distribute, apportion or allocate gross income, deductions, credits or
allowances between or among them if it determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes or
to clearly reflect income. The Trust and the Corporation believe that all
material transactions between them and among them and the Realty Partnership,
the Operating Partnership and the entities in which they own a direct or
indirect interest have been and will be negotiated and structured with the
intention of achieving an arm's-length result. As a result, the potential
application of Section 482 of the Code should not have a material effect on the
Trust or the Corporation. Application of Section 482 of the Code depends on
whether, as a factual matter, transactions between
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commonly controlled entities are at arm's-length. As a result, no opinion of
counsel can be given with respect to the potential application of Section 482 of
the Code.
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, if a REIT provides
services to its tenants, the income will qualify as "rents from real property"
only if the services are of a type that a tax-exempt organization can provide to
its tenants without causing its rental income to be unrelated business taxable
income under the Code. Services that would give rise to unrelated business
taxable income if provided by a tax-exempt organization ("Prohibited Services")
must be provided by an "independent contractor" who is adequately compensated
and from whom the REIT does not derive any income. Payments for services
furnished (whether or not rendered by an independent contractor) that are not
customarily provided to tenants in properties of a similar class in the
geographic market in which the REIT's property is located will not qualify as
"rents from real property." For taxable years beginning after August 5, 1997,
the provision of Prohibited Services by a REIT in connection with a lease of
real property will not cause the rent to fail to qualify as "rents from real
property" unless the amount treated as received for the Prohibited Services
exceeds 1% of all amounts received or accrued during the taxable year directly
or indirectly by the REIT with respect to such property.
A substantial portion of the Trust's income will be derived from its
partnership interests in the Realty Partnership and the Realty Subsidiary
Entities and its ownership of the Subsidiary REITs. The Trust, the Realty
Partnership, the Realty Subsidiary Entities and the Subsidiary REITs lease for a
fixed period all of their fee and leasehold interests in their hotels and
associated property to the Corporation, the Operating Partnership, 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
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control over the property that is retained by the property owner and the extent
to which the property owner retains the risk of loss with respect to the
property.
Prior to the issuance of any of the Securities and if specified in the
applicable Prospectus Supplement, Sidley & Austin will render an opinion to the
effect that the Leases will be treated as true leases for federal income tax
purposes. This opinion would be based, in part, on the following facts: (i) the
lessors and the lessees intend for their relationship to be that of lessor and
lessee and each such relationship will be documented by a lease agreement; (ii)
the lessees will have the right to exclusive possession and use and quiet
enjoyment of the leased premises during the term of the Leases; (iii) the
lessees will bear the cost of, and be responsible for, day-to-day maintenance
and repair of the leased premises, other than the cost of certain capital
expenditures, and will dictate how the leased premises are operated and
maintained; (iv) the lessees will bear all of the costs and expenses of
operating the leased premises during the term of the Leases; (v) the term of the
Leases is less than the economic life of the leased premises and the lessees do
not have purchase options with respect to the leased premises; (vi) the lessees
are required to pay substantial fixed rent during the term of the Leases; and
(vii) each lessee stands to incur substantial losses or reap substantial profits
depending on how successfully it operates the leased premises.
Investors should be aware, however, that there are not controlling
authorities involving leases with terms substantially the same as the Leases.
Therefore, the opinion of Sidley & Austin would be based upon an analysis of the
facts and circumstances and upon rulings and judicial decisions involving
situations that are analogous. If any significant Lease is recharacterized as a
service contract or a partnership agreement, rather than as a true lease, the
Trust would not be able to satisfy either the 75% or 95% gross income tests 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. With respect to hotel properties that it may directly or indirectly
acquire in the future, the Trust will not charge rent that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a fixed percentage of receipts or sales, as described above).
Another requirement for rent payments under a Lease to constitute "rents
from real property" is that the rent attributable to personal property under the
Lease must not be greater than 15% of the rent received under the Lease. For
this purpose, rent attributable to personal property is the amount that bears
the same ratio to the total rent for the taxable year as the average of the
adjusted basis of the personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate adjusted basis of both the
real property and personal property leased under, or in connection with, such
lease. If with respect to a sufficient number of the Leases rent attributable to
personal property is greater than 15% of the total rent, then the Trust would
not be able to satisfy either the 75% or 95% gross income tests, or, in the case
of a Lease of a Subsidiary REIT, one or more of the assets tests, and, as a
result, would lose its REIT status. With respect to both the Leases and future
acquisitions, the Trust 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 Corporation, 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 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
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REIT, the Declaration of Trust and the Articles of Incorporation contain
restrictions on the amount of Trust Shares and Corporation Shares that any one
person can own. These restrictions generally provide that any attempt by any one
person to actually or constructively acquire 8.0% or more of the outstanding
Paired Common Shares will be ineffective. See "Description of Paired Common
Shares -- Ownership Limits; Restrictions on Transfer; Repurchase and Redemption
of Shares." Sidley & Austin has advised the Company, however, that
notwithstanding such restrictions, because the Code's constructive ownership
rules for purposes of the 10% ownership limit are broad and it is not possible
to continually monitor direct and indirect ownership of Paired Common Shares, it
is possible for a person to own sufficient Paired Common Shares to cause the
termination of the Trust's REIT status.
Finally, rent under the Leases will not qualify as "rents from real
property" if either the Trust, the Realty Partnership, 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 will
be treated as rendering or furnishing Prohibited Services to the occupants of
the properties as a result of the Leases. The Trust believes that neither it nor
any entity in which it directly or indirectly owns an interest or from which it
receives income will be providing Prohibited Services to the Corporation or to
any entity in which the Corporation directly or indirectly owns an interest, or
will be managing or operating any assets owned directly or indirectly by the
Trust. Sidley & Austin has advised the Company that 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, in certain
cases, 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 issuance of any of the Securities, and
if specified by the applicable prospectus supplement, 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."
If such failures were in sufficient amounts the Trust as a Subsidiary REIT would
not be able to satisfy either the 75% or 95% gross income test and, as a result,
would lose its REIT status.
For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. The Trust, 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 Trust, 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. Accordingly to the extent the notes held by the Trust, the
Realty Partnership or the Realty Subsidiary Entities are secured by real
property, the interest received or accrued with respect to such notes will be
treated as qualifying income for both the 75% and the 95% gross income tests.
Certain of the notes held by the Trust and the Realty Partnership are not
secured by real property and, with respect to such notes that are secured by
real property (including notes issued in connection with the ITT acquisition),
it is possible that the amount of such notes will exceed the fair market value
of the real property security therefor. To the extent such notes are not secured
by real property, interest received or accrued with
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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 test. However, the Company believes that the amount of such interest will
not cause the Trust to fail to satisfy the 75% gross income test.
As part of the ITT acquisition, the Trust guaranteed certain indebtedness
of the Corporation. The fees paid to the Trust for such guarantee are unlikely
to be treated as qualifying income for either the 75% of the 95% gross income
tests. However, the Company believes that the amount of such fees will not cause
the Trust to fail to satisfy either the 75% or the 95% 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 will nevertheless qualify as a REIT for such year
if it is entitled to and receives relief under certain provisions of the Code.
No assurance can be given that 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. A substantial portion 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 portion of the indebtedness of the Corporation and the Operating
Partnership to the Trust and 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 Trust and, thus, will not cause the Trust to fail the 5%
asset test.
The Trust (or the Realty Partnership) owns 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, directly owns more than 10% of the
voting securities of any Management Subsidiary. The Trust also acquired, as a
result of the Westin acquisition, certain intangible assets of Westin. The Trust
believes that, as of the end of each calendar quarter commencing with the
calendar quarter ending March 31, 1998, the value of the securities of each
Management Subsidiary held directly by the Trust and the Trust's pro rata share
of the value of the securities of each Management Subsidiary held indirectly
through the Realty Partnership will not exceed 5% of the value of the Trust's
total assets and that not more than 25% of the value of the Trust's total assets
will consist of assets other than "real estate assets," cash and cash items
(including receivables), government securities and shares of REITs. The Trust's
belief is based in part upon its analysis of the estimated values of the various
securities and other assets owned by the Trust and the Realty Partnership. There
can be no assurance, however, that the IRS will not successfully assert that
certain securities held by the Trust or the Realty Partnership cause the Trust
to fail either the 5% or 10% asset tests or that less than 75% of the value of
the Trust's total assets consists of "real estate assets," cash and cash items
(including receivables), government securities and shares of REITs.
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After meeting the asset tests at the close of any quarter, the Trust will
not lose its status as a REIT for failure to satisfy the asset tests at the end
of a subsequent quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter, the failure can be cured by disposition of
sufficient non-qualifying assets within 30 days after the close of that quarter.
The Trust intends to maintain adequate records of the value of its assets to
ensure compliance with the asset tests and to take such actions within 30 days
after the close of any quarter as may be required to cure any non-compliance.
Annual Distribution Requirements. The Trust, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Trust's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Trust's net capital gain) and (b) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
non-cash income. In addition, if the Trust directly or indirectly disposes of
any Built-in Gain Asset during its Recognition Period, the Trust will be
required, pursuant to Treasury Regulations that have not yet been promulgated,
to distribute at least 95% of the Built-in Gain (after tax), if any, recognized
on the disposition of such asset. Distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Trust timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Trust does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements and, to the extent practical, avoid payment of
material amounts of federal income or excise tax by the Trust. It is possible,
however, that the Trust, from time to time may not have sufficient cash or other
liquid assets to meet the distribution requirements described above. In order to
meet the distribution requirements in such cases, the Trust, the Realty
Partnership or a Subsidiary REIT may find it necessary to arrange for short-term
or possibly long-term borrowings.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to shareholders in a later year, which would be included in the Trust's
deduction for dividends paid for the earlier year. In such case, the Trust would
be able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Trust will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Trust will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Trust fails to qualify will not be deductible by the Trust nor will they be
required to be made. As a result, the Trust's failure to qualify as a REIT could
reduce the cash available for distribution by the Trust to its shareholders. In
addition, if the Trust fails to qualify as a REIT, all distributions to
shareholders will be taxable as ordinary income to the extent of the Trust's
current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific statutory
provisions, the Trust will also be disqualified from taxation as a REIT for the
four taxable years following the year during which qualification was lost. It is
not possible to state whether in all circumstances the Trust would be entitled
to such statutory relief.
FEDERAL INCOME TAXATION OF THE CORPORATION
The Corporation is subject to federal income tax on its taxable income. A
portion of the interest paid or accrued by the Corporation with respect to its
indebtedness to the Trust or to the Realty Partnership may not
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be currently deductible. The amount of any such deferred interest deductions for
a taxable year will depend on the amount and sources of income and expense of
the Corporation and the extent to which the holders of Paired Shares are exempt
from federal income tax. No opinion of counsel will be rendered on the
deductibility of such interest expense because no controlling legal authority
exists with respect to the application of the relevant sections of the Code to
such interest expense.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED COMMON SHARES; DEEMED DISTRIBUTIONS
Sidley & Austin has advised the Company that the IRS could assert that a
significant portion of the third party debt incurred by the Corporation to
finance its purchase of shares of ITT from the Trust as a part of the ITT
acquisition should properly be treated for tax purposes as debt of the Trust. If
a portion of the third party debt were so recharacterized, the Trust would be
treated as making a deemed distribution of such proceeds to its shareholders,
who would be deemed to immediately recontribute such proceeds to the
Corporation. Similarly, repayments of such portion of the third party debt by
the Corporation would be deemed distributions of the repaid funds by the
Corporation to its stockholders followed by deemed contributions of such amounts
to the Trust. With respect to issuances of Paired Common Shares, the IRS could
also assert that a deemed distribution of cash or other property occurs if the
relative value of the Trust Shares and the Corporation Shares were determined to
be in a different ratio than the ratio used to determine the number of ITT
shares to be sold by the Trust to the Corporation. For federal income tax
purposes, any such deemed distributions would be taxed to a holder of Paired
Common Shares as a dividend to the extent of the allocable portion of the
distributing entity's earnings and profits, and then as a return of capital to
the extent of such shareholder's adjusted basis in his or her shares in the
distributing entity and thereafter, as gain from the sale or exchange of the
applicable shares. Each entity's earnings and profits would be allocable to its
deemed distributions in the same proportion as such deemed distributions bear to
the sum of the actual and deemed distributions made to shareholders of such
entity in such taxable year. Any gain recognized by a shareholder with respect
to a deemed distribution would be treated as capital gain, and shareholders who
are individuals may be entitled to lower capital gains tax rates depending on
the holding period of their Paired Common Shares. Deemed distributions would
likely result in shareholders being allocated more of the earnings and profits
of the distributing entity, and consequently recognizing more taxable income,
than in the absence of deemed distributions.
FEDERAL INCOME TAXATION OF TAXABLE U.S. HOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Paired Common
Shares who is: (i) a citizen or resident of the United States; (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof; or (iii) an
estate or trust the income of which is subject to U.S. federal income taxation
regardless of its source. As long as the Trust qualifies as a REIT,
distributions made to the Trust's U.S. Shareholders up to the amount of the
Trust's current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends-received deduction for corporations.
Distributions that are properly designated by the Trust as capital gain
dividends will be taxed as long-term capital gain (to the extent they do not
exceed the Trust's actual net capital gain for the taxable year) without regard
to the period for which the holder has held its stock. However, corporate
holders will, in certain circumstances, 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. Certain capital gain
dividends will be taxed at different rates, depending on the type of gain
recognized by the Trust. 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 will 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.
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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. In such a case, holders will be required to treat certain distributions
that would otherwise result in a tax-free return of capital as taxable
distributions. Moreover, any "deficiency dividend" will be treated as a
"dividend" (either as ordinary or capital gain dividend, as the case may be),
regardless of the Trust's earnings and profits.
Distributions from the Trust and gain from the disposition of the Trust
Shares will not be treated as passive activity income and, therefore,
shareholders will not be able to apply any "passive losses" against such income.
Dividends from the Trust (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment interest expense limitation. Gain from the disposition of shares and
capital gains dividends will not be treated as investment income unless the
holders elect to have the gain taxed at ordinary income rates.
Distributions from the Corporation up to the amount of the Corporation's
current or accumulated earnings and profits will be taken into account by U.S.
Shareholders as ordinary income and will be eligible for the dividends-received
deduction for corporations. Distributions in excess of the Corporation's current
and accumulated earnings and profits will not be taxable to a holder to the
extent that they do not exceed the adjusted basis of the holder's Corporation
Shares, but rather will reduce the adjusted basis of such Corporation Shares. To
the extent that such distributions exceed the adjusted basis of a holder's
Corporation Shares they will be included in income as long-term capital gain (or
short-term capital gain if the stock has been held for one year or less).
In general, a U.S. Shareholder will realize capital gain or loss on the
disposition of Paired Common Shares equal to the difference between the amount
realized on such disposition and the holder's adjusted basis in such Paired
Common Shares. Such gain or loss will generally constitute long-term capital
gain or loss if the holder held such Paired Common Shares for more than one
year. However, any loss upon a sale or exchange of Trust Shares by a holder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Trust 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 Common Shares will be (i) 28%, if such shares have been
held for more than 12 but not more than 18 months, (ii) 20%, if such shares have
been held for more than 18 months, or (iii) 18%, if such shares have been held
for more than five years and the holding period for such shares begins after
December 31, 2000. The eligibility of capital gains dividends for lower capital
gains tax rates is subject to special rules.
U.S. Shareholders will not be permitted to include in their individual
income tax returns any net operating losses or capital losses of the Trust or
the Corporation.
FEDERAL TAXATION OF TAX-EXEMPT HOLDERS OF PAIRED COMMON SHARES
The IRS has ruled that amounts distributed as dividends by a REIT to a
tax-exempt employee's pension trust do not constitute unrelated business taxable
income ("UBTI"). Based on this ruling and the analysis therein, distributions by
the Trust will 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 will 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.
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For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans, exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code respectively, income from an
investment in the Trust will constitute UBTI unless the organization is able to
deduct properly amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in the Trust. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall (subject to a de minimis exception) be treated as UBTI
as to any trust that (i) is described in Section 401 (a) of the Code, (ii) is
tax-exempt under Section 501(a) of the Code, and (iii) holds more than 10% (by
value) of the interests in the REIT. Due to the Ownership Limitation, the Trust
does not expect to be a "pension held REIT" within the meaning of the Code.
FEDERAL TAXATION OF NON-U.S. HOLDERS OF PAIRED COMMON SHARES
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
non-resident alien individuals, foreign corporations, foreign partnerships, or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Shareholder in light of its particular
circumstances. Prospective Non-U.S. Shareholders should consult with their own
tax advisors to determine the effect of federal, state, local, and foreign
income tax laws with regard to an investment in Paired Common Shares, including
any reporting requirements.
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 made 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 Common Shares if such
investment is "effectively connected" with the Non-U.S. Shareholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Shareholder that
receives income that is (or is treated as) effectively connected with a United
States trade or business will also be subject to the branch profits tax under
Section 884 of the Code, which is payable in addition to regular United States
corporate income tax. The following discussion will apply to Non-U.S.
Shareholders whose investment in Paired Common Shares is not so effectively
connected.
Distributions. Distributions by the Trust to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Trust of United
States real property interests nor designated by the Trust as capital gains
dividends and distributions by the Corporation will be treated as dividends of
ordinary income to the extent that they are made out of current or accumulated
earnings and profits of the Trust or the Corporation, as the case may be. Such
distributions ordinarily will be subject to United States withholding tax on a
gross basis at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Any such amounts withheld should be creditable
against the Non-U.S. Shareholder's United States federal income tax liability.
Distributions in excess of current or accumulated earnings and profits of
the Trust or the Corporation, as the case may be, will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the Non-U.S. Shareholder's Trust Shares or Corporation Shares, as the case may
be, but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Trust
Shares or Corporation Shares, as the case may be, they will give rise
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to gain from the sale or exchange of Non-U.S. Shareholder's Paired Common Shares
if the Non-U.S. Shareholder otherwise would be subject to tax on any gain from
the sale or other disposition of Paired Common Shares, as described below.
Distributions to Non-U.S. Shareholders that reduce the adjusted basis of Trust
Shares or Corporation Shares and distributions to Non-U.S. Shareholders that
exceed the adjusted basis of Trust Shares or Corporation Shares will ordinarily
be subject to a withholding tax on a gross basis at a 10% rate, regardless of
whether such distributions result in gain to the Non-U.S. Shareholder. The Trust
or the Corporation, as the case may be, are permitted to apply to the IRS for a
certificate that reduces or eliminates this withholding tax. Any such amounts
withheld will be creditable against the Non-U.S. Shareholder's United States
federal income tax liability.
If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current or accumulated earnings and
profits, the distribution will generally be treated as a dividend for
withholding purposes. However, amounts thus withheld are generally refundable if
it is subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Trust or the Corporation, as
the case may be. The Trust and the Corporation expect to withhold United States
income tax at the rate of 30% on the gross amount of any such distributions made
to a Non-U.S. Shareholder unless (i) a lower rate is provided for under an
applicable tax treaty and the shareholder files the required form evidencing
eligibility for that reduced rate with the Trust and the Corporation, or (ii)
the Non-U.S. Shareholder files an IRS Form 4224 with the Trust and the
Corporation claiming that the distribution is "effectively connected" income.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Trust of United States real property interests will
cause the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus generally be taxed at the same rates applicable to U.S.
Shareholders (subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of non-resident alien individuals). Also,
such gain would be subject to a 30% branch profits tax in the hands of a
Non-U.S. Shareholder that is a corporation, that is not entitled to an exemption
under a tax treaty. The Trust is required to withhold and remit to the IRS 35%
of any distribution that could be designated a capital gains dividend. That
amount is creditable against the Non-U.S. Shareholder's United States federal
income tax liability.
Sale of Paired Common Shares. Gain recognized by a Non-U.S. Shareholder
upon a sale or other disposition of Paired Common Shares generally will not be
subject to United States federal income tax, if (i) in the case of Trust Shares,
the Trust is a "domestically controlled REIT" or (ii) (A) the Paired Common
Shares are regularly traded on an established securities market (e.g., the NYSE,
where the Paired Common Shares are currently traded) and (B) the selling
Non-U.S. Shareholder held 5% or less of the outstanding Paired Common Shares at
all times during the specified period, unless, in the case of a Non-U.S.
Shareholder who is a non-resident alien individual, such individual is present
in the United States for 183 days or more and certain other conditions apply. A
domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. The Trust believes that it
qualifies as a domestically controlled REIT.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under certain circumstances, U.S. Shareholders will be subject to backup
withholding at a rate of 31% on payments made with respect to, or on cash
proceeds of a sale or exchange of, Paired Common Shares. Backup withholding will
apply only if the holder: (i) fails to furnish its taxpayer identification
number ("TIN") (which, for an individual, would be his or her Social Security
number); (ii) furnishes an incorrect TIN; (iii) is notified by the IRS that the
holder has failed to report properly payments of interest and dividends; or (iv)
under certain circumstances, fails to certify, under penalty of perjury, that
the holder has furnished a correct TIN and has not been notified by the IRS that
the holder is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding will not apply with respect to payments
made to certain exempt recipients, such as corporations and tax-exempt
organizations. In addition, the Trust and the Corporation will be required to
withhold a portion of capital gain distributions made to any holders who fail to
49
<PAGE> 51
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 is urged to 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 would substantially reduce the amount of cash available for distribution to
holders of Paired Common Shares. 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.
PARTNERSHIP ANTI-ABUSE RULE
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is formed
or availed of in connection with a transaction a principal purpose of which is
to reduce substantially the present value of the partners' aggregate federal tax
liability in a manner that is inconsistent with the intent of the Partnership
Provisions, the IRS can recast the transaction for federal tax purposes to
achieve tax results that are consistent with the intent of the Partnership
Provisions. This analysis is to be made based on all facts and circumstances.
The Anti-Abuse Rule states that the intent of the Partnership Provisions
incorporates the following requirements: (i) the partnership must be bona fide
and each partnership transaction or series of related transactions must be
entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
Prior to the issuance of any of the Securities, and if specified in the
applicable Prospectus Supplement, 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 would be based on examples contained in the
Anti-Abuse Rule. However, because no controlling legal authority exists, 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
50
<PAGE> 52
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
The Company and the holders of Securities may be subject to state, local or
foreign taxation in various jurisdictions, including those in which it or they
transact business or reside. The state, local or foreign tax treatment of the
Trust, the Corporation and the holders of Securities may not conform to the
federal income tax consequences discussed above. CONSEQUENTLY, HOLDERS OF
SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS ON THE PURCHASE, OWNERSHIP AND SALE OF SECURITIES.
PLAN OF DISTRIBUTION
The Trust and the Corporation may sell Securities through underwriters,
through dealers or through agents, and also may sell Securities directly to
purchasers.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase Securities may be solicited directly by the Trust or the
Corporation. Offers to purchase Securities may also be solicited by agents
designated by the Trust or the Corporation from time to time. Any such agent,
who may be deemed to be an "underwriter" as that term is defined in the
Securities Act, may then resell such Securities to the public at varying prices
to be determined by such dealer at the time of resale.
If an underwriter is, or underwriters are, utilized in the sale, the Trust
or the Corporation will execute an underwriting agreement with such underwriters
at the time of the sale to them, and the names of the underwriters will be set
forth in the Prospectus Supplement, which will be used by the underwriters to
make resales of the Securities in respect of which this Prospectus is delivered
to the public. In connection with the sale of Securities, such underwriters may
be deemed to have received compensation from the Trust or the Corporation in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Securities for whom they may act as agents. Underwriters may
also sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Any underwriting compensation paid by the Trust or the Corporation to
underwriters in connection with the offering of Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers, agents and other persons may be entitled, under
underwriting and agreements that may be entered into with the Trust or the
Corporation, to indemnification by the Trust or the Corporation against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such person they may be required to
make in respect thereof. Underwriters and agents may engage in transactions
with, or perform services for, the Trust or the Corporation in the ordinary
course of business.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Paired Common Shares (which are listed on the New York Stock
Exchange). Any Paired Common Shares sold pursuant to a Prospectus Supplement
will be listed on such exchange. The Trust or the Corporation may elect to list
any series of Debt Securities, Preferred Shares or Warrants on an exchange, but
neither the Trust nor the Corporation is obligated to do so. One or more
underwriters may make a market in a series of Securities, but will not be
obligated to do so, and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market for any of the Securities.
51
<PAGE> 53
If so indicated in the applicable Prospectus Supplement, the Trust or the
Corporation, as the case may be, will authorize underwriters, dealers or other
persons acting as the Trust's or the Corporation's agents to solicit offers by
certain institutions to purchase Securities from the Trust or the Corporation
pursuant to contracts providing for payment and delivery at a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Trust or the Corporation, as the case may
be. The obligations of any purchaser under any such contract will not be subject
to any conditions except that (a) the purchase of the Securities shall not at
any time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject and (b) if the Securities are also being sold to
underwriters, the Trust or the Corporation shall have sold to such underwriters
the Securities not sold for delayed delivery. The underwriters, dealers and such
other persons will not have any responsibility in respect to the validity or
performance of such contracts. The Prospectus Supplement relating to such
contracts will set forth the price to be paid for Securities pursuant to such
contracts, the commissions payable for solicitation of such contracts and the
date or dates in the future for delivery of Offered Securities pursuant to such
contracts.
Any underwriter may engage in stabilizing and syndicate covering
transactions in accordance with Rule 104 under Regulation M of the Exchange Act.
Rule 104 permits stabilizing bids to purchase the underlying security so long as
the stabilizing bids do not exceed a specified maximum. The underwriters may
over-allot shares of the Paired Common Shares, Preferred Shares or, to the
extent applicable, Warrants, in connection with an offering of Paired Common
Shares, Preferred Shares or, to the extent applicable, Warrants, respectively,
thereby creating a short position in the underwriters' account. Syndicate
covering transactions involve purchases of Securities in the open market after
the distribution has been completed in order to cover syndicate short positions.
Stabilizing and syndicate covering transactions may cause the price of
Securities to be higher than it would otherwise be in the absence of such
transactions. These transactions, if commenced, may be discontinued at any time.
The anticipated date of delivery of Securities will be set forth in the
applicable Prospectus Supplement relating to each offer.
LEGAL MATTERS
Sidley & Austin, Los Angeles, California, will pass upon the validity of
the issuance of Securities offered pursuant to this Prospectus. Lawyers at
Sidley & Austin participating in this offering on behalf of such firm own or
hold options to purchase an aggregate of approximately 22,500 Paired Common
Shares. Sidley & Austin may rely upon the opinion of Piper & Marbury L.L.P.,
Baltimore, Maryland, as to certain matters of Maryland law.
EXPERTS
The separate and combined financial statements and financial statement
schedules of Starwood Lodging Trust and Starwood Lodging Corporation as of
December 31, 1996 and 1995 and for each of the two years then ended appearing in
the Company's Joint Annual Report on Form 10-K, as amended, for the year ended
December 31, 1996, the 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, as amended;
and 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, as amended, incorporated by reference in this
Prospectus, have been audited by Coopers & Lybrand, L.L.P., independent
auditors, as stated in their reports also incorporated by reference herein. Such
financial statements and financial statement schedules have been incorporated by
reference herein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The separate and combined financial statements and financial statement
schedules of Starwood Lodging Trust and Starwood Lodging Corporation for the
year ended December 31, 1994, incorporated by reference in
52
<PAGE> 54
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report also incorporated by reference herein. Such
financial statements and financial statement schedules have been incorporated by
reference herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The combined financial statements of Pru-HEI Hotel Group 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 consolidated financial statements of W&S Hotel LLC and the combined
financial statements of the predecessor business included in the Company's Joint
Current Report on Form 8-K dated September 9, 1997 (as amended by Form 8-K/A
dated December 18, 1997), to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
The consolidated financial statements of ITT Corporation as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, included in the Company's Joint Current Report on Form 8-K dated November
12, 1997 (as amended by the Form 8-K/A dated December 18, 1997 and the Form
8-K/A dated January 7, 1998) have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated in reliance upon the authority of such firm as
experts in giving said reports.
53
<PAGE> 55
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND THE APPLICABLE PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER
WAS MADE HEREBY AND THEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
(AS DEFINED HEREIN). NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT
CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES (AS DEFINED HEREIN) BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THE DATE OF SUCH PROSPECTUS SUPPLEMENT OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 3
Special Note Regarding Forward-Looking
Statements.......................... 4
The Company........................... 4
Use of Proceeds....................... 6
Ratio of Earnings to Fixed Charges.... 6
Description of Debt Securities........ 6
General Description of Capital
Stock............................... 18
Description of Preferred Shares....... 18
Description of Paired Common Shares... 29
Description of Warrants............... 32
Description of Convertible Notes...... 33
Federal Income Tax Considerations..... 34
Plan of Distribution.................. 49
Legal Matters......................... 50
Experts............................... 50
</TABLE>
======================================================
======================================================
$3,000,000,000
STARWOOD HOTELS
& RESORTS
STARWOOD HOTELS
& RESORTS
WORLDWIDE, INC.
DEBT SECURITIES
PREFERRED SHARES
PAIRED COMMON SHARES
WARRANTS
CONVERTIBLE NOTES
--------------------
PROSPECTUS
--------------------
, 1998
======================================================
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
Registration Fee............................................ $278,939
Printing Expenses........................................... 100,000
Legal Fees and Expenses..................................... 75,000
Accounting Fees and Expenses................................ 50,000
Fees and Expenses of Transfer Agent......................... 10,000
Miscellaneous............................................... 36,061
--------
Total............................................. $550,000
========
</TABLE>
*Expenses are estimated except for the registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation's charter and the Amended and Restated Declaration of the
Trust provide that the Corporation and the Trust, respectively, shall indemnify,
to the fullest extent permitted by law, all persons who may be indemnified
pursuant to the 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"), respectively. The MGCL requires a corporation or a
Maryland real estate investment trust (a "Maryland REIT") (unless its charter or
declaration provides otherwise, which the Corporation Articles and the Trust
Declaration do not) to indemnify a director, trustee or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation or Maryland REIT to indemnify its present and former
directors, trustees and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director, trustee or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was the
result of active and deliberate dishonesty, (b) the director, trustee or officer
actually received an improper personal benefit in money, property or services or
(c) in the case of any criminal proceeding, the director, trustee or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation or a Maryland REIT may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or the
Maryland REIT or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation or a
Maryland REIT to advance reasonable expenses to a director, trustee or officer
upon the receipt by the corporation or the Maryland REIT of (a) a written
affirmation by the director, trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the corporation or the Maryland REIT if it shall ultimately be
determined that the standard of conduct was not met.
The Company has entered into indemnification agreements with its directors,
trustees and executive officers providing for the maintenance of directors,
trustees and officers liability insurance, subject to certain conditions, and
the indemnification of and advancement of expenses to such directors, trustees
and executive officers.
II-1
<PAGE> 57
ITEM 16. EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger dated as
of November 12, 1997, among the Trust, the Corporation,
Chess Acquisition Corp. and ITT Corporation (incorporated by
reference to Exhibit A to the Joint Proxy
Statement/Prospectus dated January 14, 1998, included in the
Company's Registration Statement on Form S-4 (Registration
Statement Nos. 333-39409 and 39409-01). Schedules to the
foregoing agreement have been omitted but will be furnished
to the Securities and Exchange Commission (the "Commission")
on request.
2.2 Transaction Agreement dated as of September 8, 1997, among
the Trust, the Corporation, and inter alia, WHWE L.L.C.
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated September 25, 1997).
4.1* Form of Indenture for Debt Securities (incorporated by
reference to Exhibit 4.1 to the Trust's and the
Corporation's Registration Statement on Form S-3 filed with
the Securities and Exchange Commission on October 3, 1996
(Registration Nos. 333-13411 and 333-13411-01) (the "1996
Form S-3").
4.2* Form of Indenture for Convertible Notes (incorporated by
reference to Exhibit 4.2 to the 1996 Form S-3).
4.3* Form of Convertible Notes (included in Exhibit 4.2).
5.1++ Opinion of Sidley & Austin.
5.2++ Opinion of Piper & Marbury L.L.P.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Arthur Andersen LLP.
23.6++ Consent of Counsel (included in Exhibits 5.1 and 5.2).
24.1* Powers of Attorney (contained in signature pages hereto).
24.2 Powers of Attorney.
25.1+ Statement of Eligibility of Trustee on Form T-1 of Trustee
for the Notes.
25.2* Statement of Eligibility of Trustee on Form T-1 of Trustee
for the Convertible Notes (incorporated by reference to
Exhibit 99.1 to the Trust's and the Corporation's Joint
Current Report on Form 8-K dated March 21, 1997).
</TABLE>
- ---------------
* Previously filed.
+ To be filed separately pursuant to Trust Indenture Act Section 305(b)(2).
++ To be filed by amendment or pursuant to a Current Report on Form 8-K.
ITEM 17. UNDERTAKINGS.
(a) Each of the undersigned Registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of such Registrant
pursuant to the provisions described in Item 15 above, or otherwise, such
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director,
II-2
<PAGE> 58
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, each
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrants hereby further undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (Section 230.424(b) of 17
C.F.R.) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) The undersigned Registrants hereby further undertake that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrants further undertake that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-3
<PAGE> 59
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(e) The undersigned Registrants further undertake to file an application
for the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations furnished by the Commission under Section 305(b)(2) of the
Act.
II-4
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix, State of Arizona, on the 10th
day of March, 1998.
STARWOOD HOTELS & RESORTS
By: /s/ RONALD C. BROWN
------------------------------------
Ronald C. Brown
Senior Vice President and
Chief Financial Officer
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>
* Chairman, Chief Executive Officer March 10, 1998
- --------------------------------------------------- and Trustee (Principal
Barry S. Sternlicht Executive Officer)
/s/ GARY M. MENDELL President and Trustee March 10, 1998
- ---------------------------------------------------
Gary M. Mendell
* Senior Vice President (Principal March 10, 1998
- --------------------------------------------------- Financial and Accounting
Ronald C. Brown Officer)
* Senior Vice President March 10, 1998
- --------------------------------------------------- and Trustee
Steven R. Goldman
/s/ JEAN-MARC CHAPUS Trustee March 10, 1998
- ---------------------------------------------------
Jean-Marc Chapus
* Trustee March 10, 1998
- ---------------------------------------------------
Bruce W. Duncan
/s/ MADISON F. GROSE Trustee March 10, 1998
- ---------------------------------------------------
Madison F. Grose
/s/ GEORGE J. MITCHELL Trustee March 10, 1998
- ---------------------------------------------------
George J. Mitchell
</TABLE>
II-5
<PAGE> 61
<TABLE>
<C> <S> <C>
* Trustee March 10, 1998
- ---------------------------------------------------
Roger S. Pratt
* Trustee March 10, 1998
- ---------------------------------------------------
Stephen R. Quazzo
/s/ STUART M. ROTHENBERG Trustee March 10, 1998
- ---------------------------------------------------
Stuart M. Rothenberg
</TABLE>
*By: /s/ RONALD C. BROWN
-------------------------------
Ronald C. Brown
Attorney-in-Fact
II-6
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing a Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the 10th day of March,
1998.
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ ALAN M. SCHNAID
------------------------------------
Alan M. Schnaid
Vice President and
Corporate Controller
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>
* Chairman of the Board March 10, 1998
- --------------------------------------------------- and Director
Barry S. Sternlicht
/s/ THEODORE W. DARNALL Executive Vice President and March 10, 1998
- --------------------------------------------------- Chief Operating Officer
Theodore W. Darnall (Principal Executive Officer)
* Vice President and Corporate March 10, 1998
- --------------------------------------------------- Controller (Principal Financial
Alan M. Schnaid and Accounting Officer)
/s/ JUERGEN BARTELS Director March 10, 1998
- ---------------------------------------------------
Juergen Bartels
/s/ JONATHAN D. EILIAN Director March 10, 1998
- ---------------------------------------------------
Jonathan D. Eilian
* Director March 10, 1998
- ---------------------------------------------------
Bruce M. Ford
* Director March 10, 1998
- ---------------------------------------------------
Graeme W. Henderson
</TABLE>
II-7
<PAGE> 63
<TABLE>
<C> <S> <C>
* Director March 10, 1998
- ---------------------------------------------------
Earle F. Jones
/s/ MICHAEL A. LEVEN Director March 10, 1998
- ---------------------------------------------------
Michael A. Leven
/s/ DANIEL H. STERN Director March 10, 1998
- ---------------------------------------------------
Daniel H. Stern
/s/ BARRY S. VOLPERT Director March 10, 1998
- ---------------------------------------------------
Barry S. Volpert
/s/ DANIEL W. YIH Director March 10, 1998
- ---------------------------------------------------
Daniel W. Yih
</TABLE>
*By: /s/ ALAN M. SCHNAID
-------------------------------
Alan M. Schnaid
Attorney-in-Fact
II-8
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
2.1 Amended and Restated Agreement and Plan of Merger dated as
of November 12, 1997, among Starwood Hotels & Resorts (the
"Trust"), Starwood Hotels & Resorts Worldwide, Inc. (the
"Corporation"), Chess Acquisition Corp. and ITT Corporation
(incorporated by reference to Exhibit A to the Joint Proxy
Statement/Prospectus dated January 14, 1998, included in the
Company's Registration Statement on Form S-4 (Registration
Statement Nos. 333-39409 and 39409-01). Schedules to the
foregoing agreement have been omitted but will be furnished
to the Securities and Exchange Commission (the "Commission")
on request.
2.2 Transaction Agreement dated as of September 8, 1997, among
the Trust, the Corporation, and inter alia, WHWE L.L.C.
(incorporated by reference to Exhibit 2 to the Trust's and
the Corporation's Current Report on Form 8-K dated September
25, 1997).
4.1* Form of Indenture for Debt Securities (incorporated by
reference to Exhibit 4.1 to the Trust's and the
Corporation's Registration Statement on Form S-3 filed with
the Commission on October 3, 1996 (Registration Nos.
333-13411 and 333-13411-01) (the "1996 Form S-3").
4.2* Form of Indenture for Convertible Notes (incorporated by
reference to Exhibit 4.2 to the 1996 Form S-3).
4.3* Form of Convertible Notes (included in Exhibit 4.2).
5.1++ Opinion of Sidley & Austin.
5.2++ Opinion of Piper & Marbury L.L.P.
12.1++ Computation of Ratios.
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 Arthur Andersen LLP.
23.6++ Consent of Counsel (included in Exhibits 5.1 and 5.2).
24.1* Powers of Attorney (contained in signature pages hereto).
24.2 Powers of Attorney.
25.1+ Statement of Eligibility of Trustee on Form T-1 of Trustee
for the Notes.
25.2* Statement of Eligibility of Trustee on Form T-1 of Trustee
for the Convertible Notes (incorporated by reference to
Exhibit 99.1 to the Trust's and the Corporation's Joint
Current Report on Form 8-K dated March 21, 1997).
</TABLE>
- ---------------
* Previously filed.
+ To be filed separately pursuant to Trust Indenture Act Section 305(b)(2).
++ To be filed by amendment or pursuant to a Current Report on Form 8-K.
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
9 MONTHS
ENDING 12 MONTHS ENDING
---------- ---------------------------------------------------------------
12/31/97 9/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
provision for income
taxes..................... 60,208,000 38,904,000 36,112,000 18,138,000 (4,663,000) (7,032,000) (19,743,000)
Add back:
Portion of rents
representative of
interest expense........
Amortization of debt
issuance costs.......... 4,079,000 3,087,000 4,548,000 670,000 86,000
Interest expense.......... 65,035,000 41,139,000 23,337,000 13,138,000 17,686,000 15,187,000 14,208,000
----------- ---------- ---------- ---------- ---------- ---------- -----------
Income as adjusted.......... 129,322,000 83,130,000 63,997,000 31,946,000 13,029,000 8,155,000 (5,535,000)
----------- ---------- ---------- ---------- ---------- ---------- -----------
Fixed charges:
Interest expense.......... 65,035,000 41,139,000 23,337,000 13,138,000 17,606,000 15,187,000 14,208,000
Amortization of debt
issuance costs.......... 4,079,000 3,087,000 4,548,000 670,000 86,000 -- --
Rents.....................
Portion of rents
representative of
interest expense........ -- -- -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ---------- -----------
Total fixed
charges.......... 69,114,000 44,226,000 27,885,000 13,808,000 17,692,000 15,187,000 14,208,000
----------- ---------- ---------- ---------- ---------- ---------- -----------
Ratio of Earnings to Fixed
Charges................... 1.87 1.88 2.30 2.31 0.74 0.54 (0.39)
Earnings inadequate to cover
fixed charges by:......... n/a n/a n/a n/a 4,663,000 7,032,000 19,743,000
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement
of Starwood Hotels & Resorts (formerly Starwood Lodging Trust) and Starwood
Hotels & Resorts Worldwide, Inc. (formerly Starwood Lodging Corporation) on Form
S-3 being filed under the Securities Act of 1933, as amended, of our report
dated February 21, 1997 appearing in the Annual Report on Form 10-K, as amended,
of Starwood Lodging Trust and Starwood Lodging Corporation (collectively, the
"Company") for each of the two years ended December 31, 1996, of our report
dated February 6, 1997 on the financial statements for Westport Holdings, L.L.C.
for the year ended January 2, 1997, appearing in the Company's Joint Current
Report on Form 8-K dated February 14, 1997, as amended, and of our report dated
August 29, 1997 (except for Note 9 for which the date is September 10, 1997) on
our audit of the financial statements of The Flatley Hotels for the year ended
December 31, 1996, appearing in the Company's Current Report on Form 8-K dated
September 10, 1997 as amended. We also consent to the reference to our firm
under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 9, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement Nos. 333-40077 and 333-40077-01 of Starwood Hotels &
Resorts (formerly Starwood Lodging Trust) and Starwood Hotels & Resorts
Worldwide, Inc. (formerly Starwood Lodging Corporation) (the "Companies") on
Form S-3 of our report dated March 24, 1995 on the separate and combined
financial statements and financial statement schedules of the Companies
appearing in the Companies' Annual Report on Form 10-K/A2 for the year ended
December 31, 1996 and to the reference to us under the heading "Experts" in the
Prospectus which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 9, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of our report dated
February 10, 1997 relating to the combined financial statements of Pru-HEI Hotel
Group, which appears in the Current Report on Form 8-K/A of Starwood Lodging
Trust and Starwood Lodging Corporation dated February 10, 1997. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
New York, New York
March 9, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 of our report dated
February 14, 1997, on the consolidated financial statements of W&S Hotel L.L.C.
and the combined financial statements of the predecessor business included in
the Joint Current Report as amended of Starwood Lodging Trust and Starwood
Lodging Corporation dated September 9, 1997, and to all references to our firm
included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
March 9, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 of our report dated
January 23, 1997 (except with respect to the matters discussed in the Subsequent
Events note as to which the date is March 27, 1997), on the consolidated
financial statements and financial statement schedule of ITT Corporation
included in the Joint Current Report of Starwood Lodging Trust and Starwood
Lodging Corporation dated November 12, 1997 (as amended by the form 8K/A dated
December 18, 1997 and the Form 8-K/A dated January 7, 1998), and to all
references to our firm included in this Form S-3.
ARTHUR ANDERSEN LLP
New York, New York
March 9, 1998
<PAGE> 1
EXHIBIT 24.2
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.
<TABLE>
<C> <S> <C>
/s/ GARY M. MENDELL President and Trustee March 10, 1998
- ---------------------------------------------------
Gary M. Mendell
/s/ MADISON F. GROSE Trustee March 10, 1998
- ---------------------------------------------------
Madison F. Grose
/s/ GEORGE J. MITCHELL Trustee March 10, 1998
- ---------------------------------------------------
George J. Mitchell
/s/ STUART M. ROTHENBERG Trustee March 10, 1998
- ---------------------------------------------------
Stuart M. Rothenberg
</TABLE>
Each person whose signature to the Registration Statement appears below
hereby appoints Theodore W. Darnall 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.
<TABLE>
<C> <S> <C>
/s/ THEODORE W. DARNALL Executive Vice President and March 10, 1998
- --------------------------------------------------- Chief Operating Officer
Theodore W. Darnall
/s/ JUERGEN BARTELS Director March 10, 1998
- ---------------------------------------------------
Juergen Bartels
/s/ JONATHAN D. EILIAN Director March 10, 1998
- ---------------------------------------------------
Jonathan D. Eilian
/s/ MICHAEL A. LEVEN Director March 10, 1998
- ---------------------------------------------------
Michael A. Leven
/s/ DANIEL H. STERN Director March 10, 1998
- ---------------------------------------------------
Daniel H. Stern
/s/ BARRY S. VOLPERT Director March 10, 1998
- ---------------------------------------------------
Barry S. Volpert
/s/ DANIEL W. YIH Director March 10, 1998
- ---------------------------------------------------
Daniel W. Yih
</TABLE>
