<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1998
REGISTRATION NOS. 333-39409 AND 333-39409-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
STARWOOD HOTELS & STARWOOD HOTELS & RESORTS
RESORTS TRUST WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS GOVERNING INSTRUMENTS) IN ITS GOVERNING INSTRUMENTS)
2231 E. CAMELBACK ROAD, SUITE 410 2231 E. CAMELBACK ROAD, SUITE 400
PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85016
(602) 852-3900 (602) 852-3900
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARYLAND MARYLAND
(STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION)
6798 6500
(PRIMARY STANDARD (PRIMARY STANDARD
INDUSTRIAL CODE NUMBER) INDUSTRIAL CODE NUMBER)
52-0901263 52-1193298
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
RONALD C. BROWN ALAN M. SCHNAID
SENIOR VICE PRESIDENT AND VICE PRESIDENT AND CORPORATE CONTROLLER
CHIEF FINANCIAL OFFICER 2231 E. CAMELBACK ROAD, SUITE 400
2231 E. CAMELBACK ROAD, SUITE 410 PHOENIX, ARIZONA 85016
PHOENIX, ARIZONA 85016 (602) 852-3900
(602) 852-3900 (NAME AND ADDRESS OF AGENT FOR SERVICE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
SHERWIN L. SAMUELS, ESQ. STEVEN SUTHERLAND, ESQ.
SIDLEY & AUSTIN SIDLEY & AUSTIN
555 WEST FIFTH STREET ONE FIRST NATIONAL PLAZA
LOS ANGELES, CALIFORNIA 90013 CHICAGO, ILLINOIS 60603
(213) 896-6000 (312) 853-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after the effective date of this registration statement and the
effective time of the merger of Chess Acquisition Corp., a subsidiary of
Starwood Hotels & Resorts Worldwide, Inc., with and into ITT Corporation
pursuant to the Merger Agreement (as defined herein).
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
[ITT LOGO]
ITT CORPORATION
Richard S. Ward
Executive Vice President,
General Counsel and
Corporate Secretary
January 14, 1998
ITT CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
A Special Meeting of Stockholders (the "ITT Meeting") of ITT Corporation
("ITT") will be held starting at 11:30 a.m., local time, on February 12, 1998,
at the New York Ballroom of the Sheraton New York Hotel & Towers, 811 Seventh
Avenue, New York, New York. Attendance at the ITT Meeting will be limited to
stockholders of record on December 19, 1997, or their proxies, beneficial owners
having evidence of ownership on that date and invited guests of ITT.
The purposes of the ITT Meeting are:
1. To consider and vote upon a proposal (the "ITT Proposal") to
approve and adopt an Amended and Restated Agreement and Plan of Merger
dated as of November 12, 1997 (the "Merger Agreement"), among ITT, Starwood
Hotels & Resorts Worldwide, Inc. (formerly Starwood Lodging Corporation), a
Maryland corporation (the "Corporation"), Starwood Hotels & Resorts Trust
(formerly Starwood Lodging Trust), a Maryland real estate investment trust
(the "Trust" and, together with the Corporation, "Starwood Lodging"), and
Chess Acquisition Corp., a Nevada corporation and a subsidiary of the
Corporation ("Merger Sub"); and
2. To transact such other business as may properly come before the ITT
Meeting or any adjournment or postponement thereof.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into ITT (the "Merger"), with the result that (a) ITT will
become a subsidiary of the Corporation and (b) each outstanding share of Common
Stock, no par value, of ITT ("ITT Common Stock"), together with the associated
preferred share purchase right of ITT, other than shares held by ITT, the
Corporation, the Trust or any of their respective wholly owned subsidiaries,
will be converted into the right to receive, at the holder's election, $85 in
cash or shares of common stock, par value $.01 per share, of the Corporation
("Corporation Shares") and shares of beneficial interest, par value $.01 per
share, of the Trust ("Trust Shares" and, when paired with the Corporation
Shares, "Paired Shares") with a value of $85, subject to certain collar
provisions; provided that the aggregate number of shares of ITT Common Stock to
be converted into the right to receive cash shall not exceed 30% nor be less
than 18% of the total number of shares of ITT Common Stock outstanding
immediately prior to the effective time of the Merger. Pursuant to the Merger
Agreement, each holder of ITT Common Stock will also be entitled to receive for
each share of ITT Common Stock converted in the Merger additional cash
consideration in an amount equal to the interest that would accrue (without
compounding) on $85 at an annual rate of 7% during the period from and including
January 31, 1998 to but excluding the date of closing of the Merger.
Because the aggregate number of shares of ITT Common Stock to be converted
into cash in the Merger will not be less than 18% nor exceed 30% of the total
number of outstanding shares of ITT Common Stock, ITT stockholders electing to
receive cash in the Merger may receive Paired Shares instead of cash for some of
the shares of ITT Common Stock covered by such cash election if cash elections
are received for more than 30% of the total number of outstanding shares of ITT
Common Stock. Similarly, ITT stockholders electing to receive Paired Shares in
the Merger may receive cash instead of Paired Shares for some of the shares of
ITT Common Stock covered by such stock election if stock elections are received
for more than 82% of the total number of outstanding shares of ITT Common Stock.
At the time of the ITT Meeting, ITT stockholders will
<PAGE> 3
not know the number of shares of ITT Common Stock for which cash or stock
elections have been made or whether the cash or stock to be paid in the Merger
will be prorated.
Pursuant to the collar provisions of the Merger Agreement, if the average
of the market prices of Paired Shares used in the calculation of the exchange
ratio in accordance with the Merger Agreement is below $53.263, the combination
of cash and Paired Shares that ITT stockholders will receive in the Merger may
have a value of less than $85 and if such average is above $61.263, the
combination of cash and Paired Shares that ITT stockholders will receive in the
Merger may have a value greater than $85. If such average is between $53.263 and
$61.263, the combination of cash and Paired Shares that ITT stockholders will
receive in the Merger may have a value of $85. As noted above, ITT stockholders
will not know whether the cash or stock to be paid in the Merger will be
prorated at the time of the ITT Meeting; therefore, if the average of the prices
of Paired Shares used in the calculation of the exchange ratio is below $53.263
or above $61.263, ITT stockholders will not know the value of the consideration
they will receive in the Merger. Starwood Lodging has established a toll-free
telephone number (1-800-347-4750) to enable stockholders of ITT to receive
information regarding the exchange ratio to be used in the Merger. Commencing
January 15, 1998 and ending on February 17, 1998, stockholders are encouraged to
call such telephone number to listen to a recorded message indicating what the
exchange ratio would be as of the date of such call. Commencing February 5,
1998, stockholders may call in and obtain the final exchange ratio. Callers
prior to February 5, 1998 should bear in mind that the final exchange ratio may
vary from the illustrative exchange ratio indicated on such recorded message.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in the accompanying Joint Proxy
Statement/Prospectus. ITT stockholders are urged to read the Joint Proxy
Statement/Prospectus carefully.
To ensure that your vote will be counted, please complete, sign and date
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope addressed to ITT, whether or not you plan to attend the ITT Meeting.
You may revoke your proxy in the manner described in the accompanying Joint
Proxy Statement/Prospectus at any time before it is voted at the ITT Meeting.
All stockholders of record of ITT at the close of business on December 19,
1997, the record date for the ITT Meeting, are entitled to notice of, and to
vote at, the ITT Meeting. Approval of the ITT Proposal requires the affirmative
vote of the holders of a majority in voting power of all outstanding shares of
ITT Common Stock.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. A FORM OF
ELECTION WITH INSTRUCTIONS FOR THE ELECTION OF CONSIDERATION AND SURRENDER AND
EXCHANGE OF YOUR SHARES IS BEING SENT TO YOU SEPARATELY WITH A RETURN ENVELOPE
ADDRESSED TO THE EXCHANGE AGENT, CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Order of the Board of Directors,
/s/ Richard S. Ward
RICHARD S. WARD
Executive Vice President,
General Counsel and
Corporate Secretary
New York, New York
<PAGE> 4
[STARWOOD HOTELS & RESORTS LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF STARWOOD HOTELS & RESORTS TRUST:
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Starwood Hotels & Resorts Trust (formerly Starwood Lodging Trust),
a Maryland real estate investment trust (the "Trust"), will be held at the New
York Ballroom of the Sheraton New York Hotel & Towers, 811 Seventh Avenue, New
York, New York, on February 18, 1998 at 10:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of beneficial interest, par value $.01 per share, of the Trust
("Trust Shares"), pursuant to the Amended and Restated Agreement and Plan
of Merger, dated as of November 12, 1997 (the "Merger Agreement"), among
the Trust, Starwood Hotels & Resorts Worldwide, Inc. (formerly Starwood
Lodging Corporation), a Maryland corporation (the "Corporation"), Chess
Acquisition Corp., a Nevada corporation and a subsidiary of the Corporation
("Merger Sub"), and ITT Corporation, a Nevada corporation ("ITT");
2. To consider and vote upon a proposed amendment to the Declaration
of Trust of the Trust described in the accompanying Joint Proxy
Statement/Prospectus to increase the number of authorized shares of
beneficial interest of the Trust;
3. To consider and vote upon a proposed amendment to the Declaration
of Trust of the Trust described in the accompanying Joint Proxy
Statement/Prospectus to change the name of the Trust;
4. To consider and vote upon a proposed amendment to the Declaration
of Trust of the Trust described in the accompanying Joint Proxy
Statement/Prospectus to include a provision in the Declaration of Trust to
provide that in certain circumstances when the Corporation redeems certain
of its securities, the Trust shall simultaneously redeem any of its
securities that are paired with such securities of the Corporation; and
5. To transact such other business as may properly come before the
Special Meeting.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into ITT (the "Merger"), with the result that (a) ITT will
become a subsidiary of the Corporation and (b) each outstanding share of common
stock, no par value, of ITT ("ITT Common Stock"), together with the associated
preferred share purchase right of ITT, other than shares held by ITT, the
Corporation, the Trust or any of their respective wholly owned subsidiaries,
will be converted into the right to receive, at the holder's election, $85 in
cash or shares of common stock, par value $.01 per share, of the Corporation
(the "Corporation Shares") and Trust Shares (the Trust Shares when paired with
the Corporation Shares are referred to as the "Paired Shares") with a value of
$85, subject to certain collar provisions; provided that the aggregate number of
shares of ITT Common Stock to be converted into the right to receive cash shall
not exceed 30% nor be less than 18% of the total number of shares of ITT Common
Stock outstanding immediately prior to the effective time of the Merger.
Pursuant to the Merger Agreement, each holder of ITT Common Stock will also be
entitled to receive for each share of ITT Common Stock converted in the Merger
additional cash consideration in an amount equal to the interest that would
accrue (without compounding) on $85 at an annual rate of 7% during the period
from and including January 31, 1998 to but excluding the date of closing of the
Merger.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in the accompanying Joint Proxy
Statement/Prospectus.
Only holders of record of Trust Shares and of Class A Exchangeable
Preferred Shares, par value $.01 per share, and Class B Exchangeable Preferred
Shares, par value $.01 per share, of the Trust at the close of business on
January 20, 1998 are entitled to receive notice of, and to vote at, the Special
Meeting or any adjournment or postponement thereof.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THEN COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, AND YOUR PROMPTNESS WILL ASSIST US IN AVOIDING ADDITIONAL SOLICITATION
COSTS. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED
IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD BE SIGNED AND
RETURNED.
By Order of the Board of Trustees
/s/ Sherwin L. Samuels
SHERWIN L. SAMUELS
Secretary
January 20, 1998
Phoenix, Arizona
<PAGE> 5
[STARWOOD HOTELS & RESORTS WORLDWIDE, INC. LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Starwood Hotels & Resorts Worldwide, Inc. (formerly Starwood
Lodging Corporation), a Maryland corporation (the "Corporation"), will be held
at the New York Ballroom of the Sheraton New York Hotel & Towers, 811 Seventh
Avenue, New York, New York, on February 18, 1998 at 10:30 a.m., local time, for
the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of common stock, par value $.01 per share, of the Corporation (the
"Corporation Shares"), pursuant to the Amended and Restated Agreement and
Plan of Merger, dated as of November 12, 1997 (the "Merger Agreement"),
among the Corporation, Chess Acquisition Corp., a Nevada corporation and a
subsidiary of the Corporation ("Merger Sub"), Starwood Hotels & Resorts
Trust (formerly Starwood Lodging Trust), a Maryland real estate investment
trust (the "Trust"), and ITT Corporation, a Nevada corporation ("ITT");
2. To consider and vote upon a proposed amendment to the charter of
the Corporation described in the accompanying Joint Proxy
Statement/Prospectus to increase the number of authorized shares of stock
of the Corporation;
3. To consider and vote upon a proposed amendment to the charter of
the Corporation described in the accompanying Joint Proxy
Statement/Prospectus to include a provision in the charter to allow the
Corporation to secure and maintain certain regulatory approvals issued by
certain gaming authorities; and
4. To transact such other business as may properly come before the
meeting.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into ITT (the "Merger"), with the result that (a) ITT will
become a subsidiary of the Corporation and (b) each outstanding share of common
stock, no par value, of ITT ("ITT Common Stock"), together with the associated
preferred share purchase right of ITT, other than shares held by ITT, the
Corporation, the Trust or any of their respective wholly owned subsidiaries,
will be converted into the right to receive, at the holder's election, $85 in
cash or Corporation Shares and shares of beneficial interest, par value $.01 per
share, of the Trust ("Trust Shares" and, when paired with the Corporation
Shares, the "Paired Shares") with a value of $85, subject to certain collar
provisions; provided that the aggregate number of shares of ITT Common Stock to
be converted into the right to receive cash shall not exceed 30% nor be less
than 18% of the total number of shares of ITT Common Stock outstanding
immediately prior to the effective time of the Merger. Pursuant to the Merger
Agreement, each holder of ITT Common Stock will also be entitled to receive for
each share of ITT Common Stock converted in the Merger additional cash
consideration in an amount equal to the interest that would accrue (without
compounding) on $85 at an annual rate of 7% during the period from and including
January 31, 1998 to but excluding the date of closing of the Merger.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in the accompanying Joint Proxy
Statement/Prospectus.
Only holders of record of Corporation Shares at the close of business on
January 20, 1998 are entitled to receive notice of, and to vote at, the Special
Meeting or any adjournment or postponement thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THEN COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, AND YOUR PROMPTNESS WILL ASSIST US IN AVOIDING ADDITIONAL SOLICITATION
COSTS. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED
IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD BE SIGNED AND
RETURNED.
By Order of the Board of Directors
/s/ Nir E. Margalit
NIR E. MARGALIT
Secretary
January 20, 1998
Phoenix, Arizona
<PAGE> 6
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[STARWOOD LODGING LOGO]
SUBJECT TO COMPLETION, DATED JANUARY 14, 1998 [ITT LOGO]
STARWOOD HOTELS & RESORTS TRUST STARWOOD HOTELS & RESORTS WORLDWIDE, INC. ITT
CORPORATION
JOINT PROXY STATEMENT
FOR
SPECIAL MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS
OF STARWOOD HOTELS & RESORTS TRUST AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
TO BE HELD ON FEBRUARY 18, 1998
SPECIAL MEETING OF STOCKHOLDERS OF ITT CORPORATION
TO BE HELD ON FEBRUARY 12, 1998
------------------------
STARWOOD HOTELS & RESORTS TRUST STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
Starwood Hotels & Resorts Trust (formerly Starwood Lodging Trust), a Maryland
real estate investment trust (the "Trust"), and stockholders of Starwood Hotels
& Resorts Worldwide, Inc. (formerly Starwood Lodging Corporation), a Maryland
corporation (the "Corporation" and, together with the Trust, "Starwood
Lodging"), in connection with the solicitation of proxies by the Trust's Board
of Trustees (the "Trust Board") and the Corporation's Board of Directors (the
"Corporation Board" and, together with the Trust Board, the "Starwood Lodging
Boards") for use at the Trust's Special Meeting of Shareholders and at any and
all adjournments or postponements thereof (the "Trust Meeting") and the
Corporation's Special Meeting of Stockholders and at any and all adjournments or
postponements thereof (the "Corporation Meeting" and, together with the Trust
Meeting, the "Starwood Lodging Meetings"), respectively, to be held on February
18, 1998, at the times and place, and for the purposes, specified in the
accompanying Notices of Special Meetings.
The shares of beneficial interest, par value $.01 per share, of the Trust
("Trust Shares") and the shares of common stock, par value $.01 per share, of
the Corporation ("Corporation Shares") are "paired" pursuant to a Pairing
Agreement dated as of June 25, 1980, as amended (the "Pairing Agreement"),
between the Trust and the Corporation and may be held and transferred only in
combined units consisting of one Trust Share and one Corporation Share (a
"Paired Share").
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of ITT Corporation, a Nevada corporation ("ITT"), in connection
with the solicitation of proxies by ITT's Board of Directors (the "ITT Board")
for use at ITT's Special Meeting of Stockholders and at any adjournments or
postponements thereof (the "ITT Meeting" and, together with the Starwood Lodging
Meetings, the "Special Meetings"), at the time and place, and for the purposes,
specified in the accompanying Notice of Special Meeting.
The Trust Meeting and the Corporation Meeting have been called to consider
and vote upon (a) a proposal to approve the issuance of Trust Shares and
Corporation Shares, respectively (the "Shares Issuance Proposal"), pursuant to
the Amended and Restated Agreement and Plan of Merger dated as of November 12,
1997 (the "Merger Agreement"), among the Corporation, Chess Acquisition Corp., a
Nevada corporation and a subsidiary of the Corporation ("Merger Sub" and,
together with Starwood Lodging, the "Starwood Companies"), the Trust and ITT,
and (b) proposals to amend the Amended and Restated Declaration of Trust of the
Trust (the "Trust Declaration") as described herein (the "Trust Amendment") and
to amend the charter of the Corporation (the "Corporation Articles") as
described herein (the "Corporation Amendment").
The ITT Meeting has been called to consider and vote upon a proposal to
approve and adopt the Merger Agreement (the "ITT Proposal").
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION, THE NEVADA 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 JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged into ITT (the "Merger"), with the result that (a) ITT will become a
subsidiary of the Corporation and (b) each outstanding share of Common Stock, no
par value ("ITT Common Stock"), together with the associated preferred share
purchase right, other than shares held by ITT, the Corporation, the Trust or any
of their respective wholly owned subsidiaries, will be converted into the right
to receive, at the holder's election, $85 in cash or Paired Shares with a value
of $85, subject to certain collar provisions; provided that the aggregate number
of shares of ITT Common Stock to be converted into the right to receive cash
shall not exceed 30% nor be less than 18% of the total number of shares of ITT
Common Stock outstanding immediately prior to the effective time of the Merger.
Pursuant to the Merger Agreement, each holder of ITT Common
(cover continued on next page)
<PAGE> 7
Stock will also be entitled to receive for each share of ITT Common Stock
converted in the Merger additional cash consideration in an amount equal to the
interest that would accrue (without compounding) on $85 at an annual rate of 7%
during the period from and including January 31, 1998 to but excluding the date
of closing of the Merger.
Because the aggregate number of shares of ITT Common Stock to be converted
into cash in the Merger will not be less than 18% nor exceed 30% of the total
number of outstanding shares of ITT Common Stock, ITT stockholders electing to
receive cash in the Merger may receive Paired Shares instead of cash for some of
the shares of ITT Common Stock covered by such cash election if cash elections
are received for more than 30% of the total number of outstanding shares of ITT
Common Stock. Similarly, ITT stockholders electing to receive Paired Shares in
the Merger may receive cash instead of Paired Shares for some of the shares of
ITT Common Stock covered by such stock election if stock elections are received
for more than 82% of the total number of outstanding shares of ITT Common Stock.
At the time of the ITT Meeting, ITT stockholders will not know the number of
shares of ITT Common Stock for which cash or stock elections have been made or
whether the cash or stock to be paid in the Merger will be prorated.
Pursuant to the collar provisions of the Merger Agreement, if the average
of the market prices of Paired Shares used in the calculation of the exchange
ratio in accordance with the Merger Agreement is below $53.263, the combination
of cash and Paired Shares that ITT stockholders will receive in the Merger may
have a value of less than $85 and if such average is above $61.263, the
combination of cash and Paired Shares that ITT stockholders will receive in the
Merger may have a value greater than $85. If such average is between $53.263 and
$61.263, the combination of cash and Paired Shares that ITT stockholders will
receive in the Merger may have a value of $85. As noted above, ITT stockholders
will not know whether their cash or stock elections will be prorated at the time
of the ITT Meeting; therefore, if the average of the prices of Paired Shares
used in the calculation of the exchange ratio is below $53.263 or above $61.263,
ITT stockholders will not know the value of the consideration they will receive
in the Merger.
Depending on the number of ITT stockholders that elect to receive cash or
stock in the Merger, the number of Paired Shares issued in the Merger could
range from approximately 127.2 million to 149.0 million with an aggregate market
value ranging from $7.04 billion to $8.25 billion, respectively, based on (i)
the average of the daily high and low prices per Paired Share as reported on the
NYSE Composite Transaction Tape for the 30 consecutive trading days ending
January 12, 1998, and (ii) the number of issued and outstanding shares of ITT
Common Stock on December 19, 1997.
The terms of the Merger Agreement and the Paired Shares to be issued in
connection therewith are described in this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus and the related forms of proxy are
first being mailed to shareholders of the Trust and stockholders of the
Corporation on or about January 20, 1998 and to stockholders of ITT on or about
January 14, 1998.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JANUARY 14, 1998.
<PAGE> 8
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 4
SUMMARY............................................................................... 5
The Companies....................................................................... 5
The Starwood Lodging Meetings....................................................... 6
The ITT Meeting..................................................................... 8
The Merger.......................................................................... 9
Summary Risk Factors................................................................ 21
Recent Developments................................................................. 23
Structure of Starwood Lodging After the Merger...................................... 26
ITT Summary Selected Financial Data................................................. 27
Starwood Lodging Summary Selected Financial Data.................................... 28
Comparative Per Share Data.......................................................... 30
Comparative Market Prices........................................................... 31
RISK FACTORS.......................................................................... 33
Receipt of Cash or Stock Dependent on Elections of Others........................... 33
If the Paired Shares Trade Below Collar, Consideration Paid May be Below $85........ 33
Market Price May be Different Than Price Per Paired Share at Effective Time......... 34
Dilution to Existing Starwood Lodging Stockholders.................................. 34
Stock Price Fluctuations............................................................ 34
Differences in Stockholder Rights................................................... 34
Failure to Manage Rapid Growth...................................................... 35
Tax Risks........................................................................... 35
Limits on Change of Control and Ownership Limitation................................ 38
Influence By Starwood Capital....................................................... 38
Debt Financing...................................................................... 39
Possible Liability of Trust Shareholders............................................ 39
Investments in Starwood Lodging, ITT and the Hotel Industry......................... 40
Real Estate Investment Risks........................................................ 40
Foreign Operations and Currency Fluctuations........................................ 41
ANTICIPATED SYNERGIES................................................................. 42
ITT PROJECTIONS....................................................................... 42
FUNDS FROM OPERATIONS................................................................. 43
ILLUSTRATIVE PRORATION CHART.......................................................... 43
THE MEETINGS.......................................................................... 45
Date, Place and Time................................................................ 45
Matters to be Considered............................................................ 45
Voting Rights....................................................................... 45
Proxies............................................................................. 46
Solicitation of Proxies............................................................. 48
Independent Accountants............................................................. 48
THE MERGER............................................................................ 49
General............................................................................. 49
Background of the Merger............................................................ 49
Recommendation of the Starwood Lodging Boards; Reasons for the Merger............... 61
Recommendation of the ITT Board; Reasons for the Merger............................. 62
</TABLE>
i
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<TABLE>
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<S> <C>
Opinion of Financial Advisor to Starwood Lodging.................................... 63
Opinion of Financial Advisor to ITT................................................. 67
Opinion of Financial Advisor to the ITT Special Committee........................... 73
Interests of Certain Persons in the Merger.......................................... 77
Accounting Treatment................................................................ 81
Regulatory Approvals................................................................ 81
Votes Required for Approval......................................................... 87
No Dissenters' Rights............................................................... 87
Federal Securities Laws Consequences................................................ 87
THE MERGER AGREEMENT.................................................................. 88
General............................................................................. 88
Effective Time...................................................................... 88
Conversion of Shares................................................................ 88
Election of Stock or Cash........................................................... 90
Proration........................................................................... 90
Exchange of Certificates............................................................ 91
Dividends........................................................................... 92
No Fractional Securities............................................................ 92
ITT Stock Options................................................................... 93
Representations and Warranties...................................................... 94
Business of ITT Pending the Merger.................................................. 95
Business of Starwood Lodging Pending the Merger..................................... 96
Acquisition Proposals............................................................... 96
Certain Transactions................................................................ 98
Indemnification; Directors and Officers Insurance................................... 98
Certain Employee Matters............................................................ 99
Certain Gaming Regulatory Matters................................................... 99
Conditions to the Consummation of the Merger........................................ 100
Termination......................................................................... 102
Certain Fees and Expenses........................................................... 103
Waivers............................................................................. 104
FEDERAL INCOME TAX CONSEQUENCES....................................................... 104
Federal Income Tax Consequences of the Merger....................................... 105
Federal Income Taxation of the Trust................................................ 107
Federal Income Taxation of the Corporation.......................................... 115
Federal Income Taxation of Holders of Paired Shares................................. 115
Information Reporting Requirements and Backup Withholding........................... 118
Federal Income Tax Aspects of the Partnerships and the Subsidiary Entities.......... 119
Tax Allocations with Respect to Contributed Properties.............................. 119
Partnership Anti-Abuse Rule......................................................... 120
Other Tax Consequences.............................................................. 120
AMENDMENTS TO THE DECLARATION OF TRUST OF THE TRUST AND THE ARTICLES OF INCORPORATION
OF THE CORPORATION.................................................................. 120
Authorized Share Amendments......................................................... 121
Gaming Provisions................................................................... 123
Amendment to Change Name of Trust................................................... 124
Votes Required for Approval......................................................... 125
OWNERSHIP OF PAIRED SHARES............................................................ 126
</TABLE>
ii
<PAGE> 10
<TABLE>
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<S> <C>
OWNERSHIP OF ITT COMMON STOCK......................................................... 129
Certain Beneficial Owners........................................................... 129
Directors and Officers.............................................................. 130
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ITT AND STOCKHOLDERS AND SHAREHOLDERS OF
STARWOOD LODGING.................................................................... 131
General............................................................................. 131
Special Meetings of Shareholders and Stockholders................................... 131
Stockholder Action by Written Consent............................................... 131
Stockholder Nominations and Proposals for Business.................................. 132
Certain Extraordinary Transactions.................................................. 133
Limitation on Ownership of Shares of Stock and Beneficial Interest.................. 133
Business Combinations Involving Interested Stockholders............................. 134
Control Share Acquisitions.......................................................... 135
Removal of Directors or Trustees.................................................... 136
Standards of Conduct for Directors and Trustees..................................... 136
Limitation of Liability of Directors, Trustees and Officers......................... 137
Indemnification of Directors, Trustees and Officers................................. 137
Amendments to Governing Documents................................................... 138
Rights Plan......................................................................... 139
Appraisal and Dissenters' Rights.................................................... 139
Dividends and Distributions......................................................... 140
Stockholder and Shareholder Inspection Rights....................................... 140
Classified Board.................................................................... 140
DESCRIPTION OF STARWOOD SECURITIES.................................................... 141
General............................................................................. 141
Preemptive Rights................................................................... 141
Preferred Shares.................................................................... 141
Paired Shares....................................................................... 142
The Pairing Agreement............................................................... 143
Trust Preferred Shares.............................................................. 143
Ownership Limits; Restrictions on Transfer; Repurchase and Redemption of Shares..... 148
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 150
LEGAL MATTERS......................................................................... 150
EXPERTS............................................................................... 150
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETINGS........................................ 151
GLOSSARY OF TERMS..................................................................... 152
Annexes:
Annex A -- The Merger Agreement
Annex B -- Opinion of Bear, Stearns & Co. Inc.
Annex C-1 -- Opinion of Lazard Freres & Co. LLC dated as of January 14, 1998
Annex C-2 -- Opinion of Lazard Freres & Co. LLC dated as of November 12, 1997
Annex C-3 -- Opinion of Gleacher NatWest Inc. dated as of November 12, 1997
Annex D -- Proposed Amendment to the Corporation Articles
</TABLE>
iii
<PAGE> 11
This Joint Proxy Statement/Prospectus contains statements which constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements appear in a number of places in
this Joint Proxy Statement/Prospectus, including, without limitation, under
"Summary," "Anticipated Synergies," "ITT Projections," "Funds From Operations,"
and "The Merger." Such forward-looking statements include statements regarding
the intent, belief or current expectations with respect to the matters discussed
in this Joint Proxy Statement/Prospectus. Shareholders and stockholders are
cautioned that any such forward-looking statements involve risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various uncertainties and other
factors, including, without limitation, completion of the transactions described
herein and future acquisitions, the availability of capital for acquisitions and
for renovations, the ability to maintain existing management, franchise, or
representation agreements and to obtain new agreements on current terms,
competition within the lodging industry and the gaming industry, the cyclicality
of the real estate business, the hotel business and the gaming business, real
estate and economic conditions, the continuing ability of the Trust to qualify
as a REIT and other risks described in this Joint Proxy Statement/Prospectus and
in the annual, quarterly and current reports and proxy statements of the Trust,
the Corporation and ITT incorporated by reference herein, including those
identified in the Starwood Lodging Form 10-K (as defined herein).
AVAILABLE INFORMATION
The Corporation, the Trust and ITT are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy or information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy or information statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy statements
and information statements and other information regarding registrants that file
electronically with the Commission. Starwood Lodging and ITT file electronically
with the Commission. The ITT Common Stock and the Paired Shares are listed on
the New York Stock Exchange, Inc. (the "NYSE"), and such material may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
After consummation of the Merger, ITT may no longer file reports, proxy
statements or other information with the Commission. Instead, such information
would be provided, to the extent required, in filings made by Starwood Lodging.
Starwood Lodging has filed with the Commission a registration statement on
Form S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Paired Shares that will be issued to holders
of ITT Common Stock in connection with the Merger. See "The Merger
Agreement -- Conversion of Shares." This Joint Proxy Statement/Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement filed by Starwood Lodging
with the Commission, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Such additional information is
available for inspection and copying at the offices of the Commission.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated into this Joint Proxy Statement/Prospectus by reference as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
3
<PAGE> 12
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
The following documents previously filed by the Trust and the Corporation
(Commission File Nos. 1-6828 and 1-7959, respectively) with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. The Joint Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended by the Form 10-K/A dated April 25, 1997 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, 1997 and the Form 8-K/A
dated January 7, 1998) and November 13, 1997.
The following documents previously filed by ITT (Commission File No.
1-13960) with the Commission pursuant to the Exchange Act are incorporated
herein by reference:
1. The Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as amended by the Form 10-K/A dated April 30, 1997 and the Form
10-K/A dated January 9, 1998 (collectively, the "ITT Form 10-K").
2. The Quarterly Reports on Form 10-Q filed by ITT for the periods
ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. The Current Reports on Form 8-K dated October 21, 1997 and November
13, 1997.
All documents filed by the Trust, the Corporation and ITT pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Special Meetings shall be deemed to be
incorporated by reference herein and to be part hereof from the date any such
document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded. All information appearing in this Joint Proxy
Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
RELATING TO STARWOOD LODGING AND ITT, RESPECTIVELY, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN, WILL BE
SENT WITHOUT CHARGE BY FIRST CLASS MAIL TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED WITHIN ONE
BUSINESS DAY OF RECEIPT OF A WRITTEN OR ORAL REQUEST, IN THE CASE OF STARWOOD
LODGING, TO SHAREHOLDER RELATIONS, STARWOOD HOTELS & RESORTS TRUST, 2231 E.
CAMELBACK ROAD, SUITE 410, PHOENIX, ARIZONA 85016 (TELEPHONE NUMBER: (602)
852-3900) OR SHAREHOLDER RELATIONS, STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,
2231 E. CAMELBACK ROAD, SUITE 400, PHOENIX, ARIZONA 85016 (TELEPHONE NUMBER:
(602) 852-3900) AND, IN THE CASE OF ITT, TO DIRECTOR OF INVESTOR RELATIONS, ITT
CORPORATION, 1330 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE
FEBRUARY 5, 1998.
4
<PAGE> 13
SUMMARY
Certain significant matters discussed or incorporated by reference in this
Joint Proxy Statement/ Prospectus are summarized below. This summary is not
intended to be complete and is qualified in all respects by reference to the
more detailed information appearing or incorporated by reference in this Joint
Proxy Statement/Prospectus, including Annexes hereto. Shareholders of the Trust
and stockholders of the Corporation and ITT are urged to review carefully the
entire Joint Proxy Statement/Prospectus, including the Annexes hereto, and to
consider carefully the information set forth herein under "Risk Factors."
THE COMPANIES
STARWOOD HOTELS & RESORTS
TRUST
AND STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
2231 E. CAMELBACK ROAD
PHOENIX, ARIZONA 85016
(602) 852-3900
Starwood Lodging is a fully integrated
owner/operator of primarily full service
hotels. Starwood Lodging is comprised of the
Trust, which has owned hotel assets since 1969,
and the Corporation, which has managed hotel
assets since 1980. As of December 31, 1997,
Starwood Lodging owned, operated or 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 or
franchise or management agreements with
national hotel organizations, including Ritz
Carlton, Westin, Marriott, Hilton, Sheraton,
Omni, Doubletree, Embassy Suites, Harvey,
Radisson, Clarion, Holiday Inn, Residence Inn,
Days Inn, Ramada, Quality Inn and Vagabond Inn.
In furtherance of Starwood Lodging's strategy
to enhance, expand and diversify its hotel
portfolio and to develop or acquire a global
brand, on January 2, 1998 Starwood Lodging
acquired Westin Hotels & Resorts Worldwide,
Inc. ("Westin Worldwide") and certain
affiliated entities. As of December 31, 1997,
Westin Worldwide and such affiliated entities
owned, operated, managed or franchised 112
hotel properties containing over 49,200 rooms
located in 23 states, the District of Columbia,
Puerto Rico, Guam, the U.S. Virgin Islands and
21 foreign countries. See "-- Starwood Recent
Developments."
ITT CORPORATION
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-1000
ITT is engaged in the hotels and gaming
business, the telephone directories publishing
business and the post-secondary technical
education business. ITT conducts its hotels and
gaming business through its subsidiaries ITT
Sheraton Corporation ("Sheraton"), Ciga, S.p.A.
("Ciga") and Caesars World, Inc. ("Caesars").
Through the Sheraton, The Luxury Collection,
Ciga, Four Points Hotels and Caesars brand
names, ITT is represented in most major markets
of the world. In 1996, ITT hosted over 50
million customer nights at its hotel properties
in 62 countries. Gaming operations are marketed
under either the Caesars or Sheraton brand name
and service mark and are currently represented
in Las Vegas (Nevada), Atlantic City (New
Jersey), Halifax (Nova Scotia), Sydney (Nova
Scotia), Lake Tahoe (Nevada), Tunica County
(Mississippi), Lima (Peru), Cairo (Egypt),
Windsor (Ontario) and Townsville (Australia).
ITT conducts its telephone directories
publishing business through its subsidiary ITT
World Directories, Inc. ("ITT World
Directories") and its post-secondary technical
education business through its 83.3% owned
subsidiary ITT Educational Services, Inc. ("ITT
Educational").
5
<PAGE> 14
On December 18, 1997, the Corporation announced
that it had reached a binding agreement with
VNU, a leading international publishing and
information company based in The Netherlands,
for the disposition of ITT World Directories
for a total consideration to the Corporation
valued at $2.1 billion. The transaction is
scheduled to close following the ITT Meeting
and prior to the Effective Time. See "-- Recent
Developments -- Disposition of ITT World
Directories."
CHESS ACQUISITION CORP.
C/O STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
2231 E. CAMELBACK ROAD
PHOENIX, ARIZONA 85016
(602) 852-3900
Merger Sub is a subsidiary of the Corporation
that does not conduct any substantial business
activities. All the outstanding shares of
capital stock of Merger Sub are owned by the
Corporation and the Trust. Pursuant to the
Merger Agreement, Merger Sub will be merged
with and into ITT with ITT as the surviving
corporation. As a result of the Merger and
certain post-Merger transactions, ITT will
become a subsidiary of the Corporation.
THE STARWOOD LODGING MEETINGS
DATE, TIME AND PLACE The Trust Meeting and the Corporation Meeting
are to be held on February 18, 1998 at 10:00
a.m. and 10:30 a.m. (local time), respectively,
at the New York Ballroom of the Sheraton New
York Hotel & Towers, 811 Seventh Avenue, New
York, New York.
PURPOSES OF THE STARWOOD
LODGING
MEETINGS The purposes of the Starwood Lodging Meetings
are to consider and vote upon:
1. A proposal to approve the issuance of Trust
Shares and Corporation Shares pursuant to
the Merger Agreement;
2. A proposal to amend the Trust Declaration to
increase the number of authorized shares of
beneficial interest of the Trust (the "Trust
Authorized Share Amendment");
3. A proposal to amend the Trust Declaration to
change the name of the Trust to "Starwood
Hotels & Resorts" (the "Trust Name Change
Proposal");
4. A proposal to amend the Trust Declaration to
include a provision in the Trust Declaration
to provide that in certain circumstances
when the Corporation redeems certain of its
securities, the Trust shall simultaneously
redeem any of its securities that are paired
with such securities of the Corporation (the
"Trust Redemption Amendment");
5. A proposal to amend the Corporation Articles
to increase the number of authorized shares
of stock of the Corporation (the
"Corporation Authorized Share Amendment");
6. A proposal to amend the Corporation Articles
to include a provision in the Corporation
Articles to allow the Corporation to secure
and maintain certain regulatory approvals
issued by certain gaming authorities (the
"Corporation Gaming Provision Amendment");
and
7. Such other business as may properly come
before the Starwood Meetings.
6
<PAGE> 15
Each of the proposals set forth in items 1, 2,
4, 5 and 6 above is necessary in order to
consummate the Merger. If any of such proposals
are not approved by the shareholders of the
Trust and the stockholders of the Corporation,
the Trust and the Corporation do not expect to
consummate the Merger.
RECORD DATES Only holders of record of Trust Shares at the
close of business on January 20, 1998 (the
"Trust Record Date") are entitled to notice of
and to vote at the Trust Meeting and only
holders of record of Corporation Shares at the
close of business on January 20, 1998 (the
"Corporation Record Date") are entitled to
notice of and to vote at the Corporation
Meeting.
RECOMMENDATION OF THE STARWOOD
LODGING BOARDS; REASONS FOR
THE
MERGER THE TRUST BOARD AND THE CORPORATION BOARD HAVE
APPROVED THE SHARES ISSUANCE PROPOSAL AND
RECOMMEND THAT SHAREHOLDERS OF THE TRUST AND
STOCKHOLDERS OF THE CORPORATION VOTE FOR
APPROVAL OF THE SHARES ISSUANCE PROPOSAL. Such
recommendation is based on a number of factors
described herein. See "The
Merger -- Recommendation of the Starwood
Boards; Reasons for the Merger."
THE TRUST BOARD HAS APPROVED THE TRUST
AMENDMENT AND RECOMMENDS THAT SHAREHOLDERS OF
THE TRUST VOTE FOR APPROVAL OF THE TRUST
AMENDMENT. THE CORPORATION BOARD HAS APPROVED
THE CORPORATION AMENDMENT AND RECOMMENDS THAT
STOCKHOLDERS OF THE CORPORATION VOTE FOR THE
CORPORATION AMENDMENT. See "Amendments to the
Declaration of Trust of the Trust and the
Articles of Incorporation of the Corporation."
OPINION OF FINANCIAL ADVISOR
TO STARWOOD LODGING Bear Stearns & Co. Inc. ("Bear Stearns") has
delivered its written opinion to the Starwood
Lodging Boards, a copy of which is attached
hereto as Annex B, to the effect that, based
upon and subject to the various considerations
set forth in such opinion, as of November 12,
1997, the Merger Consideration was fair, from a
financial point of view, to Starwood Lodging
(the "Bear Stearns Opinion"). See "The
Merger -- Opinion of Financial Advisor to
Starwood Lodging."
VOTE REQUIRED FOR APPROVAL
OF THE STARWOOD PROPOSALS Approval of the Shares Issuance Proposal
requires the affirmative vote of a majority of
the votes cast by Trust shareholders and
Corporation stockholders, respectively,
provided that the total votes cast by Trust
shareholders and Corporation stockholders on
the Shares Issuance Proposal represent over 50%
of all securities of each of the Trust and the
Corporation, respectively, entitled to vote on
the Shares Issuance Proposal.
Approval of each of the Trust Authorized Share
Amendment, the Trust Name Change Proposal and
the Trust Redemption Amendment requires the
affirmative vote of the holders of a majority
of the votes entitled to be cast by the holders
of outstanding Trust Shares entitled to vote on
the matter at the Trust Meeting. Approval of
each of the Corporation Authorized Share
Amendment and the Corporation Gaming Provision
Amendment requires the affirmative vote of the
holders of a majority of the outstanding
Corporation Shares entitled to vote on the
matter at the Corporation Meeting.
7
<PAGE> 16
The Trust shareholders who are entitled to vote
include the holders of common shares of
beneficial interest, par value $.01 per share,
of the Trust ("Trust Common Shares") and
holders of Class A Exchangeable Preferred
Shares, par value $.01 per share, of the Trust
(the "Class A EPS") and Class B Exchangeable
Preferred Shares, par value $.01 per share and
stated value $38.50 per share, of the Trust
(the "Class B EPS" and, together with the Class
A EPS, the "Exchangeable Preferred Shares").
At the close of business on the Trust Record
Date, Trustees and executive officers of the
Trust and their affiliates had the right to
vote an aggregate of 173,662 Paired Shares
(less than 1% of the Paired Shares then
outstanding). All such Trustees and executive
officers have indicated that they intend to
vote all such shares held by them in favor of
approval of the Shares Issuance Proposal and
each item included in the Corporation Amendment
and the Trust Amendment. At the close of
business on the Corporation Record Date,
Directors and executive officers of the
Corporation and their affiliates had the right
to vote an aggregate of 265,973 Paired Shares
(less than 1% of the Paired Shares then
outstanding). See "The Meetings -- Voting
Rights." All such Directors and executive
officers have indicated that they intend to
vote all such shares held by them in favor of
approval of the Shares Issuance Proposal and
each item included in the Corporation Amendment
and the Trust Amendment.
THE ITT MEETING
DATE, TIME AND PLACE The ITT Meeting is to be held on February 12,
1998 at 11:30 a.m., local time, at the New York
Ballroom of the Sheraton New York Hotel &
Towers, 811 Seventh Avenue, New York, New York.
PURPOSES OF THE ITT MEETING The purposes of the ITT Meeting are to consider
and vote upon:
1. A proposal to approve the Merger Agreement
(the "ITT Proposal"); and
2. Such other business as may properly come
before the ITT Meeting.
RECORD DATE Only holders of record of ITT Common Stock at
the close of business on December 19, 1997 (the
"ITT Record Date") are entitled to notice of
and to vote at the ITT Meeting.
RECOMMENDATION OF THE
ITT BOARD;
REASONS FOR THE MERGER
THE ITT BOARD HAS UNANIMOUSLY APPROVED THE ITT
PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF ITT VOTE FOR APPROVAL OF THE
ITT PROPOSAL. Such recommendation is based on a
number of factors described herein. See "The
Merger -- Recommendation of the ITT Board;
Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
TO ITT Lazard Freres & Co. LLC ("Lazard Freres") has
delivered its written opinion to the ITT Board
that, as of October 19, 1997 and based on and
subject to certain matters stated therein, the
aggre-
8
<PAGE> 17
gate consideration to be received by
stockholders of ITT pursuant to the Original
Merger Agreement (as defined herein) is fair to
such stockholders from a financial point of
view. Lazard Freres has confirmed its opinion
as of the date of this Joint Proxy Statement/
Prospectus with respect to the consideration to
be received by holders of ITT Common Stock
pursuant to the Merger Agreement, with its
subsequent written opinion dated as of the date
of this Joint Proxy Statement/Prospectus, a
copy of which is attached hereto as Annex C-1.
Additionally, Lazard Freres has delivered its
written opinion to the ITT Board, a copy of
which is attached hereto as Annex C-2, to the
effect that, as of November 12, 1997, based on
and subject to certain matters stated therein,
the consideration to be received by
stockholders of ITT pursuant to the Merger
Agreement is superior to the consideration
proposed to be paid to stockholders of ITT in
the Amended Hilton Transaction (as defined
herein) from a financial point of view. See
"The Merger -- Opinion of Financial Advisor to
ITT."
OPINION OF FINANCIAL ADVISOR
TO THE
ITT SPECIAL COMMITTEE Gleacher NatWest Inc. ("Gleacher NatWest") has
delivered its written opinion to the ITT
Special Committee (as defined herein), a copy
of which is attached hereto as Annex C-3, that,
as of November 12, 1997 and based on and
subject to certain matters stated therein, the
aggregate consideration to be received by
stockholders of ITT pursuant to the Merger
Agreement is fair to such stockholders from a
financial point of view and is superior to the
consideration proposed to be paid to
stockholders of ITT in the Amended Hilton
Transaction from a financial point of view. See
"The Merger -- Opinion of Financial Advisor to
the ITT Special Committee."
VOTE REQUIRED FOR APPROVAL
OF THE ITT PROPOSAL Approval of the ITT Proposal requires the
affirmative vote of the holders of a majority
of the outstanding shares of ITT Common Stock.
At the close of business on the ITT Record
Date, directors and executive officers of ITT
and their affiliates were the beneficial owners
of an aggregate of 780,851 shares of ITT Common
Stock (less than 1% of the ITT Common Stock
then outstanding). See "The Meetings -- Voting
Rights." All such directors and executive
officers have indicated that they intend to
vote all such shares held by them in favor of
approval of the ITT Proposal.
THE MERGER
GENERAL The Merger Agreement provides for the merger of
Merger Sub with and into ITT at the Effective
Time (as defined herein), whereupon the
separate corporate existence of Merger Sub will
cease and ITT will continue as the surviving
corporation. As a result of the Merger, ITT
will be jointly owned by the Trust and the
Corporation. Immediately after the Effective
Time, the Corporation will purchase all the ITT
Common Stock owned by the Trust for a
combination of cash and notes. After such
purchase,
9
<PAGE> 18
ITT will be a wholly-owned subsidiary of the
Corporation and shall succeed to and assume all
the rights and obligations of Merger Sub in
accordance with the Nevada General Corporation
Law (the "NGCL"). See "The Merger."
MERGER CONSIDERATION All shares of ITT Common Stock (including
restricted shares of ITT Common Stock issued
under ITT benefit plans) issued and outstanding
immediately prior to the Effective Time (other
than shares ("Nonparticipating Shares") held by
Starwood Lodging, Merger Sub, ITT or any of
their respective wholly owned subsidiaries)
together with the associated preferred share
purchase right (a "Right") issued pursuant to
the Rights Agreement dated as of November 1,
1995 (the "Rights Agreement"), between ITT and
The Bank of New York, as Rights Agent, shall as
of the Effective Time be converted into the
right to receive cash, Paired Shares or a
combination of cash and Paired Shares with an
aggregate value of $85, subject to certain
collar provisions in the case of stock
consideration. The aggregate number of shares
of ITT Common Stock to be converted into the
right to receive cash shall not exceed 30% nor
be less than 18% of the total number of shares
of ITT Common Stock outstanding immediately
prior to the Effective Time. The aggregate
amount of cash and Paired Shares to be received
by the holders of ITT Common Stock (other than
Nonparticipating Shares) will depend on (i) the
stated preferences of the ITT stockholders on
the Forms of Election and (ii) the proration
procedures described under "The
Merger -- Proration" below. Pursuant to the
Merger Agreement, each holder of ITT Common
Stock will also be entitled to receive for each
share of ITT Common Stock converted in the
Merger additional cash consideration in an
amount equal to the interest that would accrue
(without compounding) on $85 at an annual rate
of 7% during the period from and including
January 31, 1998 to but excluding the date of
closing of the Merger (the "Additional
Payment").
Each share of ITT Common Stock to be converted
in the Merger into Paired Shares shall be
converted as of the Effective Time into a
number of validly issued, fully paid and
nonassessable Paired Shares equal to the
quotient, rounded to the nearest thousandth, or
if there shall not be a nearest thousandth, the
next higher thousandth, of (x) $85 divided by
(y) the Market Price (as defined below) of
Paired Shares on the fifth NYSE trading day
prior to the date of the ITT Meeting (the
"Exchange Ratio"); provided, however, that in
no event shall the Exchange Ratio be (A)
greater than an amount equal to $85 divided by
$53.263 or (B) less than an amount equal to $85
divided by $61.263. The "Market Price" of a
Paired Share on any date means the average of
the Average Prices (as defined below) for the
20 NYSE trading days randomly selected by a
neutral independent accounting firm appointed
by mutual agreement of the Trust and ITT from
the 30 consecutive NYSE trading days
immediately preceding such date. The "Average
Price" for any date means the average of the
daily high and low prices per Paired Share as
reported on the NYSE Composite Transactions
reporting system (as published in The Wall
Street
10
<PAGE> 19
Journal or, if not published therein, in
another authoritative source mutually selected
by ITT and the Corporation). See "Risk
Factors -- Market Price May Be Different Than
Price Per Paired Share at Effective Time" and
"The Merger Agreement -- Conversion of Shares."
If the Market Price is below $53.263, the
combination of cash and Paired Shares that ITT
stockholders will receive in the Merger may
have a value of less than $85 and if the Market
Price is above $61.263, the combination of cash
and Paired Shares that ITT stockholders will
receive in the Merger may have a value greater
than $85. If the Market Price is between
$53.263 and $61.263, the combination of cash
and Paired Shares that ITT stockholders will
receive in the Merger may have a value of $85.
ITT stockholders will not know whether the cash
or stock to be paid in the Merger will be
prorated at the time of the ITT Meeting;
therefore, if the Market Price is below $53.263
or above $61.263, ITT stockholders will not
know the total value of the consideration they
will receive at the time of the ITT Meeting.
See "Risk Factors -- If the Paired Shares Trade
Below Collar, Consideration Paid May be Below
$85." On January 12, 1998, the most recent
practicable date prior to the printing of this
Joint Proxy Statement/Prospectus, the last sale
price per Paired Share as reported in the NYSE
Composite Transactions Tape was $52.9375.
Assuming all stockholders of ITT elect to have
their ITT Common Stock converted into cash in
the Merger, the stockholders of ITT will
receive consideration with a value equal to the
amount set forth in the table below if the
Market Price equals the following amounts:
<TABLE>
<CAPTION>
AMOUNT OF VALUE OF TOTAL
CASH RECEIVED PAIRED SHARES VALUE OF
MARKET PRICE IN MERGER RECEIVED IN MERGER* CONSIDERATION
------------ ------------- ------------------- -------------
<S> <C> <C> <C>
$52.263 $25.50 $58.38 $83.88
$52.763 $25.50 $58.94 $84.44
$53.263 $25.50 $59.50 $85.00
$53.28** $25.50 $59.50 $85.00
$54.263 $25.50 $59.50 $85.00
$55.263 $25.50 $59.50 $85.00
$55.367*** $25.50 $59.50 $85.00
$56.263 $25.50 $59.50 $85.00
$57.263 $25.50 $59.50 $85.00
$58.263 $25.50 $59.50 $85.00
</TABLE>
------------------------------------------------
* Assumes the price per Paired Share at the
Effective Time equals the Market Price. The
Market Price may not equal the price per
Paired Share at the Effective Time because
(i) the Market Price is calculated by
randomly selecting 20 days out of the 30
consecutive trading day period ending five
business days prior to the date of the ITT
Meeting and (ii) the price per Paried Share
may fluctuate between the date the Market
Price is determined and the Effective Time.
11
<PAGE> 20
** Average of the daily high and low prices
per Paired Share as reported on the NYSE
Composite Transaction Tape for the 30
consecutive trading days ending January 12,
1998.
*** Closing price per Paired Share on January
12, 1998 as reported on the NYSE Composite
Transaction Tape.
Starwood Lodging has established a toll-free
telephone number (1-800-347-4750) to enable
stockholders of ITT and shareholders and
stockholders of Starwood Lodging to receive
information regarding the Exchange Ratio.
Commencing January 15, 1998 and ending on
February 17, 1998, stockholders are encouraged
to call such telephone number to listen to a
recorded message indicating what the Exchange
Ratio would be as of the date of such call,
based on the average of the Average Prices of
Paired Shares during the 30 consecutive trading
days ending as of the day prior to such call.
Commencing on February 5, 1998, stockholders
will be able to call in and obtain the actual
Exchange Ratio. Because the Market Price upon
which the actual Exchange Ratio will be based
cannot be finally determined until the close of
trading on February 4, 1998, callers to such
toll-free number prior to February 5, 1998
should bear in mind that the actual Exchange
Ratio may vary from the illustrative Exchange
Ratio indicated on such recorded message prior
to February 5, 1998 because (i) of fluctuations
in the trading price of Paired Shares during
the 30 days ending on February 4, 1998 and (ii)
the Exchange Ratio is calculated by randomly
selecting 20 out of the 30 consecutive trading
days ending on February 4, 1998. If ITT
stockholders have questions about the Form of
Election or the election procedures they may
call the Information Agent toll free at
1-800-290-6428.
For a more detailed explanation of the method
by which the Exchange Ratio will be determined,
see "The Merger Agreement -- Exchange of
Certificates."
ELECTIONS BY ITT
STOCKHOLDERS Each ITT stockholder is requested to submit a
Form of Election to make an election (an
"Election") specifying the number of shares of
ITT Common Stock which such stockholder desires
to have converted into Paired Shares in the
Merger (a "Stock Election") and the number of
shares of ITT Common Stock which such
stockholder desires to have converted into cash
in the Merger (a "Cash Election"). A Form of
Election will be mailed separately to ITT
stockholders. A Stock Election or Cash Election
will be valid only if the Form of Election and
the certificates representing the shares
covered thereby (or an appropriate guarantee of
delivery of such certificate or certificates as
set forth in such Form of Election) are
received by ChaseMellon Shareholder Services,
L.L.C. (the "Exchange Agent") by 5:00 p.m., New
York City time, on February 11, 1998 (the
"Election Date"). See "The Merger Agreement --
Election of Stock or Cash."
The Merger Agreement limits the aggregate
amount of cash available ("Available Cash") to
ITT stockholders to the product of (x) $85 and
(y) 30% of the total number of shares of ITT
Common Stock outstanding immediately prior to
the Effective Time (as defined herein). If Cash
Elections are received for shares
12
<PAGE> 21
representing more than 30% of the total number
of outstanding shares of ITT Common Stock, the
Available Cash will be prorated among those
shares of ITT Common Stock for which Cash
Elections have been made. The Merger Agreement
also limits the aggregate number of Paired
Shares available ("Available Shares") to ITT
stockholders to the product of (x) the Exchange
Ratio and (y) 82% of the total number of shares
of ITT Common Stock outstanding immediately
prior to the Effective Time. Because the cash
available to ITT stockholders in the Merger
will not be less than 18% nor exceed 30% of the
total number of outstanding shares of ITT
Common Stock, ITT stockholders making Cash
Elections may receive Paired Shares instead of
cash for some of the shares of ITT Common Stock
covered by such Cash Election if Cash Elections
are received for a number of shares of ITT
Common Stock in excess of 30% of the total
number of outstanding shares of ITT Common
Stock. Similarly, ITT stockholders making Stock
Elections may receive cash instead of Paired
Shares for some of the shares of ITT Common
Stock covered by such Stock Election if Stock
Elections are received for more than 82% of the
total number of outstanding shares of ITT
Common Stock. At the time of the ITT Meeting,
ITT stockholders will not know the number of
Cash Elections or Stock Elections that have
been made or whether the Available Cash or
Available Shares will be prorated. See "Risk
Factors -- Election of Cash or Stock Dependent
on Elections of Others" and "The Merger
Agreement -- Proration."
STOCKHOLDERS OF ITT SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXIES. ITT COMMON
STOCK CERTIFICATES WILL BE EXCHANGED FOR THE
CONSIDERATION PAYABLE IN THE MERGER FOLLOWING
CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
THE TERMS OF THE MERGER AGREEMENT AND THE FORM
OF ELECTION.
A FORM OF ELECTION WILL BE MAILED SEPARATELY TO
EACH PERSON WHO IS A HOLDER OF OUTSTANDING
SHARES OF ITT COMMON STOCK ON THE ITT RECORD
DATE AND, UPON REQUEST TO THE EXCHANGE AGENT,
WILL BE MAILED TO EACH PERSON WHO BECOMES A
HOLDER OR BENEFICIAL OWNER OF ITT COMMON STOCK
PRIOR TO THE ELECTION DATE.
CONDITIONS TO THE MERGER The obligations of the Starwood Companies and
ITT to consummate the Merger are subject to the
satisfaction or waiver of various conditions,
including, without limitation, approval by
stockholders of ITT and the stockholders and
shareholders of Starwood Lodging and receipt of
certain regulatory approvals and consents. See
"The Merger Agreement -- Conditions to
Consummation of the Merger."
NO DISSENTERS' RIGHTS Under Nevada law, holders of ITT Common Stock
are not entitled to dissent from the Merger and
obtain a valuation of their shares of ITT
Common Stock in connection with the Merger
because ITT Common Stock was listed on the NYSE
on the ITT Record Date and the Paired Shares
that such holders will be entitled to receive
in the Merger will be listed on the NYSE at the
Effective Time. Holders of Paired Shares are
not entitled to dissenters' rights under
Maryland law in connection with the Merger
because neither the
13
<PAGE> 22
Corporation nor the Trust is a constituent
corporation in the Merger. See "The
Merger -- No Dissenters' Rights."
ACQUISITION PROPOSALS The Merger Agreement provides that, subject to
the exercise of the fiduciary duties of the ITT
Board, ITT will not, nor will it permit any of
its subsidiaries to, nor will it authorize or
permit any officer, director or employee of or
any investment banker, attorney, accountant,
agent or other advisor or representative of ITT
or any of its subsidiaries to, (i) solicit,
initiate or encourage the submission of, any
takeover proposal (as defined herein), (ii)
except to the extent permitted by the Merger
Agreement, enter into any agreement with
respect to any takeover proposal or (iii)
participate in any discussions or negotiations
regarding, or furnish to any person any
information with respect to, or take any other
action to facilitate any inquiries or the
making of any proposal that constitutes, or may
reasonably be expected to lead to, any takeover
proposal. See "The Merger
Agreement -- Acquisition Proposals."
RIGHT OF ITT BOARD TO
WITHDRAW RECOMMENDATION Subject to the exercise of the fiduciary duties
of the ITT Board, the Merger Agreement provides
that neither the ITT Board nor any committee
thereof will (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to
the Corporation, the Trust or Merger Sub, the
approval or recommendation by the ITT Board or
any such committee of the Merger Agreement or
the Merger or (ii) approve or recommend, or
propose to approve or recommend, any takeover
proposal. See "The Merger
Agreement -- Acquisition Proposals."
TERMINATION The Merger Agreement may be terminated at any
time prior to the Effective Time whether before
or after the approval by the stockholders of
ITT or the shareholders or stockholders of
Starwood Lodging (a) by mutual written consent
of Starwood Lodging and ITT; (b) by either
Starwood Lodging or ITT if there has been a
material breach of the representations,
warranties, covenants and agreements on the
part of the other set forth in the Merger
Agreement; (c) by either Starwood Lodging or
ITT if any permanent order, decree, ruling or
other action of a court or other competent
authority restraining, enjoining or otherwise
preventing the consummation of the Merger shall
have become final and non-appealable; (d)
subject to certain limitations, by either
Starwood Lodging or ITT if the Merger shall not
have been consummated before December 31, 1998;
(e) by either Starwood Lodging or, subject to
certain conditions, the ITT Board if any
required approval of the Merger by the
stockholders of ITT shall not have been
obtained by reason of the failure to obtain the
required vote at a duly held meeting of such
stockholders or at any adjournment thereof; (f)
by the Starwood Companies if the ITT Board
shall or shall resolve to (i) not recommend, or
withdraw its approval or recommendation of, the
Merger, the Merger Agreement or any of the
transactions contemplated by the Merger
Agreement, (ii) modify such approval or
recommendation in a manner adverse to the
Corporation, Merger Sub or the Trust or (iii)
approve or recommend a superior proposal; (g)
by the ITT Board if (i) the ITT Board approves
or recommends a superior proposal; and (ii) ITT
has paid to the Corporation an amount in cash
equal to the sum of the Termina-
14
<PAGE> 23
tion Fee plus all Expenses; or (h) by either
Starwood Lodging or the ITT Board if the
approval of the Shares Issuance Proposal, the
Trust Amendment and the Corporation Amendment
by the shareholders of the Trust or the
stockholders of the Corporation shall not have
been obtained by reason of the failure to
obtain the required vote at a duly held meeting
of such shareholders or stockholders. See "The
Merger Agreement -- Termination."
CERTAIN FEES AND EXPENSES The Merger Agreement provides that, except as
described below, whether or not the Merger is
consummated, all costs and expenses incurred in
connection with the Merger Agreement and the
transactions contemplated thereby, including
the fees and disbursements of counsel,
financial advisors and accountants, will be
paid by the party incurring such costs and
expenses, except that expenses incurred in
connection with printing and mailing this Joint
Proxy Statement/Prospectus and the Registration
Statement will be borne equally by the
Corporation and ITT.
Provided that none of the Corporation, Merger
Sub or the Trust is in material breach of their
representations, warranties and agreements
under the Merger Agreement, (i) if the Merger
Agreement is terminated by the ITT Board
pursuant to clause (g) under "-- Termination"
above, (ii) if the Merger Agreement is
terminated by Starwood Lodging pursuant to
clause (b) under "-- Termination" above, (iii)
if the Merger Agreement is terminated by
Starwood Lodging pursuant to clause (f) under
"-- Termination" above, or (iv) if (A) after
the date of the Original Merger Agreement (as
hereafter defined), (x) any person or group
shall have made or indicated an intention to
make or amend or modify (whether or not subject
to conditions) a takeover proposal or (y) it
shall have been publicly disclosed or the
Corporation shall have otherwise learned that
any person or group has beneficial ownership of
more than 15% of the outstanding shares of ITT
Common Stock or (z) the Corporation has the
right to terminate the Merger Agreement
pursuant to clause (f) under "-- Termination"
above because the ITT Board shall or shall
resolve to take an action referred to therein
and (B) the stockholders of ITT do not approve
the Merger at the ITT Meeting or the Merger
Agreement is terminated prior to the ITT
Meeting, then ITT shall pay to the Corporation
$225 million (the "Termination Fee") plus all
Expenses on the date of such termination.
If the Merger Agreement is terminated for any
reason (other than by ITT in the event of
breach by Starwood Lodging), then ITT shall, on
the date of such termination, pay to the
Corporation the cash amount necessary to permit
the Corporation fully to reimburse itself,
Merger Sub and the Trust and their affiliates
for all Expenses. "Expenses" means all fees and
expenses payable to banks, investment banking
firms and other financial institutions and
their respective counsel, accountants and
agents in connection with arranging or
providing financing and all fees and expenses
of counsel in connection with any litigation
and up to $25 million of additional
out-of-pocket fees and expenses incurred at any
time prior to such termination by the Starwood
Companies or on their
15
<PAGE> 24
behalf in connection with the Merger, the
preparation of the Merger Agreement and the
transactions contemplated by the Merger
Agreement (including any currency or interest
rate hedging activities in connection with the
transactions contemplated by the Merger
Agreement), including all fees and expenses of
counsel, investment banking firms, financial
advisors, accountants, experts and consultants
to the Corporation, Merger Sub and the Trust or
any of their affiliates. See "The Merger
Agreement -- Certain Fees and Expenses."
POTENTIAL CONFLICTS OF
INTEREST In considering the recommendation of the ITT
Board, ITT stockholders should be aware that
certain members of ITT's management and the ITT
Board may have interests in the Merger that are
different from, or in addition to, the
interests of ITT stockholders generally, and
that may create potential conflicts of
interest. Two executive officers of ITT, Mr.
Araskog and Mr. Bowman, are members of the ITT
Board that approved the Merger. Directors,
officers and employees of ITT have certain
rights with respect to stock options and stock
appreciation rights, severance provisions under
existing employment contracts and
indemnification, exculpation and insurance in
connection with the Merger.
Holders of all awards of stock options and
related stock appreciation rights outstanding
at the Effective Time under any equity-based
incentive award plan maintained by ITT will
have the option to convert such awards into
similar awards with respect to the number of
Paired Shares determined by multiplying (i) the
number of shares of ITT Common Stock subject to
such option or right by (ii) the Exchange
Ratio, at an exercise price per Paired Share
equal to the difference between (A) the
exercise price per share of ITT Common Stock
immediately prior to the Effective Time divided
by the Exchange Ratio and (B) the amount, if
any, of the Additional Payment payable per
share of ITT Common Stock pursuant to the
Merger Agreement divided by the Exchange Ratio.
The vesting of such equity-based awards will be
accelerated upon consummation of the Merger in
accordance with their terms.
The following tables set forth as of December
31, 1997 the number of stock options, stock
appreciation rights and shares of restricted
stock held by executive officers and directors
of ITT.
STOCK OPTIONS
<TABLE>
<CAPTION>
NUMBER OF DATE OF EXERCISE
NAME SHARES GRANT PRICE
------------------------- ---------- ------------------- --------
<S> <C> <C> <C>
Rand V. Araskog.......... 336,675 October 14, 1993 $35.23
429,971 October 11, 1994 $35.17
429,971 May 9, 1995 $45.53
150,000 February 6, 1996 $55.88
162,500 February 4, 1997 $56.75
</TABLE>
16
<PAGE> 25
<TABLE>
<CAPTION>
NUMBER OF DATE OF EXERCISE
NAME SHARES GRANT PRICE
------------------------- ---------- ------------------- --------
<S> <C> <C> <C>
Robert A. Bowman......... 26,111 May 7, 1991 $22.74
39,168 December 12, 1991 $19.53
13,057 September 15, 1992 $25.04
26,111 February 1, 1993 $27.81
130,558 October 14, 1993 $35.23
143,324 October 11, 1994 $35.17
143,324 May 9, 1995 $45.53
100,000 February 6, 1996 $55.88
108,300 February 4, 1997 $56.75
Ann N. Reese............. 13,057 December 11, 1990 $18.62
14,884 December 12, 1991 $19.53
65,279 October 14, 1993 $35.23
71,662 October 11, 1994 $35.17
71,662 May 9, 1995 $45.53
40,000 February 6, 1996 $55.88
43,300 February 4, 1997 $56.75
Richard S. Ward.......... 29,506 December 12, 1991 $19.53
65,279 October 14, 1993 $35.23
83,605 October 11, 1994 $35.17
83,605 May 9, 1995 $45.53
40,000 February 6, 1996 $55.88
43,300 February 4, 1997 $56.75
</TABLE>
In addition, on January 13, 1998, the ITT
Board, upon the recommendation of its
Compensation and Personnel Committee, issued
162,500 stock options to Rand V. Araskog,
50,000 stock options to Ann N. Reese and 50,000
stock options to Richard S. Ward. These options
have an exercise price equal to $85 per share
of ITT Common Stock or the "Formula Price" per
share determined in accordance with ITT's
existing stock option plan.
17
<PAGE> 26
RESTRICTED STOCK AWARDS
<TABLE>
<CAPTION>
NUMBER OF DATE OF
NAME SHARES GRANT
---------------------------------- --------- ------------------
<S> <C> <C>
Rand V. Araskog................... 59,718 May 9, 1995
Robert A. Bowman.................. 23,887 May 9, 1995
Ann N. Reese...................... 11,944 May 9, 1995
Richard S. Ward................... 5,972 May 9, 1995
Bette B. Anderson................. 811 May 14, 1995
633 November 12, 1997
Nolan Archibald................... 811 May 14, 1996
633 November 12, 1997
Robert A. Burnett................. 811 May 14, 1996
633 November 12, 1997
Paul G. Kirk...................... 811 May 14, 1996
633 November 12, 1997
Edward C. Meyer................... 811 May 14, 1996
633 November 12, 1997
Benjamin F. Payton................ 811 May 14, 1996
633 November 12, 1997
Margita E. White.................. 811 May 14, 1996
633 November 12, 1997
Vin Weber......................... 744 May 14, 1996
633 November 12, 1997
Kendrick R. Wilson III............ 744 May 14, 1996
633 November 12, 1997
</TABLE>
ITT is a party to severance agreements with the
following individuals who are executive
officers of ITT: Robert A. Bowman, Ann N. Reese
and Richard S. Ward. If these individuals are
terminated under certain circumstances or
terminate their employment under certain
circumstances within two years following a
change of control (including the Merger), they
will be entitled to (i) a lump sum equal to (A)
three times their annual base salary in effect
immediately prior to termination and (B) three
times the highest bonus paid to them under
ITT's compensation plans in respect of the
three years immediately preceding the change of
control and (ii) certain welfare benefits,
fringe benefits, perquisites and outplacement
services. Each of the severance agreements
provides that if any payment made under it to
an executive would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (the
"Excise Tax"), then the executive shall be
entitled to receive from ITT an additional
payment (the "Gross-up Payment") in an amount
such that the net amount of such payment and
the Gross-up Payment retained by the executive,
after the calculation and deduction of Excise
Taxes (including any interest or penalties
imposed with respect to such taxes) on such
payment and all federal, state and local income
tax, employment tax and Excise Tax (including
any interest or penalties imposed with respect
to such taxes) on the Gross-up Payment, shall
be equal to such payment.
ITT is a party to an employment agreement with
Rand V. Araskog, Chairman and Chief Executive
of ITT, that provides for, among other things:
(i) a base salary of $2 million per year, a
bonus and additional incentive compensation as
may be awarded in the
18
<PAGE> 27
discretion of ITT's Compensation and Personnel
Committee and certain benefits and (ii) Mr.
Araskog's service as a consultant from November
1, 2000 through October 31, 2003 for a fee of
not less than $400,000 per year. If Mr. Araskog
is involuntarily terminated other than for
cause or he terminates his employment for good
reason within two years following a change in
control (including the Merger), he will receive
a lump sum equal to the remaining payments owed
to him for the respective employment and
consulting terms. Mr. Araskog's employment
agreement provides for Gross-up Payments
similar to those contained in the severance
agreements described above.
The aggregate amount of all severance payments
ITT would make under the agreements described
above, assuming all parties thereto were
terminated after consummation of the Merger,
would be approximately $68 million.
Under the Merger Agreement, (i) all rights to
indemnification and exculpation from
liabilities existing in favor of the current or
former directors or officers of ITT and its
subsidiaries will be assumed by Starwood
Lodging and continue in effect and (ii) for six
years after the Effective Time, Starwood
Lodging will provide substantially similar
directors' and officers' liability insurance to
those persons who were covered by ITT's
directors' and officers' liability insurance
policy.
See "The Merger -- Interests of Certain Persons
in the Merger -- Benefits to Directors and
Employees of ITT."
In considering the recommendations of the
Starwood Lodging Boards, shareholders and
stockholders of Starwood Lodging should be
aware that, as described below, certain members
of Starwood Lodging's management and the
Starwood Boards may have interests in the
Merger that are different from, or in addition
to, the interests of Starwood Lodging
shareholders and stockholders generally, and
that may create potential conflicts of
interest. Starwood Lodging engaged Starwood
Capital Group, L.L.C. ("Starwood Capital") as
its financial advisor in connection with the
transactions contemplated by the Merger
Agreement. Starwood Capital will receive a fee
of $17.5 million (of which $10.5 million will
be paid in cash and $7 million will be paid in
Paired Shares) plus a tax gross-up payment in
an amount not to exceed $5 million upon the
closing of the Merger as full consideration for
services rendered in connection with such
transactions. In connection with its engagement
as financial advisor, Starwood Capital's
principals led the structuring and negotiations
of the Merger, conducted and coordinated the
due diligence investigation, advised and
procured financing, oversaw the implementation
of the public and investor relations and
political lobbying campaigns, coordinated the
receipt of gaming regulatory approvals and
coordinated legal and tax advice. In addition,
Starwood Capital's principals have led and
continue to lead negotiations for the
disposition of non-strategic ITT assets,
including the disposition of ITT World
Directories, and are advising Starwood Lodging
with respect to the integration of both ITT and
Westin into Starwood Lodging.
19
<PAGE> 28
In accordance with the change in control
provisions of the Long-Term Incentive Plan of
the Trust and the Long-Term Incentive Plan of
the Corporation, all options to purchase Paired
Shares ("Paired Options") granted under such
plans will become immediately exercisable for
the full amount of Paired Shares subject
thereto and all restricted stock awards
("Restricted Stock Awards") granted thereunder
will immediately vest in full at the closing of
the Merger. Paired Options granted to
non-employee Directors and Trustees as board
compensation are vested at the time of grant.
Excluding non-employee Directors and Trustees
that only hold vested Paired Options which they
have received as board compensation, Directors,
Trustees and executive officers of Starwood
Lodging hold Paired Options as follows:
PAIRED OPTIONS
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF EXERCISE
NAME PAIRED SHARES PRICE
------------------------------------- ------------- --------
<S> <C> <C>
Ronald C. Brown...................... 201,847 $26.32
Eric A. Danziger..................... 300,000 $24.28
Theodore W. Darnall.................. 190,000 $29.32
Jonathan D. Eilian................... 120,000 $18.28
Steven R. Goldman.................... 209,000 $27.56
Madison F. Grose..................... 120,000 $18.28
Gary M. Mendell...................... 300,000 $37.42
Alan M. Schnaid...................... 39,250 $37.29
Barry S. Sternlicht.................. 2,579,500 $26.26
</TABLE>
Directors, Trustees and executive officers of
Starwood Lodging hold Restricted Stock Awards
as follows:
RESTRICTED STOCK AWARDS
<TABLE>
<CAPTION>
NUMBER OF
NAME PAIRED SHARES
-------------------------------------------- -------------
<S> <C>
Ronald C. Brown............................. 22,500
Eric A. Danziger............................ 100,223
Theodore W. Darnall......................... 45,284
Steven R. Goldman........................... 37,500
Madison F. Grose............................ 15,000
Barry S. Sternlicht......................... 45,000
</TABLE>
Under an employment agreement between the Trust
and Barry S. Sternlicht dated as of June 30,
1997, if Mr. Sternlicht's employment is
terminated by the Trust for a reason other than
cause or is terminated by him for "good
reason," Mr. Sternlicht is entitled to
severance pay equal to two years' base salary,
the immediate vesting of all options and other
awards under the Trust's 1995 Long-Term
Incentive Plan and 1995 Share Option Plan and
medical insurance benefits at the Trust's
expense for 12 months following such
termination. A termination of employment by Mr.
Sternlicht following the consummation of the
Merger would constitute a termination for "good
reason" for this purpose. If Mr. Sternlicht
terminated employment with the Trust for good
reason in 1997, he would receive severance pay
under such agreement in an amount equal to
$730,000, and the following Paired Options and
other awards granted to Mr. Sternlicht set
forth above
20
<PAGE> 29
would become vested. See "The
Merger -- Interests of Certain Persons in the
Merger -- Benefits to Insiders of Starwood
Lodging."
REGULATORY APPROVALS The consummation of the Merger is subject to
approval of gaming regulators in various
jurisdictions in which ITT operates, the
Federal Communications Commission and the U.S.
Department of Education, certain state
educational regulators and certain non-
governmental educational accrediting
commissions. On December 21, 1997 the Antitrust
Division of the Department of Justice and the
Federal Trade Commission granted early
termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). See "The
Merger -- Regulatory Approvals."
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES ITT Stockholders. A stockholder of ITT
generally will recognize gain in the Merger in
an amount equal to the excess, if any, of (a)
the amount of cash and the fair market value of
the Paired Shares received over (b) such
stockholder's adjusted basis in ITT Common
Stock exchanged therefor. A stockholder of ITT
generally will recognize loss in the Merger in
an amount equal to the excess, if any, of (a)
such stockholder's adjusted basis in his or her
ITT Common Stock over (b) the amount of cash
and the fair market value of the Paired Shares
received in exchange therefor. Certain
stockholders of ITT may recognize ordinary
income as a result of the Merger. See "Federal
Income Tax Consequences -- Federal Income Tax
Consequences of the Merger."
Starwood Lodging. No gain or loss generally
will be recognized by the Trust, the
Corporation, the shareholders of the Trust or
the stockholders of the Corporation as a result
of the Merger. See "Federal Income Tax
Consequences."
REIT Status of the Trust. The Trust has
elected to be taxed as a real estate investment
trust ("REIT") under the Code, commencing with
its taxable year ended December 31, 1995. The
Trust expects to continue to operate in a
manner so as to qualify for taxation as a REIT
after the Merger. The Trust's ability to
qualify for taxation as a REIT depends on the
Trust's ability to meet certain distribution
levels, specified diversity of stock ownership,
specified income and asset tests and various
other qualification tests imposed under the
Code. No assurance can be given that the Trust
will in all events be able to continue to
qualify as a REIT. See "Federal Income Tax
Consequences -- Federal Income Taxation of the
Trust." Immediately after the Effective Time,
the ITT Common Stock acquired by the Trust will
be sold to the Corporation for a combination of
cash and notes secured by mortgages on real
estate owned by ITT. If such sale does not
occur by the end of the first calendar quarter
ending after the Effective Time or if
substantially all of such notes are not secured
by mortgages on real estate, then the Trust
would lose its REIT status. See "Federal Income
Tax Consequences -- Federal Income Tax
Consequences to ITT, the Trust, the Corporation
and the Shareholders and Stockholders of
Starwood Lodging."
21
<PAGE> 30
Shareholders of Starwood Lodging May Be Taxed
as a Result of the Merger. Stockholders of ITT
and shareholders and stockholders of Starwood
Lodging may, in certain circumstances, be
deemed to have received distributions in excess
of the amount of cash received. Such deemed
distributions would be taxable as dividends to
the extent of the allocable portion of the
distributing entity's earnings and profits. See
"Federal Income Tax Consequences -- Federal
Income Tax Consequences of the Merger."
ACCOUNTING TREATMENT The Merger is expected to be accounted for
using purchase accounting, with ITT being
deemed to have acquired Starwood Lodging.
SUMMARY RISK FACTORS
In considering whether to approve the various matters to be considered at
the Special Meetings, the stockholders of ITT and the shareholders and
stockholders of Starwood Lodging should consider that: (i) ITT stockholders
making Cash Elections or Stock Elections may not receive the form of
consideration they elect; (ii) if the Market Price is below $53.263, the
combination of cash and Paired Shares that ITT stockholders will receive in the
Merger may have a value of less than $85 per share of ITT Common Stock; (iii) if
the price of the Paired Shares changes during the period after the Exchange
Ratio is calculated and before the Closing Date (as defined herein), the value
of the consideration to be received by ITT stockholders may be more or less than
$85 per share of ITT Common Stock depending on the direction of the price
movement; (iv) the Starwood Lodging stockholders existing before the Merger will
own approximately one-third, and the ITT stockholders will own approximately
two-thirds, of the outstanding Paired Shares after the Merger; (v) there can be
no assurance that Starwood Lodging will be able to integrate the operations of
Westin, ITT and Starwood Lodging successfully or that anticipated synergies
between the companies will be realized or, if realized, the timing thereof; (vi)
there can be no assurance that Starwood Lodging's senior management will be able
to successfully execute or implement Starwood Lodging's growth and operating
strategies; (vii) there can be no assurance that the price of the Paired Shares
and/or the shares of ITT Common Stock will not decline between the date of this
Joint Proxy Statement/Prospectus and the Effective Time; (viii) the rights of
holders of Paired Shares are different from, and in some cases not as favorable
as, the rights of holders of ITT Common Stock; (ix) there can be no assurance
that the Trust will remain qualified as a REIT; (x) there can be no assurance
that new legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to paired
REITs; (xi) in order to retain REIT status, the Trust must make certain
mandatory distributions and the Trust could be required to make uneconomical
borrowings to make such distributions; (xii) certain provisions of the Trust
Declaration and the Corporation Articles may inhibit an unsolicited change in
control under certain circumstances; (xiii) the Trust Declaration and the
Corporation Articles contain provisions prohibiting the ownership by any one
person or group of related persons of more than 8% of the Paired Shares; (xiv)
Starwood Capital will be able to exercise certain influence over the affairs of
Starwood Lodging; (xv) in connection with its proposed acquisitions of Westin
and ITT, Starwood Lodging will incur a substantial amount of additional debt,
thereby increasing its exposure to the risks associated with debt financing; and
(xvi) the hotel industry and the real estate industry are subject to varying
degrees of risk. See "Risk Factors."
22
<PAGE> 31
RECENT DEVELOPMENTS
DISPOSITION OF ITT WORLD DIRECTORIES
On December 18, 1997, the Corporation announced that it had reached a
binding agreement with VNU, a leading international publishing and information
company based in The Netherlands, for the disposition of ITT World Directories
for a total consideration to the Corporation valued at $2.1 billion. The
transaction is scheduled to close following the ITT Meeting and prior to the
Effective Time and is contingent upon certain customary closing conditions. The
proceeds from the sale of ITT World Directories will be used in part to pay down
Starwood Lodging's debt incurred to fund the acquisition of ITT. On January 13,
1998, the ITT Board authorized ITT to become a party to, and close, the VNU
transaction prior to the Effective Time of the Merger, subject to the approval
of the Merger by the stockholders of ITT and Starwood Lodging and appropriate
documentation.
POTENTIAL DISPOSITION OF ITT EDUCATIONAL
Starwood Lodging is exploring a range of disposition strategies for ITT
Educational, including a public offering of securities of ITT Educational and/or
the issuance of debt securities of Starwood Lodging which are convertible into
or exchangeable for securities of ITT Educational.
ACQUISITION OF WESTIN
On January 2, 1998, pursuant to a Transaction Agreement (the "Transaction
Agreement") among the Trust, SLT Realty Limited Partnership (the "Realty
Partnership"), the Corporation and SLC Operating Limited Partnership (the
"Operating Partnership" and, together with the Trust, the Realty Partnership and
the Corporation, the "Starwood Entities"), WHWE L.L.C. ("WHWE"), Woodstar
Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation ("Nomura"),
Juergen Bartels ("Bartels" and, together with WHWE, Woodstar and Nomura, the
"Members"), Westin Worldwide, W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle
Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver
Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta" and, together with Westin
Worldwide, Lauderdale, Seattle, St. John and Denver, "Westin") and W&S Hotel
L.L.C., the Starwood Entities acquired Westin (the "Westin Acquisition"). At the
annual meeting of shareholders of the Trust and the annual meeting of the
stockholders of the Corporation held on December 12, 1997, the shareholders and
stockholders of the Trust and Corporation, respectively, approved the Westin
Acquisition.
Westin
As of December 31, 1997, Westin owned, managed, franchised or represented
112 first class hotel and resort properties worldwide. Westin's primary business
strategy is to provide, for its own hotels and to the other owners of Westin's
hotel and resort properties, focused, responsive, high quality marketing,
reservations, management and, as appropriate, franchise services that are
designed to increase the operating revenues and profitability of the properties
and to increase hotel and resort customer satisfaction.
Westin was rated the highest among 11 U.S. upscale hotel chains in the 1997
Frequent Flier Magazine/JD Power and Associates Domestic Hotel Guest
Satisfaction Study, which surveyed over 6,000 business travelers in 1996 as to
certain aspects of a guest's stay.
Of the 108 Westin properties worldwide, 60 are managed (of which Westin has
a controlling or significant ownership in 11 and of which Westin has a minority
interest in 5), 36 are franchised and 16 are represented (i.e. Westin provides
reservation and marketing services, but does not allow the hotel to use the
Westin name). 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 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,
23
<PAGE> 32
and has since grown to its current 108 first class hotel and resort properties
throughout the world through a combination of its own hotel development efforts
and working with other hotel owners to enable Westin to serve as manager,
franchisor or representative. Today, Westin's hotel and resort properties are
located throughout the United States and in Argentina, Brazil, Canada, China,
England, France, Germany, Guatemala, Indonesia, Japan, Korea, Malaysia, Mexico,
the Netherlands, Panama, the Philippines, Portugal, Singapore, Switzerland and
Thailand.
The Transaction Agreement
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 EPS and 5,294,783 Class B EPS and cash in the
amount of $177.9 million. The Transaction Agreement provides for an adjustment
to the cash consideration paid in connection with the Westin Merger under
certain circumstances, including adjustments based on the aggregate indebtedness
and working capital of Westin on the closing date and the capital expenditures
made by Westin between the date the Transaction Agreement was signed and the
closing date. Westin Worldwide paid a cash dividend in an amount up to $160
million to its stockholders in 1997, which dividend Westin Worldwide had
determined that it expected to make prior to the execution of the Transaction
Agreement and irrespective of the closing under the Transaction Agreement.
Pursuant to the Transaction Agreement, 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 the Realty Partnership. In addition, in connection
with the foregoing share contributions, 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. Lauderdale and Seattle paid cash dividends in an aggregate amount
of $6.0 million to their stockholders in 1997, which dividends Lauderdale and
Seattle had determined that they expected to make prior to the execution of the
Transaction Agreement and irrespective of the closing under the Transaction
Agreement. Denver paid a cash dividend to its stockholders in 1997 in an amount
equal to $750,000, which dividend Denver had determined that it expected to make
prior to the execution of the Transaction Agreement and irrespective of the
closing under the Transaction Agreement.
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 the
Operating Partnership. In addition, in connection with the foregoing share
contributions, the Operating Partnership assumed or repaid the indebtedness of
Atlanta and St. John and assumed $6.0 million of indebtedness incurred by the
Members prior to such contributions. The Realty Partnership loaned Atlanta
approximately $34.2 million and Atlanta paid a dividend of such amount to its
stockholders, which dividend Atlanta had determined that it expected to make
prior to the execution of the Transaction Agreement and irrespective of the
closing under the Transaction Agreement.
The Class A EPS, Class B EPS and partnership units 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 and the right of Starwood Lodging to pay cash) for Paired Shares.
The 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. See "Description of Starwood Securities -- Preferred
Shares."
The foregoing summary of the Transaction Agreement is qualified in its
entirety by reference to the text of the Transaction Agreement, a copy of which
is filed as an Exhibit to the Joint Current Report on Form 8-K of Starwood
Lodging dated September 9, 1997 and which is incorporated herein by reference.
24
<PAGE> 33
OTHER ACQUISITIONS
In October 1997, Starwood Lodging completed the acquisition of the 552-room
Radisson Plaza and Suites Hotel Indianapolis, for approximately $54 million. In
December 1997, Starwood Lodging completed the acquisition of an approximate 95%
majority interest in the 512-room Westin Mission Hills Resort, including two
golf courses, in Rancho Mirage, California for approximately $118 million, the
acquisition of Turnberry Hotel, Golf Courses and Spa in Ayreshire, Scotland for
approximately $51.5 million and the acquisition of the 145-room Westin Aquila
Hotel in Omaha, Nebraska for approximately $14 million. On January 14, 1998
Starwood Lodging announced that it had entered into definitive agreements to
acquire the 257-room ITT Sheraton Luxury Collection Aspen, the 232-room ITT
Sheraton Luxury Collection Hotel Houston, the 213-room ITT Sheraton Luxury
Collection Hotel Washington D.C. and the 214-room ITT Sheraton Luxury Collection
Hotel New York, for a total purchase price of approximately $334 million payable
in a combination of cash and Paired Shares.
In 1997, Starwood Lodging completed acquisitions with an aggregate purchase
price of approximately $1.5 billion and in 1996 completed acquisitions with an
aggregate purchase price of approximately $800 million. Starwood Lodging intends
to continue to seek acquisitions in North America, Asia and Europe and, as of
November 12, 1997, was considering or negotiating acquisitions which would have
had an aggregate purchase price in excess of $1 billion. No assurances can be
given that Starwood Lodging will complete any of such potential acquisitions.
ITT FOURTH QUARTER CHARGE
In connection with closing its accounts for the fourth quarter of 1997, ITT
will record a one-time, pre-tax charge against earnings to reflect certain costs
associated with the Merger and the attempted takeover of ITT by Hilton Hotels
Corporation ("Hilton"). Although management of ITT has not completed quantifying
each of the elements of this charge, this charge is expected to total
approximately $810 million. This charge is expected to include many items
previously disclosed by ITT, including approximately $175 million for
restructuring of the headquarters operations of ITT, Sheraton and Caesars (which
includes primarily severance, benefits costs and the costs of reduced facilities
utilization); approximately $430 million of costs relating to the issuance of
limited stock appreciation rights in connection with the Merger to employees who
hold ITT stock options issued under the existing stock option plan approved by
stockholders and certain severance benefit payments; and approximately $205
million in the aggregate of other charges (which includes approximately $110
million in fees and expenses relating to the early retirement of debt, other
bank fees and the costs of terminating certain hedging contracts and other
transaction costs).
25
<PAGE> 34
STRUCTURE OF STARWOOD LODGING AFTER THE MERGER
After the transactions contemplated by the Merger Agreement are
consummated, the structure of Starwood Lodging will be as follows:
[STARWOOD LODGING CHART]
Merger Sub will merge with and into ITT with the result that (i) ITT will
be the surviving corporation and (ii) the Trust will own a portion of the
outstanding ITT Common Stock and the Corporation will own the remainder of the
outstanding ITT Common Stock. Immediately after the Merger, the Corporation will
purchase all of the ITT Common Stock held by the Trust by issuing a note to the
Trust which is secured by a pledge of ITT's real estate and by paying cash
borrowed under a new credit facility established by the Corporation. After the
foregoing purchase is completed, ITT will be a wholly owned subsidiary of the
Corporation, with ITT retaining the same corporate structure it had before the
Merger.
Starwood Lodging is a "paired share REIT" and consists of two companies:
the Trust and the Corporation, the shares of which are "paired" or "stapled"
together so that they trade as a single unit. The Trust has elected to be taxed
as a REIT, commencing with its taxable year ended December 31, 1995. REITs are
subject to a number of rules regarding their shareholders, assets, income and
distributions. As long as the Trust qualifies as a REIT, it will generally not
be subject to federal corporate income taxes on net income to the extent that
such income is currently distributed to shareholders. See "Federal Income Tax
Consequences -- Federal Income Taxation of the Trust." The Trust's assets
generally consist of fee, mortgage and ground leasehold interests in hotels.
Substantially all the Trust's business consists of leasing hotels and making
loans to the Corporation. The Corporation owns and operates hotels, including
hotels leased from the Trust. The Corporation also manages hotels owned by third
parties and engages in the business of franchising hotels.
The limited partnership units of the Realty Partnership and the Operating
Partnership held by the limited partners are (subject to the ownership
limitation provisions of the Trust and the Corporation) exchangeable for, at the
option of the Trust and the Corporation, either cash, Paired Shares representing
up to approximately 6.4% of the Paired Shares after such exchange, or a
combination of cash and such Paired Shares. The ownership limitation provisions
of Starwood Lodging are designed to preserve the status of the Trust as a REIT
for tax purposes by providing in general that no shareholder may own, directly
or indirectly, more than 8% of the outstanding Paired Shares.
26
<PAGE> 35
ITT SUMMARY SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
which have been derived from ITT's audited consolidated financial statements as
of and for the three years ended December 31, 1996 and ITT's unaudited
consolidated financial statements as of and for the two years ended December 31,
1993 and for the nine months ended September 30, 1997 and 1996 and as of
September 30, 1997. The following information is qualified in its entirety by
the historical financial information and related notes of ITT and Management's
Discussion and Analysis of Financial Condition and Results of Operations set
forth in ITT's Annual Report on Form 10-K for the year ended December 31, 1996
and ITT's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997, which are incorporated by reference
herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................................... $4,897 $4,805 $6,597 $6,252 $4,709 $4,169 $4,253
Income before accounting changes(1).............. 340 183 249 147 74 39 2
Earnings per share before accounting
changes(1)..................................... 2.87 1.54 2.11 1.24 .63 .33 .02
OPERATING DATA:
Operating income................................. 452 527 728 568 292 142 34
EBITDA(2):....................................... 746 702 982 756 317 259 40
Cash from operating activities................... 199 300 525 504 230 186 143
Cash (used for) from investing activities........ 590 (464) (608) (2,639) (1,467) (329) (146)
Cash (used for) from financing activities........ (563) 163 130 2,121 595 346 522
Number of employees (in thousands)............... 38 38 38 38 25 18 18
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $9,187 $9,275 $8,692 $5,012 $3,791 $3,375
Long-term debt, including capital leases......... 3,699 3,894 3,575 600 169 186
</TABLE>
- ---------------
(1) Income from continuing operations and earnings per share from continuing
operations, excluding several one-time items and the results of certain
assets held for sale, for the first nine months of 1997 were $201 and $1.70,
respectively, compared with $176 and $1.49, respectively, for the first nine
months of 1996. These comparable year-over-year results represent increases
of 14% and 14% in income from continuing operations and earnings per share
from continuing operations, respectively. The one-time items reflected in
the 1997 results include (i) a $183 pre-tax gain on the sale of 7.5 million
shares of Alcatel Alsthom, (ii) a $200 pre-tax gain on the sale of ITT's
39.8% ownership interest in Madison Square Garden, (iii) a $58 pre-tax
charge in connection with the restructuring of ITT's World Headquarters
operations and (iv) a $46 pre-tax charge of costs associated with the
unsolicited tender offer by Hilton Hotels Corporation for shares of ITT
Common Stock.
(2) EBITDA, as defined in the following sentence, is presented here as an
alternative measure of ITT's ability to generate cash flow and should not be
construed as an alternative to operating income or to cash flows from
operating activities (which have been determined in accordance with
generally accepted accounting principles). EBITDA was computed above as
earnings before interest, taxes, depreciation, amortization, gains on asset
sales, assets held for sale, restructuring charges, service fee income and
miscellaneous income (expense), net. Management of ITT believes the EBITDA
information presented supplementally is a useful measure of operating
performance because it is industry practice to evaluate hotel and gaming
properties based on operating income before interest, income taxes,
depreciation and amortization, which is generally equivalent to EBITDA, and
because it is customarily used by certain investors and analysts, together
with net income and cash flow from operations as defined by generally
accepted accounting principles, in evaluating a company's ability to service
its debt. The calculation of EBITDA does not include the commitments of ITT
for capital expenditures and payment of debt. Because of the significance of
items excluded in determining EBITDA, this information should not be
considered as an alternative to any measure of performance or liquidity nor
should it be considered as an indicator of the overall financial performance
of ITT. ITT's definition of EBITDA as presented herein may not be comparable
to similarly titled measures of other companies due to the inclusion or
exclusion of certain financial measures.
27
<PAGE> 36
STARWOOD LODGING SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected combined consolidated historical
and pro forma financial information for Starwood Lodging. The following
information should be read in conjunction with (i) the historical financial
statements and notes thereto for Starwood Lodging, (ii) Management's Discussion
and Analysis of Combined Financial Condition and Results of Operations, which
are included in Starwood Lodging's Joint Annual Report on Form 10-K for the year
ended December 31, 1996 and Starwood Lodging's Joint Quarterly Reports on Form
10-Q for the periods ended March 31, 1997, June 30, 1997 and September 30, 1997,
and (iii) Starwood Lodging's Current Reports on Form 8-K dated February 10,
1997, February 14, 1997, March 20, 1997, March 21, 1997, September 9, 1997,
September 10, 1997, October 21, 1997, November 12, 1997 and November 13, 1997.
Pro forma financial information relating to Starwood Lodging's acquisitions of
ITT and Westin is contained in Starwood Lodging's Current Report on Form 8-K
dated November 12, 1997. The historical operating information of Starwood
Lodging as of December 31, 1996, 1995, 1994, 1993 and 1992 and for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992 have been derived from
financial statements that are not required to be included in this Joint Proxy
Statement/Prospectus. In the opinion of management of Starwood Lodging, the
financial data as of September 30, 1997 and 1996 and for the nine months ended
September 30, 1997 and 1996 include all adjustments necessary to present fairly
the information set forth therein.
The pro forma operations and other data for the nine months ended September
30, 1997 and for the year ended December 31, 1996 have been prepared as if the
acquisitions of Westin and ITT had been consummated on January 1, 1996. The pro
forma financial information is not necessarily indicative of what the actual
financial position and results of operations of Starwood Lodging would have been
as of and for the periods indicated, nor does it purport to represent Starwood
Lodging's future financial position and results of operations.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------- -------------------------------------------------------------------
PRO PRO
PRO FORMA PRO FORMA
FORMA WESTIN FORMA WESTIN
WESTIN AND ITT WESTIN AND ITT
1997 1997 1997 1996(3) 1996 1996 1996 1995 1994 1993 1992
------ ------- ------ ------- ------ ------- ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue(1)....... $ 925 $4,984 $ 633 $ 235 $ 776 $6,176 $ 429 $ 162 $ 114 $ 117 $ 118
Net income
(Loss)......... $ 38 $ 113 $ 25 $ 20 $ 2 $ 190 $ 27 $ 9 $ (5) $ (7) $ (20)
Net Income (Loss)
Per Paired
Share(2)....... $0.53 $ 0.59 $ 0.53 $ 0.76 $ 0.03 $ 1.10 $ 0.90 $ 0.77 $(1.53) $(2.32) $(6.51)
</TABLE>
28
<PAGE> 37
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------------
PRO
PRO FORMA
FORMA WESTIN AS OF DECEMBER 31,
WESTIN AND ITT ----------------------------------
1997 1997 1997 1996(3) 1996 1995 1994 1993 1992
--------- --------- ------ ------- ------ ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets....................... $ 4,605 $ 15,681 $2,596 $1,214 $1,313 $460 $184 $195 $211
Total Debt......................... $ 2,145 $ 7,648 $1,436 $ 425 $ 480 $123 $160 $171 $170
Shareholder's Equity (Deficit)..... $ 1,636 $ 5,201 $ 792 $ 596 $ 592 $216 $ 9 $ 13 $ 20
Paired Shares outstanding at end of
period(2)........................ 68 189 46 40 40 21 3 3 3
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
--------------- ----------------------------------
1997 1996(3) 1996 1995 1994 1993 1992
----- ------- ----- ----- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW AND DIVIDEND DATA
Net cash provided by operating activities............... $ 98 $ 48 $ 74 $ 16 $ 9 $ 5 $ 5
Net cash provided by (used in) investing activities..... $(919) $(732) $(747) $(182) $ 4 $(4) $(1)
Net cash provided by (used in) financing activities..... $ 823 $ 705 $ 689 $ 170 $(14) $(7) $(1)
Cash distributions to shareholders...................... $ 66 $ 30 $ 46 $ 9 $ 0 $ 0 $ 0
Cash distributions per share (2)........................ $1.26 $0.95 $1.36 $0.62 $ 0 $ 0 $ 0
</TABLE>
- ---------------
(1) Includes gains (losses) on sales in the amount of $4,290,000, ($125,000),
$456,000, ($21,000) and ($787,000) for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, respectively, and ($221,000) and ($1,384,000) for
the nine months ended September 30, 1997 and 1996, respectively, and
provisions for investment losses of $759,000, $2,369,000 and $3,419,000 in
the years ended December 31, 1994, 1993 and 1992, respectively.
(2) As adjusted for a one-for-six reverse stock split in June 1995 and a
three-for-two stock split in January 1997.
(3) Reflects Starwood Lodging's interest in the Boston Park Plaza on an equity
basis.
29
<PAGE> 38
COMPARATIVE PER SHARE DATA
Set forth below are historical and pro forma earnings per share, cash
dividends per share and book value per share data of Starwood Lodging and ITT
and equivalent pro forma per common share data of ITT. The data set forth below
should be read in conjunction with the Starwood Lodging and ITT audited
consolidated financial statements and unaudited interim consolidated financial
statements, including the notes thereto, which are incorporated by reference in
this Joint Proxy Statement/Prospectus. The data should also be read in
conjunction with the unaudited pro forma consolidated condensed financial
information incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
STARWOOD LODGING COMBINED - HISTORICAL
Net income per Paired Share................................. $ .53 $ .90
Cash dividends per Paired Share............................. $ 1.17 $ 1.36
Book value per Paired Share................................. $ 17.32 $14.79
ITT - HISTORICAL
Net income per share........................................ $ 2.87 $ 2.11
Cash dividends per share.................................... -- --
Book value per share........................................ $ 28.79 $26.50
STARWOOD LODGING COMBINED - PRO FORMA (WESTIN)
Income from operations per Paired Share..................... $ .53 $ .03
Cash dividends per Paired Share............................. $ 1.26 $ 1.36
Book value per Paired Share................................. $ 28.99 --
STARWOOD LODGING COMBINED - PRO FORMA (WESTIN AND ITT)
Net Income per Paired Share................................. $ .59 $ 1.10
Cash Dividends per Paired Share............................. $ 1.26 $ 1.36
Book value per Paired Share................................. $ 27.52 --
ITT - PRO FORMA
Net Income per share........................................ $ 1.07 $ 2.33
Cash dividends per share.................................... -- --
Book value per share........................................ $ 37.73 --
</TABLE>
30
<PAGE> 39
COMPARATIVE MARKET PRICES
The Paired Shares are traded principally on the NYSE under the symbol
"HOT." ITT Common Stock is listed and principally traded on the NYSE under the
symbol "ITT." The following table sets forth for the periods indicated, the high
and low sales price, as reported on the NYSE Composite Transactions Tape, and
distributions made per Paired Share (as adjusted for the one-for-six reverse
stock split in June 1995 and the three-for-two stock split in January 1997) and
per share of ITT Common Stock.
<TABLE>
<CAPTION>
PAIRED SHARES
------------------------------------------------- ITT COMMON STOCK
RETURN OF
DISTRIBUTIONS CAPITAL GAAP ----------------
HIGH LOW MADE BASIS(a) HIGH LOW
------ ------ ------------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter
(through January 12, 1998)........ $57.75 $52.94 N/A N/A $82.88 $80.31
1997
First quarter....................... $45.88 $34.50 $0.39 $ 0.21 $60.50 $41.13
Second quarter...................... $42.81 $34.25 $0.39 $ 0.01 $61.75 $57.33
Third quarter....................... $58.13 $41.38 $0.48 $ 0.48 $68.63 $60.83
Fourth quarter...................... $60.38 $52.13 $0.48 N/A $82.63 $67.75
1996
First quarter....................... $23.25 $19.67 $0.31 $ 0.11 $62.23 $47.38
Second quarter...................... $25.75 $21.17 $0.33 -- $68.25 $56.88
Third quarter....................... $27.92 $22.08 $0.33 $ 0.14 $66.63 $43.00
Fourth quarter...................... $36.75 $27.42 $0.39(b)(c) $ 0.22 $46.50 $40.88
1995
First quarter....................... $16.00 $10.50 None N/A N/A N/A
Second quarter...................... $16.50 $14.00 None N/A N/A N/A
Third quarter....................... $19.42 $15.75 $0.31 $ 0.14 N/A N/A
Fourth quarter...................... $20.00 $17.92 $0.31(d) $ 0.11 $53.13 $47.50
</TABLE>
- -------------------------
(a) Represents distributions per Paired Share in excess of net income per Paired
Share on a generally accepted accounting principles basis, and is not the
same as return of capital on a tax basis.
(b) The Trust declared a distribution for the fourth quarter of 1996 to
shareholders of record on December 30, 1996. The distribution was paid in
January 1997.
(c) During the fourth quarter of 1996 the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend
payable to shareholders of record on December 30, 1996. The stock dividend
was paid in January 1997.
(d) The Trust declared a distribution for the fourth quarter of 1995 to
shareholders of record on December 29, 1995. The distribution was paid in
January 1996.
On October 17, 1997, the last trading day prior to the first public
announcement of the Merger, the last sales price per Paired Share as reported on
the NYSE Composite Transactions Tape was $56.50 and the last sales price per
share of ITT Common Stock as reported on the NYSE Composite Transactions Tape
was $70.375. On January 12, 1998, the most recent practicable date prior to the
printing of this Joint Proxy Statement/Prospectus, the last sales price per
Paired Share as reported on the NYSE Composite Transactions Tape was $52.9375
and the last sales price per share of ITT Common Stock as reported on the NYSE
Composite Transactions Tape was $80.3125.
ITT has not declared or paid any cash dividends on the shares of ITT Common
Stock to date and presently has no plans to declare or pay any cash dividends.
As of December 19, 1997, there were approximately 51,000 holders of record of
ITT Common Stock.
During the fourth quarter of 1996 the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend payable
to shareholders and stockholders of record on December 30, 1996.
31
<PAGE> 40
The stock dividend was paid in January 1997. The Trust declared and paid
dividends of $0.48 per share for the third quarter of 1997 and $0.39 per share
for each of the first and second quarters of 1997 and $0.31, $0.33, $0.33 and
$0.39 per share (as adjusted for the three-for-two stock split in January 1997)
for the first, second, third and fourth quarters of 1996, respectively. The
Trust declared and paid a dividend of $0.31 per share (as adjusted for the
three-for-two stock split in January 1997) for the third and fourth quarters of
1995. The fourth quarter dividend was paid in January 1996. No distributions
were made by the Trust during 1994.
The Corporation has not paid any cash dividends since its organization and
does not anticipate that it will make any such distributions in the near future.
Under the terms of its lines of credit, Starwood Lodging is generally permitted
to distribute to its shareholders on an annual basis an amount equal to the
greatest of (i) 95% of combined funds from operations for any four consecutive
calendar quarters, (ii) an amount sufficient to maintain the Trust's tax status
as a real estate investment trust and (iii) the amount necessary for the Trust
to avoid the payment of federal income or excise tax.
32
<PAGE> 41
RISK FACTORS
Stockholders of Starwood Lodging, in considering whether to approve the
Shares Issuance Proposal, the Trust Amendment and the Corporation Amendment, and
stockholders of ITT, in considering whether to approve the ITT Proposal, should
consider, in addition to the other information in this Joint Proxy Statement/
Prospectus, the matters discussed in this Section.
This Joint Proxy Statement/Prospectus contains or incorporates by reference
statements which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Those
statements appear in a number of places in this Joint Proxy
Statement/Prospectus, including "Anticipated Synergies," "ITT Projections," and
"Funds from Operations," and may include statements regarding the intent, belief
or current expectations of Starwood Lodging, ITT or their respective directors,
trustees or officers with respect to (i) the declaration or payment of
distributions, (ii) the finalization of the terms of, or the consummation of,
acquisitions, including, without limitation, the consummation of the Merger,
(iii) the management or operation of hotels owned or to be acquired, (iv)
Starwood Lodging's and ITT's financing plans and projections, (v) the policies
of Starwood Lodging and ITT regarding investments, dispositions, financings,
conflicts of interest and other matters, (vi) the Trust's continued
qualification as a REIT under the Code and the "grandfathering" rule under
Section 269B of the Code, (vii) trends affecting Starwood Lodging's, ITT's or
any hotel's financial condition, results of operations or cash flows, (viii)
interest rates and (ix) general economic conditions. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various uncertainties and other factors. The accompanying information contained
in this Joint Proxy Statement/Prospectus, including without limitation the risk
factors set forth below, identifies important reasons that such differences
might occur.
RECEIPT OF CASH OR STOCK DEPENDENT ON ELECTIONS OF OTHERS
ITT stockholders making Cash Elections or Stock Elections may not receive
the form of consideration they elect because the aggregate number of shares of
ITT Common Stock to be converted into cash in the Merger is limited to 30% of
the total number of outstanding shares of ITT Common Stock and the aggregate
number of shares of ITT Common Stock to be converted into Paired Shares in the
Merger is limited to 82% of the total number of outstanding shares of ITT Common
Stock. ITT stockholders making Cash Elections may receive Paired Shares instead
of cash for some of the shares of ITT Common Stock covered by such Cash Election
if Cash Elections are received for more than 30% of the outstanding shares of
ITT Common Stock. Similarly, ITT stockholders making Stock Elections may receive
cash instead of Paired Shares for some of the shares of ITT Common Stock covered
by such Stock Election if Stock Elections are received for more than 82% of the
outstanding shares of ITT Common Stock. If the Market Price is below $53.263,
ITT stockholders should expect that the Available Cash will be prorated and that
such stockholder may receive as little cash as $25.50 per share of ITT Common
Stock. ITT stockholders will not know the number of Cash Elections or Stock
Elections that have been made or whether the Available Cash or the Available
Shares will be prorated at the time of the ITT Meeting. See "The Merger
Agreement -- Proration."
IF THE PAIRED SHARES TRADE BELOW COLLAR, CONSIDERATION PAID MAY BE BELOW $85
If the Market Price is below $53.263, the combination of cash and Paired
Shares that ITT stockholders will receive in the Merger may have a value of less
than $85 per share of ITT Common Stock. Between October 19, 1997 and January 12,
1998, the average of the daily high and low prices on the NYSE of the Paired
Shares was below $53.263 ten times. The opinions of the financial advisors to
ITT and the ITT Special Committee did not express any limitations relating to
the possibility that the Paired Shares would trade outside the "collar" set
forth in the Merger Agreement. However, such opinions represent the opinions of
such advisors as of the dates of such opinions. Lazard Freres delivered its
opinion as of the date of this Joint Proxy Statement/Prospectus and Gleacher
NatWest and Bear Stearns each delivered its opinion as of November 12, 1997. On
November 12, 1997 the closing sales price of the Paired Shares, as reported by
the NYSE Composite Tape, was within the "collar." On January 13, 1998, the day
prior to the date of this Joint Proxy
33
<PAGE> 42
Statement/Prospectus, the closing sales price of the Paired Shares, as reported
by the NYSE Composite Tape, was below the "collar." No assurance can be given
that an investment banking firm representing ITT would find the consideration to
be received by ITT stockholders in the Merger fair from a financial point of
view if at the time of such determination the Paired Shares were trading
significantly below $53.263, the bottom of the collar provision of the Merger
Agreement. ITT does not intend to seek an updated fairness opinion from Lazard
Freres or Gleacher NatWest after the date of this Joint Proxy
Statement/Prospectus.
MARKET PRICE MAY BE DIFFERENT THAN PRICE PER PAIRED SHARE AT EFFECTIVE TIME
The Exchange Ratio establishing the number of Paired Shares into which
shares of ITT Common Stock will be converted will be determined five NYSE
trading days prior to the ITT Meeting and will be determined based on trading
prices during the preceding 30 trading days. Accordingly, it is possible that
the market price of the Paired Shares at the Effective Time will be higher or
lower than the Market Price, and if so, the value of the consideration to be
received by the ITT stockholders will be more or less than $85 per share of ITT
Common Stock depending on the direction of the price movement. There can be no
assurance that the price of Paired Shares will not decline from the market
prices used in the calculation of the Exchange Ratio. See "The Merger
Agreement -- Proration."
DILUTION TO EXISTING STARWOOD LODGING STOCKHOLDERS
Depending on the number of ITT stockholders that elect to receive cash or
stock in the Merger, the number of Paired Shares issued in the Merger could
range from approximately 127.2 million to 149.0 million, based on the number
issued and outstanding shares of ITT Common Stock on December 31, 1997. After
the Merger, the Starwood Lodging stockholders before the Merger will own
approximately one-third, and the ITT stockholders will own approximately
two-thirds, of the outstanding Paired Shares and, accordingly, such
stockholders' voting power will be substantially diluted.
STOCK PRICE FLUCTUATIONS
The relative stock prices of the Paired Shares and the shares of ITT Common
Stock at the Effective Time may vary significantly from the prices as of the
date of execution of the Merger Agreement, the date of this Joint Proxy
Statement/Prospectus, or the date of the Special Meetings or the date of the
Effective Time, due to changes in the business, operations and prospects of the
Trust, the Corporation and ITT, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, general market and economic
conditions and other factors such as market perception of paired share stocks,
REIT stocks, hotel stocks, REIT hotel stocks, gaming stocks and the stock market
generally. There can be no assurance that the price of the Paired Shares and/or
the shares of ITT Common Stock will not decline between the date of this Joint
Proxy Statement/Prospectus and the Effective Time.
DIFFERENCES IN STOCKHOLDER RIGHTS
The Corporation and the Trust are organized under the laws of the State of
Maryland and ITT is incorporated under the laws of the State of Nevada. If the
Merger is consummated, the holders of ITT Common Stock, whose rights as
stockholders are currently governed by the Nevada General Corporation Law (the
"NGCL"), the Articles of Incorporation of ITT (the "ITT Articles") and the
By-laws of ITT, will, at the Effective Time, become holders of Paired Shares and
their rights as such will be governed by the Maryland General Corporation Law
(the "MGCL") and Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland (the "Maryland REIT Law"), the Corporation Articles
and the Trust Declaration, and the Corporation By-laws and the Trustees'
Regulations.
ITT stockholders should be aware of the following differences in their
rights as stockholders compared to the rights of stockholders of Starwood
Lodging:
- The Corporation Articles and the Trust Declaration each contain
restrictions, as long as the Trust maintains its REIT status, on any
person owning greater than 8% by value, vote or number of the Corporation
Shares or Trust Shares and on transfers resulting in the Corporation
Shares or the Trust
34
<PAGE> 43
Shares being beneficially owned by fewer than 100 persons or being
closely held within the meaning of Section 856(h) of the Code. The ITT
Articles contain certain restrictions on the ownership, exercise of
rights or receipt of dividends related to ITT Common Stock that are
consistent with, or required by, gaming laws and ITT's gaming licenses.
- Each of the Corporation Board and the Trust Board are classified into
three classes. The ITT Board is not classified.
- ITT has a stockholders rights plan that will cause substantial dilution
to a person or group that attempts to acquire control of ITT in a manner
that causes the rights issued thereunder to become exercisable. Neither
the Corporation nor the Trust currently has a shareholders rights plan.
- Holders of Corporation Shares may take action by unanimous written
consent. The Trust Declaration provides that holders of Trust Shares may
take action by written consent of the holders of a majority of all
outstanding shares entitled to vote on the matter, or such larger
percentage as would be required for a vote at a shareholders meeting. ITT
stockholders may not act by written consent.
See "Comparison of Rights of Stockholders of ITT and Stockholders and
Shareholders of Starwood Lodging."
FAILURE TO MANAGE RAPID GROWTH
The full benefits to Starwood Lodging of the acquisition of Westin and ITT
will require the integration of each company's administrative, finance, sales
and marketing organizations, the coordination of each company's sales efforts
and the implementation of appropriate operations, financial and management
systems and controls in order to realize the efficiencies, revenue enhancements
and cost reductions that are expected from such acquisitions. This will require
substantial attention from Starwood Lodging's management. Although Starwood
Lodging's management team has experience in integrating acquisitions, none of
the prior acquisitions have been of comparable magnitude to, or included the
breadth of operations involved in, the acquisition of Westin or ITT. The
diversion of management attention, as well as any other difficulties which may
be encountered in the transition and integration process, could have an adverse
impact on the revenue and operating results of Starwood Lodging. There can be no
assurance that Starwood Lodging will be able to integrate the operations of
Westin, ITT and Starwood Lodging successfully or that anticipated synergies
between the companies will be realized or, if realized, the timing thereof.
In addition, to successfully implement its acquisition strategy, Starwood
Lodging must integrate the hotels it has acquired in the last few years, during
which Starwood Lodging's portfolio of hotel properties has increased
dramatically. During such period, Starwood Lodging also entered geographic
markets (including Mexico and the United Kingdom) where it previously did not
have any properties. As a result, the consolidation of functions and integration
of departments, systems and procedures of acquired properties with Starwood
Lodging's existing operations present a significant management challenge, and
the failure to integrate such properties into Starwood Lodging's management and
operating structures could have a material adverse effect on the results of
operations and financial condition of Starwood Lodging.
Starwood Lodging's future success and its ability to manage future growth
depends in large part upon the efforts of its senior management and its ability
to attract and retain key executive officers and other highly qualified
personnel. Competition for such personnel is intense. Since January 1996,
Starwood Lodging has experienced significant changes in its senior management,
including the hiring of a new Chief Executive Officer and Chief Operating
Officer of the Corporation and a new President of the Trust. There can be no
assurance that Starwood Lodging will continue to be successful in attracting and
retaining qualified personnel. Accordingly, there can be no assurance that
Starwood Lodging's senior management will be able successfully to execute or
implement Starwood Lodging's growth and operating strategies.
TAX RISKS
FAILURE TO QUALIFY AS A REIT. The Trust believes that it has operated so as
to qualify as a REIT under the Code, commencing with its taxable year ended
December 31, 1995 and intends to continue to so operate.
35
<PAGE> 44
No assurance, however, can be given that the Trust will remain qualified as a
REIT. Sidley & Austin is rendering an opinion regarding the Trust's
qualification as a REIT. Qualification as a REIT involves the application of
highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations. The complexity of these provisions
is greater in the case of a REIT that owns hotels and leases them to a
corporation with which its stock is paired. As a result, the Trust is likely to
encounter a greater number of interpretive issues under the REIT qualification
rules, and more such issues which lack clear guidance, than are other REITs. The
determination of various factual matters and circumstances not entirely within
the Trust's control may affect its ability to qualify as REIT. In addition, no
assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. Furthermore, the qualification of the Trust as a REIT
will depend on the Trust's continuing ability to meet various requirements
concerning, among other things, the ownership of Paired Shares, the nature of
its assets, the source of its income and the amount of its distributions to its
shareholders. In connection with the Westin Acquisition, the Trust will acquire
new assets and operations (including the leasing of newly acquired assets and
lending funds to the Corporation and the ownership of the Subsidiary REITs and
the Management Subsidiaries), ownership of which may make it more difficult for
the Trust to satisfy these requirements by increasing the complexity of the
Company's operations. The REIT requirements are discussed in more detail below
under the heading "Federal Income Tax Consequences."
The Trust's ability to qualify as a REIT is also dependent on its continued
exemption from Section 269B of the Code. Section 269B would ordinarily prevent a
company from qualifying as a REIT if its stock is paired with the stock of
another company whose activities are inconsistent with REIT status, such as the
Corporation. The "grandfathering rules" governing Section 269B generally
provide, however, that Section 269B does not apply to a paired REIT if the
shares of the REIT and its paired operating company were paired on or before
June 30, 1983 and the REIT was taxable as a REIT on or before June 30, 1983.
There are, however, no judicial or administrative authorities interpreting the
grandfathering rules governing Section 269B. In addition, on November 5, 1997,
Representative William Archer, Chairman of the Ways and Means Committee of the
United States House of Representatives, publicly announced that he plans to
review the grandfathering rules to determine whether there should be future
restrictions on those companies that are grandfathered. While Representative
Archer stated he does not plan to eliminate the grandfathering rules, no
assurance can be given that new legislation, new regulations or administrative
interpretations with respect to the grandfathering rules will not be adopted.
The adoption of any such legislation, regulations or administrative
interpretations could have a material adverse effect on the results of
operations, financial condition and prospects of Starwood Lodging. See "Federal
Income Tax Consequences."
If in any taxable year the Trust were to fail to qualify as a REIT, the
Trust would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain Code provisions, the Trust would also be disqualified from treatment as
a REIT for the four taxable years following the year in which qualification was
lost. Failure to qualify as a REIT would reduce the net earnings of the Trust
available for distribution to shareholders because of the additional tax
liability to the Trust for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to shareholders would have been made in anticipation of the Trust
qualifying as a REIT, the Trust might be required to borrow funds or to
liquidate certain of its investments to pay the applicable tax. The failure to
qualify as a REIT would also constitute a default under certain debt obligations
of the Trust.
MERGER MAY JEOPARDIZE THE TRUST'S REIT STATUS. As part of the Merger, the
Trust will acquire ITT Common Stock with a fair market value equal to the fair
market value of the Trust Shares issued in the Merger. Immediately after the
Effective Time, the ITT Common Stock acquired by the Trust will be sold to the
Corporation for a combination of cash and notes. The notes issued by the
Corporation will be secured by mortgages on real estate owned by ITT. If such
sale does not occur by the end of the first calendar quarter ending after the
Effective Time or such notes are not secured by mortgages on real estate, then
the Trust would lose its REIT status. See "Federal Income Tax
Consequences -- Federal Income Tax Consequences of the Merger."
36
<PAGE> 45
REQUIRED DISTRIBUTIONS TO SHAREHOLDERS. In order to obtain and retain REIT
status, the Trust must distribute to its shareholders at least 95% of its REIT
taxable income (excluding any net capital gain). In addition, the Trust will be
subject to tax on its undistributed net taxable income and net capital gain, and
a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed income from prior years. The
Trust intends to make distributions to its shareholders to comply with the
distribution requirements of the Code and to avoid federal income taxes and the
nondeductible excise tax. The Trust (or the Realty Partnership) could be
required to borrow funds on a short-term basis to meet the REIT distribution
requirements, which borrowing may not otherwise be advisable for Starwood
Lodging.
Distributions by the Trust and Corporation will be determined by their
respective Boards and depend on a number of factors, including the amount of
cash available for distribution, financial condition, any decision by either
Board to reinvest funds rather than to distribute such funds, capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code (in the case of the Trust) and such other factors as either Board deems
relevant. For federal income tax purposes, distributions paid to stockholders
may consist of ordinary income, capital gains (in the case of the Trust),
nontaxable return of capital, or a combination thereof.
STARWOOD SHAREHOLDERS MAY BE TAXED AS A RESULT OF THE MERGER. The
Corporation will incur substantial amounts of debt to finance the Merger which
debt will be guaranteed by the Trust. Although Sidley & Austin is of the opinion
that this debt will be treated as a debt of the Corporation, the IRS could
assert that a significant portion of this debt should properly be treated as
debt of the Trust. If a portion of the debt were so recharacterized, the Trust
may be treated as making a deemed distribution of such portion to its
shareholders. As part of the Merger, the Trust will acquire ITT Common Stock
with a fair market value equal to the fair market value of the Trust Shares
issued in the Merger. The fair market value of the Trust Shares issued in the
Merger will be equal to the percentage of the fair market value of the Paired
Shares issued in the Merger that is allocable to the Trust Shares multiplied by
the number of Paired Shares issued. The ITT Common Stock acquired by the Trust
in the Merger will, immediately after the Effective Time, be sold to the
Corporation. The relative value of the Trust Shares and the Corporation Shares
will be established by the Trust and the Corporation prior to the Effective
Time. The IRS could assert that the relative value of the Trust Shares and the
Corporation Shares was not properly established by the Trust and the
Corporation. If the relative value of the Trust Shares and the Corporation
Shares were determined to be different from the relative values established by
the Trust and the Corporation, then the fair market value of the ITT Common
Stock purchased by the Corporation from the Trust would differ from the amount
paid therefor. The amount of such difference would likely be treated as a deemed
distribution from either the Trust or the Corporation to the shareholders. Such
a deemed distribution is likely to result in shareholders who receive it to be
required to include additional amounts in income than would shareholders who did
not hold Trust Shares at the time of such deemed distribution. See "Federal
Income Tax Consequences -- Federal Income Tax Consequences of the Merger."
CORPORATION MAY NOT BE ENTITLED TO DEDUCTION. The Corporation may not be
entitled to a current deduction with respect to its interest payments to the
Trust or the Realty Partnership. Such deferred deductions will either increase
the tax liability of the Corporation or reduce the amount of net operating loss
carryforwards. Due to a lack of controlling authority, no opinion of counsel
will be rendered with respect to such interest deductions. See "Federal Income
Tax Consequences -- Federal Income Taxation of the Corporation."
ANY GAINS RECOGNIZED BY CERTAIN ITT STOCKHOLDERS MAY BE TAXED AS ORDINARY
INCOME INSTEAD OF CAPITAL GAINS. For federal income tax purposes, an ITT
stockholder (other than an "Ordinary Income Stockholder," as defined below) will
recognize capital gain or loss in connection with the Merger if the ITT Common
Stock surrendered by such stockholder in connection with the Merger is held as a
capital asset within the meaning of Section 1221 of the Code. To the extent that
an Ordinary Income Stockholder exchanges ITT Common Stock for Paired Shares,
such stockholder will similarly recognize capital gain or loss in connection
with the Merger. Ordinary Income Stockholders will recognize ordinary income,
however, with respect to any cash that they receive in connection with the
Merger (including cash received in lieu of fractional Paired Shares), but only
to the extent of the current and accumulated earnings and profits of ITT
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<PAGE> 46
and Starwood Lodging. Ordinary Income Stockholders cannot use capital losses to
shelter any such ordinary income. However, an Ordinary Income Stockholder who is
an individual may use up to $3,000 of capital losses per year to shelter
ordinary income.
An Ordinary Income Stockholder is an ITT stockholder (a) that actually or
constructively owns Paired Shares before the Effective Time, (b) that receives
cash (including cash in lieu of fractional Paired Shares) in connection with the
Merger and (c) (i) whose actual or constructive ownership of ITT, through
ownership of Paired Shares, after the Merger and the deemed redemption
(described under the caption entitled "Federal Income Tax
Consequences -- Federal Income Tax Consequences of the Merger -- Federal Income
Tax Consequences to ITT Stockholders") is not meaningfully reduced, or (ii) with
respect to whom the deemed redemption is not substantially disproportionate (in
the case of (i) and (ii), applying the attribution rules of Section 318 of the
Code). See "Federal Income Tax Consequences -- Federal Income Tax Consequences
of the Merger -- Federal Income Tax Consequences to ITT Stockholders."
LIMITS ON CHANGE OF CONTROL AND OWNERSHIP LIMITATION
LIMITS ON CHANGE OF CONTROL. Certain provisions of the Trust Declaration
and the Corporation Articles, including, without limitation, the ability to
issue preferred shares and the maintenance of staggered terms for trustees and
directors, may have the effect of discouraging a third party from making an
acquisition proposal for the Trust and the Corporation and may thereby delay,
defer or prevent a change in control under circumstances that could give the
holders of Paired Shares the opportunity to realize a premium over the then-
prevailing market prices.
OWNERSHIP LIMITATION. In order for the Trust to maintain its qualification
as a REIT, not more than 50% in value of its outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) at any time during the last half of the Trust's
taxable year. Furthermore, actual or constructive ownership of a sufficient
number of the Paired Shares could cause the Operating Partnership or the
Corporation to become a related party tenant of the Trust, which would result in
the loss of the Trust's REIT status. The Trust Declaration and Corporation
Articles prohibit actual or constructive ownership by any one person or group of
related persons of more than 8.0% of the shares of the Trust or the Corporation,
whether measured by vote, value or number of shares (the "Ownership Limit").
Generally, the Paired Shares owned by related or affiliated persons will be
aggregated and certain options will be treated as exercised for purposes of the
Ownership Limit.
The constructive ownership rules of the Code are extensive and complex and
may cause Paired Shares owned, directly or indirectly, by certain direct or
indirect partners in any partnership, including the direct and indirect owners
of interests in the Realty Partnership and the Operating Partnership, and other
classes of related individuals and/or entities, to be deemed to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 8.0% of the Paired Shares (or the acquisition of an interest in an
entity which owns Paired Shares) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 8.0% of the Paired Shares, and thus subject such Paired Shares to the
Ownership Limit. Direct or constructive ownership in excess of the Ownership
Limit would cause the violative transfer or ownership to be void, or cause such
shares to be converted into "Excess Shares," which have limited economic rights,
to the extent necessary to ensure that the purported transfer or other event
does not result in a violation of the Ownership Limit. Notwithstanding the
Ownership Limit, given the breadth of the Code's constructive ownership rules
and that it is not possible for the Trust and the Corporation to continuously
monitor direct and constructive ownership of Paired Shares, it is possible that
an individual or entity could at some time constructively own sufficient Paired
Shares to cause termination of the Trust's REIT status.
INFLUENCE BY STARWOOD CAPITAL
Individuals employed by or otherwise affiliated with Starwood Capital hold
two positions on the Board of Trustees of the Trust and two positions on the
Board of Directors of the Corporation. Accordingly, although Starwood Lodging
has a policy requiring a majority of its trustees and directors to be
"independent," Starwood Capital may have the ability to exercise certain
influence over the affairs of Starwood Lodging. Due to its
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<PAGE> 47
different tax situation, prior to the exchange of its units of the Realty
Partnership or the Operating Partnership into Paired Shares, Starwood Capital's
objectives regarding the pricing, structure and timing of any sale of certain
properties or the restructuring or sale of certain mortgage loans may differ
from the objectives of the stockholders of Starwood Lodging or current
management of Starwood Lodging. Barry S. Sternlicht is the President and Chief
Executive Officer of, and controls, Starwood Capital. Mr. Sternlicht is a
trustee of the Trust and the Chairman and Chief Executive Officer of the Trust.
In addition, Mr. Sternlicht is Chairman of the Board of Directors of the
Corporation. As a consequence, Mr. Sternlicht has the ability to exercise
certain influence over the affairs of Starwood Lodging.
In connection with the acquisition of ITT, Starwood Lodging engaged
Starwood Capital as a financial advisor. Such engagement was unanimously
approved by the independent directors and trustees of Starwood Lodging. See "The
Merger -- Interest of Certain Persons in the Merger."
DEBT FINANCING
As a result of incurring debt, Starwood Lodging is subject to the following
risks associated with debt financing: (i) that cash flow from operations will be
insufficient to meet required payments of principal and interest, and (ii) of
fluctuations in interest rates. Although Starwood Lodging anticipates that it
will be able to repay or refinance its existing indebtedness and any other
indebtedness, there can be no assurance that it will be able to do so or that
the terms of such refinancings will be favorable to Starwood Lodging.
In addition, in connection with its proposed acquisitions of Westin and
ITT, Starwood Lodging will incur a substantial amount of additional debt,
thereby increasing its exposure to the risks associated with debt financing.
Starwood Lodging's increased leverage may have important consequences, including
the following: (i) the ability of Starwood Lodging to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be on terms
favorable to Starwood Lodging; (ii) a substantial decrease in operating cash
flow or an increase in expenses of Starwood Lodging could make it difficult for
Starwood Lodging to meet its debt service requirements and force it to modify
its operations; (iii) Starwood Lodging's higher level of debt and resulting
interest expense may place it at a competitive disadvantage with respect to
certain competitors with lower amounts of indebtedness; and (iv) Starwood
Lodging's greater leverage may make it more vulnerable to a downturn in its
business or the economy generally.
In connection with the Westin Acquisition, Starwood Lodging established a
$2.265 billion, unsecured line of credit with Bankers Trust and Chase Manhattan
acting as lead banks on the financing facility. As of January 2, 1998, Starwood
Lodging had approximately $2.222 billion of total debt outstanding and
approximately 13% of Starwood Lodging's hotel assets were encumbered by
mortgages. Substantially all of the debt outstanding is subject to cross-default
provisions subject to certain limitations. Starwood Lodging has entered into a
commitment letter with Bankers Trust and Chase Manhattan for a $7 billion line
of credit secured by certain pledged stock and equity interests to fund the
approximate $3.6 billion amount necessary to complete the acquisition of ITT and
to refinance a portion of ITT's and Starwood Lodging's existing indebtedness.
Starwood Lodging is also exploring other financing alternatives, including a
public offering of debt securities and bridge financing to be refinanced after
the acquisition of ITT. The commitment letter is subject to customary conditions
including the ability of Bankers Trust and Chase Manhattan to successfully
syndicate the facility.
POSSIBLE LIABILITY OF TRUST SHAREHOLDERS
Both the Maryland REIT Law and the Trust Declaration provide that no
shareholder of the Trust will be personally liable for any obligation of the
Trust solely as a result of his status as a shareholder of the Trust. The Trust
Declaration further provides that the Trust shall indemnify each shareholder
against any claim or liability to which the shareholder may become subject by
reason of his being or having been a shareholder. In addition, it is the Trust's
policy to include a clause in its contracts which provides that shareholders
assume no personal liability for obligations entered into on behalf of the
Trust. However, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain statutory
liability,
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<PAGE> 48
the shareholders may, in some jurisdictions, be personally liable to the extent
that such claims are not satisfied by the Trust. Inasmuch as the Trust does and
will carry public liability insurance which it considers adequate, any risk of
personal liability to shareholders is limited to situations in which the Trust's
assets plus its insurance coverage would be insufficient to satisfy the claims
against the Trust and its shareholders.
INVESTMENTS IN STARWOOD LODGING, ITT AND THE HOTEL INDUSTRY
OPERATING RISKS. The hotel properties of Starwood Lodging and ITT are
subject to all operating risks common to the hotel industry. These risks
include: changes in general economic conditions; the level of demand for rooms
and related services; cyclical over-building in the hotel industry; restrictive
changes in zoning and similar land use laws and regulations or in health, safety
and environmental laws, rules and regulations; the inability to secure property
and liability insurance to fully protect against all losses or to obtain such
insurance at reasonable rates; and changes in travel patterns. In addition, the
hotel industry is highly competitive. The properties of Starwood Lodging and ITT
compete with other hotel properties in their geographic markets.
SEASONALITY OF HOTEL BUSINESS. The hotel industry is seasonal in nature.
Generally, hotel revenues are greater in the second and third quarters than in
the first and fourth quarters. As a result, the Trust may be required from time
to time to borrow to provide funds necessary to make quarterly distributions.
REGULATION OF GAMING OPERATIONS. A wholly-owned subsidiary of the
Corporation currently leases and operates a casino gaming facility located in
Las Vegas, Nevada. As a result of the Merger, Starwood Lodging will acquire
control of and own through subsidiaries the casino gaming facilities of ITT,
namely, Caesars Palace and The Desert Inn Resort & Casino in Las Vegas, Nevada,
Caesars Atlantic City in Atlantic City, New Jersey and Caesars Tahoe in
Stateline, Nevada. In addition, as a result of the Merger, Starwood Lodging will
acquire control or ownership interests, or both, in gaming establishments in
Delaware, Indiana, Mississippi, New Jersey, as well as in five foreign countries
and on cruise ships operating in international waters. Each of these gaming
operations are subject to certain licensing, permitting and other regulatory
requirements administered by various governmental entities. Typically, gaming
regulatory agencies possess broad powers with respect to the licensing of gaming
operations, and may revoke, suspend, condition or limit the gaming approvals and
licenses of the Corporation and its gaming subsidiaries, impose substantial
fines and take other actions, any of which could have a material adverse effect
on Starwood Lodging's business.
REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk
described in this paragraph. The investment returns available from equity
investments in real estate depend in large part on the amount of income earned
and capital appreciation generated by the related properties as well as the
expenses incurred. In addition, income from properties and real estate values
are also affected by a variety of other factors, such as governmental
regulations and applicable laws (including real estate, zoning, tax and eminent
domain laws), interest rate levels and the availability of financing. For
example, existing or new real estate, zoning or tax laws can make it more
expensive and/or time consuming to develop real property or expand, modify or
renovate hotels. Governments can, under eminent domain laws, take real property,
sometimes for less compensation than the owner believes the property is worth.
When prevailing interest rates increase, the expense of acquiring, developing,
expanding or renovating real property increases, and values decrease as it
becomes more difficult to sell real property because the number of potential
buyers decreases. Similarly, as financing becomes less available, it becomes
more difficult both to acquire real property and, because of the diminished
number of potential buyers, to sell real property. Any of these factors could
have a material adverse impact on Starwood Lodging's results of operations or
financial condition, as well as on its ability to make distributions to its
shareholders and the value of the Paired Shares.
In addition, equity real estate investments, such as the investments held
by Starwood Lodging and any additional properties that may be acquired by
Starwood Lodging, are relatively illiquid. If the properties of Starwood Lodging
do not generate revenue sufficient to meet operating expenses, including debt
service and
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<PAGE> 49
capital expenditures, the income of Starwood Lodging and its ability to make
distributions to its shareholders will be adversely affected.
HOTEL DEVELOPMENT. Starwood Lodging intends to develop hotel properties as
suitable opportunities arise and is currently developing three upscale hotels.
New project development is subject to a number of risks, including risks of
construction delays or cost overruns that may increase project costs; receipt of
zoning, occupancy, and other required governmental permits and authorizations;
and the incurrence of development costs that are not pursued to completion.
There can be no assurance that any development project will be completed in a
timely manner or within budget.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may become liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of hazardous or toxic substances, or
the failure properly to remediate such substances when present, may adversely
affect the owner's ability to sell or rent such real property or to borrow using
such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic wastes may be liable for the costs of removal or
remediation of such wastes at the disposal or treatment facility, regardless of
whether such facility is owned or operated by such person. Other federal, state
and local laws, ordinances and regulations require abatement or removal of
certain asbestos-containing materials in the event of demolition or certain
renovations or remodeling and govern emissions of and exposure to asbestos
fibers in the air. The operation and subsequent removal of certain underground
storage tanks also are regulated by federal and state laws.
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
ITT has significant international operations, including thirty-two
properties in Europe, two properties owned in Africa/Middle East, ten properties
owned in Latin America and three properties owned in Asia Pacific. International
operations generally are subject to various political and other risks that are
not present in U.S. operations, including, among other things, the risk of war
or civil unrest, expropriation and nationalization. In addition, certain
international jurisdictions restrict the repatriation of non-U.S. earnings.
Various international jurisdictions also have laws limiting the right and
ability of non-U.S. entities to pay dividends and remit earnings to affiliated
companies unless specified conditions have been met. In addition, sales in
international jurisdictions typically are made in local currencies, which
subjects ITT to risks associated with currency fluctuations. Currency
devaluations and unfavorable changes in international monetary and tax policies
and other changes in the international regulatory climate and international
economic conditions could materially adversely affect ITT's profitability and
growth plans. Other than Italy, where ITT is subject to certain risks due to
currency fluctuation, ITT's properties are geographically diversified and not
concentrated in any particular region.
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<PAGE> 50
ANTICIPATED SYNERGIES
Starwood Lodging has identified approximately $100 million in synergies
(the "Synergy Projection") in calendar year 1998 it anticipates arising from the
combination of ITT and Starwood Lodging and certain programs ITT implemented in
1997. Starwood Lodging expects to achieve approximately $92 million in synergies
in 1998 related to cost savings and approximately $8 million in synergies
related to net revenue enhancements. Starwood Lodging expects to realize (i) $56
million in cost savings through the rationalization of corporate and hotel
overhead, including certain efficiencies achieved through the continued
implementation of programs begun by ITT, including, among other things,
reduction and rationalization of workforce and consolidation of certain business
operations, (ii) $6 million in cost savings related to the elimination of
certain franchise fees paid to third-party franchisors, (iii) $2 million in cost
savings related to purchasing efficiencies due to economies of scale, (iv) $4
million in cost savings related to operating efficiencies achieved though
complexing (i.e., synergies achieved from operating multiple hotels in close
proximity to each other), (v) $10 million in cost savings related to reduction
in certain technology and reservation system costs and expenses, and (vi) $14
million in cost savings related to termination of ITT's defined benefit plan and
the adoption of a defined contribution plan. Starwood Lodging anticipates that
it will close ITT's New York headquarters during the second quarter of 1998 and
consolidate other operations during the course of the year. ITT incurred certain
charges in 1997 in connection with the implementation of certain cost saving
programs. See "Summary -- Recent Developments -- ITT Fourth Quarter Charge."
Starwood Lodging anticipates achieving approximately $8 million in net revenue
enhancements in 1998 through the combined entities' increased market presence,
cross-selling of hotels, the reflagging of certain of Starwood Lodging's owned
hotels and exploitation of the combined entities' reservation system and offset
by the loss of certain management, franchise and representation agreements.
THE SYNERGY PROJECTION WAS NOT PREPARED IN COMPLIANCE WITH THE PUBLISHED
GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR FORECASTS.
THE ABOVE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
SYNERGY PROJECTION. SEE "RISK FACTORS." ACCORDINGLY, THERE CAN BE NO ASSURANCE
THAT THE ASSUMPTIONS MADE IN PREPARING THE SYNERGY PROJECTION WILL PROVE
ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY DIFFERENT FROM THOSE CONTAINED IN
THE PROJECTION. THE INCLUSION OF THE SYNERGY PROJECTION HEREIN SHOULD NOT BE
RELIED UPON AS SUCH. NONE OF STARWOOD LODGING OR ITT OR ANY OF THEIR FINANCIAL
ADVISORS INTENDS TO UPDATE OR OTHERWISE REVISE THE SYNERGY PROJECTION TO REFLECT
CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF
FUTURE EVENTS EVEN IN THE EVENT THAT THE SYNERGY PROJECTION IS SHOWN TO BE IN
ERROR IN ANY RESPECT.
ITT PROJECTIONS
In the course of its discussions with ITT described under "The
Merger -- Background of the Merger," ITT provided Starwood Lodging and its
financial advisors with certain business and financial information which was not
publicly available. Such information included, among other things, certain
financial projections for the years 1997 through 2001 (the "ITT Projections")
prepared by management of ITT in August of 1997 as part of its strategic plan.
The ITT Projections do not take into account any of the potential effects of the
transactions contemplated by the Merger Agreement or the charges identified in
"Summary -- Recent Developments -- ITT Fourth Quarter Charge":
<TABLE>
<CAPTION>
(Dollars in millions)
1997P 1998P 1999P 2000P 2001P
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
EBITDA........................................ $1,076 $1,422 $1,621 $1,782 $1,953
Pretax Income................................. 544 758 933 1,108 1,330
Income Taxes.................................. 223 303 373 443 532
Net Income.................................... 304 433 533 631 780
</TABLE>
In arriving at the projections set forth above, ITT's management assumed,
among other things, (i) the sale of shares of Alcatel Alsthom owned by ITT for
$843 million, (ii) the sale of ITT's interest in Madison Square Garden, L.P. in
accordance with its agreement with Cablevision Systems Corporation, (iii) the
sale of WBIS+ by December 31, 1997, (iv) the total costs incurred in operating
the world headquarters of ITT would
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<PAGE> 51
be $45.76 million in 1998 and would increase by four percent each year
thereafter and (v) the sale of The Sheraton Casino in Tunica, Mississippi and
the retention of the Desert Inn in Las Vegas, Nevada.
THE ITT PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
IN COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS OR FORECASTS. THE ITT PROJECTIONS WERE BASED ON THE OPERATIONS AND
BUSINESS PLANS OF ITT'S INDIVIDUAL BUSINESS SEGMENTS AT THE TIME THEY WERE
PREPARED AND HAVE NOT BEEN UPDATED TO REFLECT EVENTS OCCURRING AFTER THEIR
PREPARATION. THE ITT PROJECTIONS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE ITT PROJECTIONS. SEE
"RISK FACTORS." ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE ASSUMPTIONS MADE
IN PREPARING THE ITT PROJECTIONS WILL PROVE ACCURATE, AND ACTUAL RESULTS MAY BE
MATERIALLY DIFFERENT FROM THOSE CONTAINED IN THE ITT PROJECTIONS. THE INCLUSION
OF THE ITT PROJECTIONS HEREIN SHOULD NOT BE RELIED UPON. NONE OF STARWOOD
LODGING, ITT OR ANY OF THEIR FINANCIAL ADVISORS INTENDS TO UPDATE OR OTHERWISE
REVISE THE ITT PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN
MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS EVEN IN THE EVENT THAT THE
ITT PROJECTIONS ARE SHOWN TO BE IN ERROR.
FUNDS FROM OPERATIONS
Management of the Trust has established as its goal to increase the Trust's
funds from operations ("FFO") per share by 15 to 20% in 1998. There can be no
assurance that the Trust's FFO will increase, or that it will increase by such
amount, in 1998, and it is possible that the Trust's FFO will decrease, for any
of a number of reasons. See "Risk Factors." With respect to the presentation of
FFO, management elected early adoption of the "new definition" as recommended in
the March 1995 NAREIT White Paper on FFO beginning January 1, 1995. Management
considers funds from operations to be one measure of the financial performance
of an equity REIT that provides a relevant basis for comparison among REITs and
it is presented to assist investors in analyzing the performance of Starwood
Lodging. FFO is defined as income before minority interest (computed in
accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring and sales of property, and real estate related
depreciation and amortization (excluding amortization of financing costs). FFO
does not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of
cash available to fund cash needs. FFO should not necessarily be considered an
alternative to net income as an indication of Starwood Lodging's financial
performance or as an alternative to cash flows from operating activities as a
measure of liquidity.
ILLUSTRATIVE PRORATION CHART
The following chart illustrates the consideration ITT stockholders will
receive in the Merger based on the relative percentages of the total number of
shares of ITT Common Stock for which Cash Elections and Stock Elections are
received. For purposes of valuing the Paired Shares that ITT stockholders will
receive in the Merger, the chart below assumes that the Market Price is not less
than $53.263 and not more than $61.263. If the Market Price is below $53.263,
the Paired Shares ITT stockholders receive in the Merger may have a value of
less than $85 at the Effective Time and if the Market Price is above $61.263,
the Paired Shares that ITT stockholders receive in the Merger may have a value
of greater than $85 at the Effective Time. In order to determine the value of
the Paired Shares that will be issued in the Merger, ITT stockholders are urged
to call the toll-free telephone number Starwood Lodging has established prior to
the ITT Meeting. See "The Merger Agreement -- Exchange of Certificates" below.
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<PAGE> 52
In the chart below, the percentage of the total number of shares of ITT
Common Stock assumed to be Non-Electing Shares equals 100% minus, for any box in
the chart, the sum of the percentages on the horizontal and vertical axes for
such box. For example, the box where it is assumed that 60% of the shares of ITT
Common Stock are subject to a Cash Election and 20% of such shares are subject
to a Stock Election also assumes that 100% -- (60% + 20%), or 20%, of such
shares are Non-Electing Shares (as defined herein).
PERCENTAGE OF TOTAL NUMBER OF SHARES OF ITT COMMON STOCK FOR WHICH CASH
ELECTIONS ARE RECEIVED*
<TABLE>
<CAPTION>
0% 20% 40% 60%
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
Non-electing Stockholders electing Stockholders electing Stockholders electing
stockholders receive cash receive $85 in cash receive $63.75 in cash receive $42.50 in
$85 in cash or Paired cash; non- electing cash and $21.25 in cash and $42.50 in
0% Shares determined by stockholders receive Paired Shares; Paired Shares;
lot. $85 in cash or Paired non-electing non-electing
Shares determined by stockholders receive stockholders receive
lot. $85 in Paired Shares. $85 in Paired Shares.
-----------------------------------------------------------------------------------------------------
Stockholders electing Stockholders electing Stockholders electing Stockholders electing
stock receive $85 in cash receive $85 in cash receive $63.75 in cash receive $42.50 in
Paired Shares; non- cash; stockholders cash and $21.25 in cash and $42.50 in
electing stockholders electing stock receive Paired Shares; Paired Shares;
20% receive $85 in cash or $85 in Paired Shares; stockholders electing stockholders electing
Paired Shares non-electing stock and non-electing stock and non-electing
determined by lot. stockholders receive stockholders receive stockholders receive
$85 in cash or Paired $85 in Paired Shares. $85 in Paired Shares.
Shares determined by
lot.
-----------------------------------------------------------------------------------------------------
Stockholders electing Stockholders electing Stockholders electing Stockholders electing
stock receive $85 in cash receive $85 in cash receive $63.75 in cash receive $42.50 in
Paired Shares; non- cash; stockholders cash and $21.75 in cash and $42.50 in
electing stockholders electing stock receive Paired Shares; Paired Shares;
40% receive $85 in cash or $85 in Paired Shares; stockholders electing stockholders electing
Paired Shares non-electing stock and non-electing stock receive $85 in
determined by lot. stockholders receive stockholders receive Paired Shares.
$85 in cash or Paired $85 in Paired Shares.
Shares determined by
lot.
-----------------------------------------------------------------------------------------------------
Stockholders electing Stockholders electing Stockholders electing
stock receive $85 in cash receive $85 in cash receive $63.75 in
Paired Shares; non- cash; stockholders cash and $21.25 in
electing stockholders electing stock receive Paired Shares; N/A
60% receive $85 in cash or $85 in Paired Shares; stockholders electing
Paired Shares non-electing stock receive $85 in
determined by lot. stockholders receive Paired Shares.
$85 in cash or Paired
Shares determined by
lot.
-----------------------------------------------------------------------------------------------------
Stockholders electing Stockholders electing
stock receive $85 in cash receive $85 in
80% Paired Shares; non- cash; stockholders N/A N/A
electing stockholders electing stock receive
receive $85 in cash or $85 in Paired Shares.
Paired Shares
determined by lot.
-----------------------------------------------------------------------------------------------------
<CAPTION>
80%
<S> <C>
------------------------------
Stockholders electing
cash receive $31.875 in
cash and $53.125 in
0% Paired Shares;
non-electing
stockholders receive
$85 in Paired Shares.
------------------------------
Stockholders electing
cash receive $31.875 in
cash and $53.125 in
Paired Shares;
20% stockholders electing
stock receive $85 in
Paired Shares.
------------------------------
N/A
40%
------------------------------
N/A
60%
------------------------------
80% N/A
------------------------------
</TABLE>
STUB IS PERCENTAGE OF TOTAL NUMBER OF SHARES OF ITT COMMON STOCK FOR WHICH STOCK
ELECTIONS ARE RECEIVED**
* If Cash Elections are received for 100% of the shares of ITT Common Stock,
ITT stockholders will receive $25.50 in cash and $59.50 in Paired Shares.
** If Stock Elections are received for 100% of the shares of ITT Common Stock,
ITT stockholders will receive $15.30 in cash and $69.70 in Paired Shares.
44
<PAGE> 53
THE MEETINGS
DATE, PLACE AND TIME
STARWOOD MEETINGS. The Trust Meeting and the Corporation Meeting are to be
held on February 18, 1998 at 10:00 a.m. and 10:30 a.m. (local time),
respectively, at the Imperial Ballroom of the Sheraton New York Hotel & Tower,
811 Seventh Avenue, New York, New York.
THE ITT MEETING. The ITT Meeting is to be held on February 12, 1998 at
11:30 a.m., local time, at the Imperial Ballroom of the Sheraton New York Hotel
& Tower, 811 Seventh Avenue, New York, New York.
MATTERS TO BE CONSIDERED
THE TRUST MEETING. At the Trust Meeting, the shareholders of the Trust
will consider and vote upon (i) the Shares Issuance Proposal, (ii) the Trust
Authorized Share Amendment, (iii) the Trust Name Change Proposal, (iv) the Trust
Redemption Amendment and (v) such other business as may properly come before the
Trust Meeting.
The Trust Board is not aware of any other matter that will be presented at
the Trust Meeting, including, without limitation, any motion to adjourn such
meeting. If any other matter is presented at the Trust Meeting, the persons
named as proxies on the enclosed proxy card will, in the absence of shareholder
instructions to the contrary, vote the Trust Shares for which such persons have
voting authority in accordance with their discretion on such matter; provided,
however, in the event of any motion to adjourn the Trust Meeting to solicit
votes in favor of the Shares Issuance Proposal, the Trust Authorized Share
Amendment, the Trust Name Change Proposal or the Trust Redemption Amendment,
proxies voting against such proposal, as the case may be, will not be voted on
the motion to adjourn the Trust Meeting.
THE CORPORATION MEETING. At the Corporation Meeting, the stockholders of
the Corporation will consider and vote upon (i) the Shares Issuance Proposal,
(ii) the Corporation Authorized Share Amendment, (iii) the Corporation Gaming
Provision Amendment and (iv) such other business as may properly come before the
Corporation Meeting.
The Corporation Board is not aware of any other matter that will be
presented at the Corporation Meeting, including, without limitation, any motion
to adjourn such meeting. If any other matter is presented at the Corporation
Meeting, the persons named as proxies on the enclosed proxy card will, in the
absence of stockholder instructions to the contrary, vote the Corporation Shares
for which such persons have voting authority in accordance with their discretion
on such matter; provided, however, in the event of any motion to adjourn the
Corporation Meeting to solicit votes in favor of the Shares Issuance Proposal,
the Corporation Authorized Share Amendment or the Corporation Gaming Provision
Amendment, proxies voting against such proposal, as the case may be, will not be
voted on the motion to adjourn the Corporation Meeting.
THE ITT MEETING. At the ITT Meeting, the stockholders of ITT will consider
and vote upon (i) the ITT Proposal and (ii) such other business as may properly
come before the ITT Meeting.
The ITT Board is not aware of any other matter that will be presented at
the ITT Meeting, including, without limitation, any motion to adjourn such
meeting. If any other matter is presented at the ITT Meeting, the persons named
as proxies on the enclosed proxy card will, in the absence of stockholder
instructions to the contrary, vote the shares of ITT Common Stock for which such
persons have voting authority in accordance with their discretion on such
matter; provided, however, in the event of any motion to adjourn the ITT Meeting
to solicit votes in favor of the ITT Proposal, proxies voting against the ITT
Proposal will not be voted on the motion to adjourn the ITT Meeting.
VOTING RIGHTS
THE TRUST. The Trust Board has fixed the close of business on January 20,
1998 as the record date (the "Trust Record Date") for determining the
shareholders entitled to notice of, and to vote at, the Trust Meeting. On the
Trust Record Date there were outstanding and entitled to vote 51,345,930 Trust
Shares held of record by approximately 1,800 persons and 6,285,783 Class A EPS
and 5,294,783 Class B EPS. The Trust Shares are the only outstanding classes of
voting securities of the Trust on the Trust Record Date. Each holder of Trust
Common Shares will be entitled to one vote for each Trust Common Share held of
record by such
45
<PAGE> 54
shareholder on the Trust Record Date on each matter that may be properly
submitted to a vote at the Trust Meeting. Each Class A EPS is entitled, on each
matter that may be properly submitted to a vote at the Trust Meeting, to one
vote and each Class B EPS is entitled, on each matter that may be properly
submitted to a vote at the Trust Meeting, to one vote.
A majority of the outstanding Trust Shares entitled to vote must be
present, either in person or by duly executed proxy, at the Trust Meeting in
order to constitute a quorum for the transaction of business. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum at the Trust Meeting.
As of the Trust Record Date, trustees and officers of the Trust as a group
had the right to vote an aggregate of 173,662 Trust Shares, representing less
than 1% of the Trust Shares outstanding on such date. All such trustees and
officers have indicated that they intend to vote all such shares held by them in
favor of approval of the Shares Issuance Proposal and each item included in the
Trust Amendment.
THE CORPORATION. The Corporation Board has fixed the close of business on
January 20, 1998 as the record date (the "Corporation Record Date") for
determining the stockholders entitled to notice of, and to vote at, the
Corporation Meeting. On the Corporation Record Date there were outstanding and
entitled to vote 51,345,930 Corporation Shares held of record by approximately
1,800 persons. The Corporation Shares are the only outstanding class of voting
securities of the Corporation on the Corporation Record Date and each
stockholder of the Corporation will be entitled to one vote for each Corporation
Share held of record by such stockholder on the Corporation Record Date on each
matter that may be properly submitted to a vote at the Corporation Meeting.
A majority of the outstanding Corporation Shares entitled to vote must be
present, either in person or by duly executed proxy, at the Corporation Meeting
in order to constitute a quorum for the transaction of business. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum at the Corporation Meeting.
As of the Corporation Record Date, directors and officers of the
Corporation as a group had the right to vote an aggregate of 265,973 Corporation
Shares, representing less than 1% of the Corporation Shares outstanding on such
date. All such directors and officers have indicated that they intend to vote
all such shares held by them in favor of approval of the Shares Issuance
Proposal and each item included in the Corporation Amendment.
ITT. The ITT Board has fixed the close of business on December 19, 1997 as
the record date (the "ITT Record Date") for determining the stockholders
entitled to notice of, and to vote at, the ITT Meeting. On the ITT Record Date
there were outstanding and entitled to vote 118,384,552 shares of ITT Common
Stock held of record by approximately 51,000 persons. The ITT Common Stock is
the only outstanding class of voting securities of ITT and each stockholder of
ITT will be entitled to one vote for each share of ITT Common Stock held of
record by such stockholder on the ITT Record Date on each matter that may be
properly submitted to a vote at the ITT Meeting.
A majority of the outstanding shares of ITT Common Stock entitled to vote
must be present, either in person or by duly executed proxy, at the ITT Meeting
in order to constitute a quorum for the transaction of business. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum at the ITT Meeting.
As of the ITT Record Date, directors and officers of ITT as a group had the
right to vote an aggregate of 750,851 shares of ITT Common Stock, representing
less than 1% of the shares of ITT Common Stock outstanding on such date. All
such directors and officers have indicated that they intend to vote all such
shares held by them in favor of approval of the ITT Proposal.
PROXIES
THE TRUST. Each Trust Share represented at the Trust Meeting by a duly
executed proxy solicited by the Trust Board will, unless such proxy previously
has been revoked, be voted at the Trust Meeting in accordance with the
shareholder instructions specified thereon. If no instructions are specified,
such Trust Shares will be
46
<PAGE> 55
voted FOR the approval of the Shares Issuance Proposal, the Trust Authorized
Share Amendment, the Trust Name Change Proposal and the Trust Redemption
Amendment.
If a quorum is not present at the time the Trust Meeting is convened, or if
for any other reason the Trust Board believes that the Trust Meeting should be
adjourned or postponed, the Trust Meeting may be adjourned or postponed with or
without a vote of the shareholders. If the Trust Board proposes to adjourn or
postpone the Trust Meeting by a vote of the shareholders, the persons named as
proxies on the enclosed proxy card will vote all Trust Shares for which such
persons have voting authority in favor of such adjournment or postponement.
A shareholder of the Trust may revoke a proxy at any time prior to exercise
of such proxy by (i) giving the Secretary of the Trust a written notice of
revocation bearing a date later than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same Trust Shares and delivering such proxy
to the Secretary of the Trust or (iii) attending the Trust Meeting and voting in
person, although attendance at the Trust Meeting will not in and of itself
constitute a revocation of a proxy. Any instrument of revocation should be sent
to Starwood Hotels & Resorts Trust, 2231 E. Camelback Road, Suite 410, Phoenix,
Arizona 85016, Attention: Ronald C. Brown.
THE CORPORATION. Each Corporation Share represented by a duly executed
proxy solicited by the Corporation Board will, unless such proxy previously has
been revoked, be voted at the Corporation Meeting in accordance with the
stockholder instructions specified thereon. If no instructions are specified,
such Corporation Shares will be voted FOR the approval of the Shares Issuance
Proposal, the Corporation Authorized Share Amendment and the Corporation Gaming
Provision Amendment.
If a quorum is not present at the time the Corporation Meeting is convened,
or if for any other reason the Corporation Board believes that the Corporation
Meeting should be adjourned or postponed, the Corporation Meeting may be
adjourned or postponed with or without a vote of the stockholders. If the
Corporation Board proposes to adjourn or postpone the Corporation Meeting by a
vote of the stockholders, the persons named as proxies on the enclosed proxy
card will vote all Corporation Shares for which those persons have voting
authority in favor of such adjournment or postponement.
A stockholder of the Corporation may revoke a proxy at any time prior to
exercise of such proxy by (i) giving the Secretary of the Corporation a written
notice of revocation bearing a date later than the date of the proxy, (ii) duly
executing a subsequent proxy relating to the same Corporation Shares and
delivering such proxy to the Secretary of the Corporation or (iii) attending the
Corporation Meeting and voting in person, although attendance at the Corporation
Meeting will not in and of itself constitute a revocation of a proxy. Any
instrument of revocation should be sent to: Starwood Hotels & Resorts Worldwide,
Inc., 2231 E. Camelback Road, Suite 400, Phoenix, Arizona 85016, Attention: Nir
E. Margalit.
ITT. Each share of ITT Common Stock represented by a duly executed proxy
solicited by the ITT Board will, unless such proxy previously has been revoked,
be voted at the ITT Meeting in accordance with the stockholder instructions
specified thereon. If no instructions are specified, such shares of ITT Common
Stock will be voted FOR the approval of the ITT Proposal.
If a quorum is not present at the time the ITT Meeting is convened, or if
for any other reason the ITT Board believes that the ITT Meeting should be
adjourned or postponed, the ITT Meeting may be adjourned or postponed with or
without a vote of the stockholders. If the ITT Board proposes to adjourn or
postpone the ITT Meeting by a vote of the stockholders, the persons named as
proxies on the enclosed proxy card will vote all shares of ITT Common Stock for
which those persons have voting authority in favor of such adjournment or
postponement.
A stockholder of ITT may revoke a proxy at any time prior to exercise of
such proxy by (i) giving the Secretary of ITT a written notice of revocation
bearing a date later than the date of the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of ITT Common Stock and delivering
such proxy to the Secretary of ITT or (iii) attending the ITT Meeting and voting
in person, although attendance at the ITT Meeting will not in and of itself
constitute a revocation of a proxy. Any instrument of revocation should be sent
to: ITT Corporation, 1330 Avenue of the Americas, New York, New York 10019,
Attention: Corporate Secretary.
47
<PAGE> 56
SOLICITATION OF PROXIES
The expenses of the solicitation of proxies by the Trust Board and the
Corporation Board, including the costs of preparing this Joint Proxy
Statement/Prospectus, will be borne by the Trust and the Corporation, except
that expenses incurred in connection with printing and mailing this Joint Proxy
Statement/Prospectus will be borne equally by the Corporation and ITT. Except as
provided in the foregoing sentence, the expenses of the solicitation of proxies
by the ITT Board will be borne by ITT. In addition to solicitation by use of the
mails, proxies may be solicited in person or by telephone, facsimile or other
appropriate means of communication by trustees, directors, officers and
employees of the Trust, the Corporation or ITT. Such individuals will receive no
additional compensation for, but may be reimbursed for their out-of-pocket
expenses incurred in connection with, such solicitation. The Trust and the
Corporation have engaged the services of D.F. King & Co., Inc. to solicit
proxies and to assist in the distribution of proxy materials for a fee of
$20,000 plus reimbursement of reasonable out-of-pocket expenses. ITT has engaged
the services of Georgeson & Company Inc. to solicit proxies and to assist in the
distribution of proxy materials for a fee of $75,000 plus reimbursement of
reasonable out-of-pocket expenses. The Trust and the Corporation will reimburse
persons holding Paired Shares, and ITT will reimburse persons holding shares of
ITT Common Stock, in their names or the names of their nominees but not owning
such shares beneficially (such as brokerage houses, banks and other fiduciaries)
for out-of-pocket expenses incurred in forwarding soliciting materials to the
beneficial owners of such shares.
INDEPENDENT ACCOUNTANTS
It is expected that representatives of Coopers & Lybrand, L.L.P., Starwood
Lodging's independent accountants, will be present at the Starwood Lodging
Meetings. Such representatives will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions. It is expected that representatives of Arthur Andersen LLP, ITT's
independent accountants, will be present at the ITT Meeting. Such
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
48
<PAGE> 57
THE MERGER
This section of the Joint Proxy Statement/Prospectus, as well as the
section entitled "The Merger Agreement," describe certain aspects of the Merger.
To the extent that it relates to the Merger Agreement, the following description
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached as Annex A and is incorporated
herein by reference. All shareholders and stockholders are urged to read the
Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
required approvals of the ITT stockholders and Starwood Lodging shareholders and
stockholders are obtained and all other conditions to the Merger are satisfied
or waived. Upon consummation of the Merger, Merger Sub will be merged with and
into ITT and ITT will become a subsidiary of the Corporation.
Upon consummation of the Merger, each outstanding share of ITT Common
Stock, together with the associated Right (other than shares owned by ITT, the
Starwood Companies or their respective wholly owned subsidiaries), will be
converted into the right to receive, at the holder's election, $85 in cash or
Paired Shares at the Exchange Ratio, subject to the collar provisions described
in "The Merger Agreement -- Conversion of Shares" (together with the Interest
Payment, if any, the "Merger Consideration"); provided that the aggregate number
of shares of ITT Common Stock to be converted into the right to receive cash
will neither exceed 30% nor be less than 18% of the total number of shares of
ITT Common Stock outstanding immediately prior to the Effective Time. Pursuant
to the Merger Agreement, each holder of ITT Common Stock will also be entitled
to receive for each share of ITT Common Stock converted in the Merger an
additional amount equal to the interest that would accrue (without compounding)
on $85 at an annual rate of 7% during the period from and including January 31,
1998 to but excluding the date of closing of the Merger. For a more detailed
explanation of the method by which the Exchange Ratio will be determined,
including a toll-free telephone number that stockholders of ITT or shareholders
and stockholders of Starwood Lodging may call to receive information regarding
the Exchange Ratio, see "The Merger Agreement -- Exchange of Certificates." Cash
will be delivered in lieu of fractional shares.
BACKGROUND OF THE MERGER
On January 27, 1997, Hilton and its wholly owned subsidiary, HLT
Corporation ("HLT"), commenced a hostile tender offer (the "Hilton Offer") for
61,145,475 shares of ITT Common Stock (including the associated Rights), or such
greater number of shares of ITT Common Stock as, when added to the number of
shares owned by HLT and its affiliates, would constitute a majority of the total
number of outstanding shares of ITT Common Stock, at $55 per share in cash.
Hilton announced that, if the Hilton Offer succeeded, Hilton intended to
consummate a merger (the "Proposed Squeeze Out Merger" and, together with the
Hilton Offer, the "Hilton Transaction") pursuant to which all shares of ITT
Common Stock not tendered and purchased pursuant to the Hilton Offer (other than
shares owned by Hilton and its affiliates or held in ITT's treasury) would be
converted into the right to receive a number of shares of Hilton common stock,
par value $2.50 per share ("Hilton Common Stock"), having a value that Hilton
purported would be $55 per share, subject to then unspecified collar provisions.
The terms of the Hilton Transaction and all revisions thereto are set forth in a
Tender Offer Statement on Schedule 14D-1 and amendments and exhibits thereto
(the "Hilton Schedule 14D-1") filed by Hilton and HLT with the Commission.
On February 11, 1997, the ITT Board held a meeting at which it determined
that the Hilton Offer was inadequate and not in the best interests of ITT and
recommended that ITT stockholders reject the Hilton Transaction and not tender
their shares of ITT Common Stock in the Hilton Offer. The ITT Board also
determined that ITT's and its stockholders' interests would be best served if
ITT were to remain an independent entity. Following the meeting, ITT publicly
announced that the ITT Board had rejected the Hilton Offer. Present at the
February 11 meeting were all directors of ITT, all executive officers and
certain other employees of ITT, and representatives of Goldman Sachs and Lazard
Freres, financial advisors to ITT, and attorneys from Cravath, Swaine & Moore,
counsel to ITT, Simpson Thacher & Bartlett, counsel to ITT's
49
<PAGE> 58
financial advisors, and ITT's Nevada and New Jersey local counsel. At the
meeting, ITT's legal advisors reviewed the duties applicable to the ITT Board
members in their consideration of the Hilton Transaction and discussed with the
ITT Board the terms and conditions of the proposed Hilton Transaction and
related litigation that had been commenced by Hilton. Members of ITT management
reviewed the operating and financial performance of ITT. Representatives of
Goldman Sachs and Lazard Freres made a presentation to the ITT Board in which
they reviewed the financial aspects of the Hilton Transaction and certain
information about ITT, Hilton and certain other companies.
In reaching its determinations and recommendations at the February 11
meeting, the ITT Board considered a number of factors including, without
limitation, the following:
(i) the ITT Board's belief, based on the factors further described
below, that the Hilton Transaction, including the Hilton Offer, did not
reflect the inherent value of ITT;
(ii) the ITT Board's familiarity with, and management's review of,
ITT's business, financial condition, results of operations, business
strategy and future prospects, including the nature of the markets in which
ITT operates and ITT's position in such markets;
(iii) a presentation by Lazard Freres and Goldman Sachs concerning
ITT, Hilton and the financial aspects of the Hilton Transaction, and the
opinions of Lazard Freres and Goldman Sachs to the effect that, as of
February 11, 1997, the consideration to be received by stockholders of ITT
pursuant to the Hilton Transaction, including the Hilton Offer, was
inadequate; such opinions were expressed after review of many of the
factors and various financial criteria used in assessing an offer, and were
based on various assumptions and subject to various limitations, which were
reviewed for the ITT Board as part of the presentation of Lazard Freres and
Goldman Sachs;
(iv) the ITT Board's belief that pursuit of ITT's strategic plan,
including refinements that might result after February 11 from management's
ongoing review, would have produced greater short-term and long-term value
for the stockholders of ITT than the Hilton Transaction, including the
Hilton Offer;
(v) the absence of information regarding the role of HFS Incorporated
("HFS") in the Hilton Transaction and the ITT Board's concern about
possible adverse effects on the value of an investment in Hilton securities
following any combination with ITT, including the potential negative impact
of HFS's involvement in the Hilton Transaction on the value of ITT's
Sheraton and Four Points hotel businesses, the potential disruption of ITT
hotel management contracts and franchise arrangements (as evidenced by
communications from existing hotel owners and franchisees opposing any plan
for HFS to assume these contracts), and the potential for competition,
cannibalization and conflicts between Hilton properties, Ladbroke Group plc
properties and Sheraton and/or Four Points properties following any
combination of Hilton and ITT;
(vi) the uncertainty as to the actual value at such time of the
Proposed Squeeze Out Merger to the stockholders of ITT, resulting from,
among other things, the lack of disclosure at such time in the Hilton
Schedule 14D-1 concerning the Proposed Squeeze Out Merger, including the
manner in which the number of shares of Hilton Common Stock to be issued in
the Proposed Squeeze Out Merger would be determined, and the failure of
Hilton to give sufficient assurance in the Hilton Schedule 14D-1 that the
Proposed Squeeze Out Merger would qualify for tax-free "reorganization"
status;
(vii) the lack of sufficient disclosure in the Hilton Schedule 14D-1
at such time regarding the proposed financing of the Hilton Offer, the
possibility that restrictive covenants or other conditions to such
financing would have had a negative impact on the ability of Hilton to
maintain and/or expand the proposed combined business, and the effect of
the Hilton Transaction on Hilton's capital structure and credit ratings;
(viii) the fact that, as a result of uncertainties about the actual
value of the Proposed Squeeze Out Merger and the merits of a longer-term
investment in Hilton, the Hilton Transaction was structured as a
two-tiered, front-end loaded transaction that was intended to coerce
stockholders to tender their shares into the Hilton Offer to avoid
receiving in the Proposed Squeeze Out Merger shares of Hilton Common Stock
that may or may not have had a value of $55 per share;
50
<PAGE> 59
(ix) the ITT Board's concern about Hilton's access to and misuse of
confidential ITT information;
(x) the ITT Board's concern about antitrust violations relating to a
combination of ITT and Hilton, which create uncertainty as to whether the
conditions of the Hilton Offer would have been met; in that regard, the ITT
Board noted that the Hilton Offer was conditioned on there not being
threatened, instituted or pending any action by any domestic or foreign
governmental entity or by any other person seeking to impose any
limitations upon the ownership or operation by Hilton of any portion of the
business or assets of ITT;
(xi) the ITT Board's belief that there were gaming law issues relating
to a combination of ITT and Hilton, which created uncertainty as to whether
the conditions of the Hilton Offer would have been met; in that regard, the
ITT Board noted that the Hilton Offer was conditioned on the receipt of all
material consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, casino gaming regulatory
authorities with jurisdiction in respect of ITT's active gaming operations
required or necessary in connection with the Hilton Offer and the Proposed
Squeeze Out Merger;
(xii) the disruptive effect the Hilton Offer and the Proposed Squeeze
Out Merger were having on ITT and the potential adverse effect of the
Hilton Transaction on the interests of ITT's employees, suppliers,
creditors and customers, on the economies of the state of Nevada and the
nation, and on the interests of the communities in which ITT operates and
of society; and
(xiii) the ITT Board's and management's commitment to protecting the
best interests of the stockholders of ITT and enhancing the value of ITT.
The foregoing discussion of the information and factors considered and
given weight by the ITT Board at its February 11, 1997 meeting is not intended
to be exhaustive. In view of the variety of factors considered in its
evaluation, the ITT Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determinations and recommendations. In addition, individual members of the
ITT Board may have given different weights to different factors. At the February
11 meeting, the ITT Board also considered the recommendations of ITT's human
resources consultants, Towers Perrin, and reviewed industry practices concerning
change-in-control severance benefits. In view of the need to minimize employee
distraction and to retain employee loyalty and dedication to ITT and to assure
their attention to ITT's performance pending resolution of the Hilton Offer, the
ITT Board resolved (with management members of the ITT Board abstaining) to
revise ITT's previous policy concerning executive severance agreements in order
to provide severance payments to certain officers and employees in the event of
a change in control. The ITT Board determined that such severance arrangements
were fair and consistent with industry practices.
In connection with the Hilton Transaction, Hilton commenced efforts to
replace the ITT Board members with individuals committed to consummating the
Hilton Transaction. On February 26, 1997, Hilton filed a motion in the U.S.
District Court for the District of Nevada seeking to require ITT to hold its
1997 annual meeting of stockholders in May of 1997. Hilton filed definitive
proxy materials with the Commission on March 21, 1997, soliciting proxies to
replace the eleven incumbent ITT directors with up to 25 persons nominated by
Hilton and HLT, to urge the ITT Board to arrange the sale of ITT to Hilton or
any bidder offering a higher price and to repeal each provision of the ITT
By-laws adopted on or after July 23, 1996. The Nevada Federal court denied
Hilton's motion on April 21, 1997 and the ITT Board took no action to hold ITT's
1997 annual meeting of stockholders in May 1997.
On February 11, 1997, as a step in its corporate strategic plan, ITT sold
three million shares, or approximately 40% of its holdings, of the capital
shares of Alcatel Alsthom for proceeds of approximately $300 million. ITT sold
its remaining 4.5 million shares of Alcatel Alsthom on March 27, 1997 for
approximately $530 million.
On March 6, 1997, ITT entered into an agreement in principle to sell its
50% interest in Madison Square Garden, L.P. ("MSG") to Cablevision Systems
Corporation ("Cablevision"). Under the terms of the agreement in principle,
Cablevision agreed to pay ITT $500 million in cash for a 38.5% interest in MSG,
which transaction closed on June 17, 1997. In addition, at such closing,
Cablevision caused SportsChannel
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<PAGE> 60
Associates, a New York general partnership, to be contributed as a capital
contribution to MSG, which diluted ITT's continuing limited partnership interest
in MSG to 10.2%. ITT has a "put" option to require Cablevision or MSG to
purchase half of ITT's continuing 10.2% interest in MSG for $75 million on June
17, 1998 and the other half of this continuing interest for an additional $75
million (or if the first "put" option is not exercised, ITT's entire continuing
interest for $150 million) on June 17, 1999. ITT also has contributed to MSG an
aircraft owned by ITT at a value of $38 million. As a result of this
contribution, each of the "put" prices has been increased by $19 million.
In March 1997, Barry S. Sternlicht, Chairman and Chief Executive Officer of
the Trust, initiated a discussion with Robert A. Bowman, President and Chief
Operating Officer of ITT, to discuss the possibility of combining the two
companies. During April and May 1997, Mr. Bowman and Mr. Sternlicht had several
additional brief discussions regarding a potential transaction between ITT and
Starwood Lodging. At such time, no officer of Starwood had any prior
relationship with ITT or ITT's officers and directors that was materially
related to these initial contacts. During these discussions, Mr. Bowman and Mr.
Sternlicht discussed generally Starwood Lodging, ITT, paired-share REITs and the
hotel industry, but no specific transaction was proposed and no offer to acquire
ITT was made. Although ITT's management and Goldman Sachs and Lazard Freres
undertook preliminary reviews of Starwood Lodging, ITT did not pursue the
possibility of an acquisition of ITT by Starwood Lodging because the ITT Board
had determined to pursue a policy of independence for ITT. In each of these
contacts, ITT declined to discuss an acquisition by Starwood Lodging. The ITT
Board had determined to reject the Hilton Transaction and remain independent
based on the factors described above. At such time, there further was no
indication that an offer sufficiently high to cause the ITT Board to reconsider
its position would come from Starwood Lodging, Hilton or any other party.
On May 12, 1997, ITT and Dow Jones & Company, Inc. reached a definitive
agreement to sell television station WBIS+, Channel 31 in New York City, to
Paxson Communications Corporation for $257.5 million. The closing of this
transaction is subject to regulatory approval and is expected to occur in the
first quarter of 1998.
On June 30, 1997, ITT sold to FelCor Suite Hotels, Inc. five Sheraton
hotels for $200 million in cash and retained a 20-year contract to manage such
hotels, subject to a limited change of control provision.
At a meeting on July 15, 1997, the ITT Board approved a plan (the
"Comprehensive Plan") involving the separation of ITT into three distinct
publicly owned companies focused on (a) hotels and gaming, (b) post-secondary
technical education and (c) telephone directories publishing, through the
distribution to ITT stockholders of all the shares owned by ITT of a subsidiary
formed to hold ITT's hotels and gaming assets and ITT Educational, ITT's
subsidiary that operates its post-secondary technical education business. The
Comprehensive Plan also involved a cash tender offer by ITT for up to 30 million
shares of ITT Common Stock at a price per share of $70 and the allocation of
ITT's indebtedness between its hotels and gaming business and its telephone
directories publishing business. Present at the July 15, 1997 meeting were all
directors of ITT, all executive officers and certain other employees of ITT,
representatives of Goldman Sachs and Lazard Freres, attorneys from Cravath,
Swaine & Moore, Simpson Thacher & Bartlett and ITT's Nevada and New Jersey local
counsel, a representative from ITT's public relations firm and representatives
from The Chase Manhattan Bank. The participants at the meeting discussed the
Comprehensive Plan in detail. ITT's legal advisors reviewed the duties
applicable to the ITT Board members in their consideration of the Comprehensive
Plan and the Hilton Transaction and discussed the terms of the Comprehensive
Plan, related litigation, the tax consequences of the Comprehensive Plan and
necessary regulatory actions. Management of ITT discussed with the ITT Board the
operating and financial performance of ITT and the structural, legal and
financial aspects of the Comprehensive Plan. Representatives of Goldman Sachs
and Lazard Freres made a presentation to the ITT Board concerning the financial
aspects of the Hilton Transaction, ITT, Hilton, certain other companies and
transactions and the financial aspects of the Comprehensive Plan.
At the July 15, 1997 meeting, the ITT Board reassessed the Hilton
Transaction in light of developments since February 11, including the
Comprehensive Plan, and unanimously reaffirmed its conclusion that the Hilton
Transaction, including the Hilton Offer, was inadequate and not in the best
interests of ITT. Accordingly, the ITT Board continued to recommend unanimously
that the stockholders of ITT reject the
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Hilton Transaction and not tender their shares pursuant to the Hilton Offer or
take any other action to facilitate the Hilton Offer. The ITT Board also
unanimously reaffirmed its conclusion that ITT's and its stockholders' interests
would be best served if ITT (and particularly its core business) were to remain
independent. In reaching its determinations and recommendations at the July 15
meeting, the ITT Board considered a number of factors, including, without
limitation, the following:
(i) the ITT Board's belief, based on the factors described below, that
the Hilton Transaction, including the Hilton Offer did not reflect the
inherent value of ITT;
(ii) the ITT Board's familiarity with, and management's review of,
ITT's businesses, financial condition, results of operations, business
strategy and future prospects, including the nature of the markets in which
ITT operates and ITT's position in such markets;
(iii) a presentation by Goldman Sachs and Lazard Freres concerning
ITT, Hilton and the financial aspects of the Hilton Transaction, and the
opinions of Goldman Sachs and Lazard Freres to the effect that, as of July
15, 1997, the consideration to be received by stockholders of ITT pursuant
to the Hilton Transaction, including the Hilton Offer, was inadequate; such
opinions were expressed after review of many of the factors referred to
herein and various financial criteria used in assessing an offer, and were
based on various assumptions and subject to various limitations, which were
reviewed for the ITT Board as part of the presentation of Goldman Sachs and
Lazard Freres;
(iv) the ITT Board's belief that pursuit of the Comprehensive Plan and
the successful implementation by the three companies created by the
Comprehensive Plan of their respective long-term strategic plans would
produce greater value for the stockholders of ITT and greater benefits for
ITT's employees, creditors, customers, and the economies and communities in
which ITT operates than the Hilton Transaction, including the Hilton Offer;
(v) the potential negative impact of the involvement of HFS in the
Hilton Transaction on the value of ITT's Sheraton and Four Points hotel
businesses, the potential disruption of hotel management contracts and
franchise arrangements of ITT (as evidenced by communications from existing
hotel owners and franchisees opposing any plan for HFS to assume these
contracts and insisting upon contractual "change-in-control" provisions
that would be triggered by the Hilton Transaction), and the potential for
competition, cannibalization and conflicts between Hilton properties,
Ladbroke Group plc properties and Sheraton and/or Four Points properties
following any combination of Hilton and ITT; in that regard, the ITT Board
noted the additional uncertainty as to HFS's strategy following its
announced merger with CUC International and the continuing absence of
information regarding the role of HFS in the Hilton Transaction;
(vi) the ITT Board's belief that an acquisition of ITT by Hilton could
have an adverse effect on the business and prospects of the combined entity
as a result of Hilton's management's lack of a proven "track record" in
growing a large chain of owned, managed or franchised full service,
international hotels;
(vii) the continuing uncertainty as to the actual value of the
Proposed Squeeze Out Merger to the stockholders of ITT, resulting from,
among other things, the lack of disclosure in the Hilton Schedule 14D-1 at
such time concerning the Proposed Squeeze Out Merger, including the manner
in which the number of shares of Hilton Common Stock to be issued in the
Proposed Squeeze Out Merger would be determined, the failure of Hilton to
give sufficient assurance in the Hilton Schedule 14D-1 that the Proposed
Squeeze Out Merger would qualify for tax-free "reorganization" status and
the ITT Board's concern about possible adverse effects on the value of an
investment in Hilton securities following any combination with ITT;
(viii) the lack of sufficient disclosure in the Hilton Schedule 14D-1
at such time regarding the proposed financing of the Hilton Offer, and the
resulting impossibility of determining if restrictive covenants or other
conditions to such financing would have an unduly negative impact on the
ability of Hilton to maintain and/or expand the proposed combined business
and the effect of the Hilton Transaction on Hilton's capital structure and
credit ratings; in that regard, the ITT Board noted that Hilton had
consummated two debt offerings since the commencement of the Hilton Offer
that expressly
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required Hilton to pay increased interest rates on such indebtedness in the
event that Hilton's credit ratings fell below specified thresholds as a
result of significant acquisitions;
(ix) the fact that, as a result of uncertainties about the actual
value of the Proposed Squeeze Out Merger and the merits of a longer-term
investment in Hilton, the Hilton Transaction was structured as a two
tiered, front-end loaded transaction that was intended to coerce
stockholders to tender their shares into the Hilton Offer to avoid
receiving in the Proposed Squeeze Out Merger shares of Hilton Common Stock
that may or may not had a value of $55 per share;
(x) the ITT Board's concern that Hilton may have had access to and
misused confidential ITT information;
(xi) the ITT Board's concern about press reports of investigations
taking place into possible activities of a key Hilton executive and concern
about senior gaming executives' possible prior activities in several gaming
jurisdictions;
(xii) the ITT Board's belief that there would be undue economic
concentration and other gaming law issues relating to a combination of ITT
and Hilton, which created uncertainty as to whether the conditions of the
Hilton Offer would be met; in that regard, the ITT Board noted that the
Hilton Offer was conditioned on the receipt of all material consents,
approvals, orders or authorizations of, or registrations, declarations, or
filings with, casino gaming regulatory authorities with jurisdiction in
respect of ITT's active gaming operations required or necessary in
connection with the Hilton Offer and the Proposed Squeeze Out Merger;
(xiii) the disruptive effect the Hilton Offer and the Proposed Squeeze
Out Merger were having on ITT and the potential adverse effect on the
interests of ITT's employees, creditors and customers; the economies of the
state of Nevada and the nation; and the interests of the communities in
which ITT operates and of society;
(xiv) the ITT Board's and management's commitment to protecting the
best interests of the stockholders of ITT and enhancing the value of ITT;
(xv) the ITT Board's belief that consummation of the Hilton
Transaction would result in a change in control of ITT Educational, ITT's
subsidiary that operates its post-secondary technical education business,
under the regulations of the U.S. Department of Education, the state
educational authorities that regulate ITT Educational's business and the
accrediting commissions that accredit each ITT Technical Institute; that an
unapproved change of control of ITT Educational could result in the
suspension of access to certain Federal financial aid funds for ITT
Educational and its students and could result in the loss of accreditation
for individual ITT Technical Institutes; and that any of the foregoing
could result in a material adverse change in the business, financial
condition and results of operations of ITT Educational and thus could
materially adversely affect students at ITT Technical Institutes, ITT
Educational's public stockholders and ITT; in that regard, the ITT Board
noted the absence of an express condition in the Hilton Offer with respect
to obtaining required approvals from educational regulatory authorities and
the apparent absence of formal efforts on the part of Hilton to apply for
and obtain such approvals; and
(xvi) the trading performance of the shares of ITT Common Stock
following the Hilton Offer.
The foregoing discussion of the information and factors considered and
given weight by the ITT Board at the July 15, 1997 meeting is not intended to be
exhaustive. In view of the variety of factors considered in its evaluation, the
ITT Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determinations and recommendations. In addition, individual members of the ITT
Board may have given different weights to different factors.
On August 7, 1997, Hilton announced that it was raising the consideration
payable in the Hilton Offer and the Proposed Squeeze Out Merger to $70 per share
of ITT Common Stock.
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The ITT Board held a meeting on August 14, 1997, to consider the amended
terms of the Hilton Offer. At this meeting, the ITT Board determined that the
Hilton Offer, as amended at that time, was inadequate and not in the best
interests of ITT. Accordingly, the ITT Board continued to unanimously recommend
that the stockholders of ITT reject the Hilton Transaction and not tender their
shares of ITT Common Stock pursuant to the Hilton Offer or take any other action
to facilitate the Hilton Offer. Present at the August 14, 1997 ITT Board meeting
were all directors of ITT, all executive officers and certain other employees of
ITT, representatives of Goldman Sachs and Lazard Freres, attorneys from Cravath,
Swaine & Moore, Simpson Thacher & Bartlett and ITT's Nevada and New Jersey local
counsel and a representative from The Chase Manhattan Bank. At this meeting,
ITT's legal advisors reviewed the duties applicable to the ITT Board members and
discussed the terms of the revised Hilton Transaction and related litigation.
Management of ITT discussed with the ITT Board the operating and financial
performance of ITT and the status of the Comprehensive Plan. Representatives of
Goldman Sachs and Lazard Freres made a presentation to the ITT Board concerning
the revised terms of the Hilton Transaction, ITT, Hilton and certain other
companies and transactions. Additionally, in view of the need to minimize
employee distraction and to retain employee loyalty and dedication to ITT and to
assure their attention to ITT's performance pending resolution of the Hilton
Offer, the ITT Board (with management members of the ITT Board abstaining)
resolved to provide or modify existing severance arrangements for certain
officers and employees in the event of a change in control to provide certain
enhanced benefits. In reaffirming its recommendation that stockholders of ITT
should reject the Hilton Transaction, the ITT Board considered a number of
factors, including, without limitation, the following:
(i) the ITT Board's belief, based on the factors described below, that
the Hilton Transaction, including the Hilton Offer, did not reflect the
inherent value of ITT;
(ii) a presentation by Goldman Sachs and Lazard Freres concerning ITT,
Hilton and the financial aspects of the Hilton Transaction, and the
opinions of Goldman Sachs and Lazard Freres to the effect that, as of
August 14, 1997, the consideration to be received by stockholders of ITT
pursuant to the Hilton Transaction, including the Hilton Offer, was
inadequate; such opinions were expressed after review of many of the
factors and various financial criteria used in assessing an offer, and were
based on various assumptions and subject to various limitations, which were
reviewed for the ITT Board as part of the presentation of Goldman Sachs and
Lazard Freres;
(iii) the ITT Board's continued belief that, in light of the prospects
of each of ITT's businesses, pursuit of the Comprehensive Plan and the
successful implementation by the three companies of their long-term
strategic plans will produce greater value for the stockholders of ITT and
greater benefits for ITT's employees, creditors, customers, and the
economies and communities in which ITT operates than the Hilton
Transaction, including the Hilton Offer; in that regard, the ITT Board
noted that the $70 per share of ITT Common Stock offered by ITT in its
equity self tender offer and offered by Hilton in the Hilton Offer are not
comparable as the equity self tender offer did not involve a change in
control of ITT; and
(iv) the remaining factors considered at the July 15, 1997 meeting,
which the ITT Board believed, after review of the announced modifications
to the Hilton Transaction, continued to support the ITT Board's
recommendation.
On August 25, 1997, Hilton filed a motion in the Nevada Federal court for
injunctive and preliminary relief seeking, among other things, to enjoin ITT
from proceeding with the Comprehensive Plan. On September 29, 1997, the Nevada
Federal court ruled that ITT could not consummate the Comprehensive Plan before
holding an annual meeting of stockholders where Hilton had an opportunity to
nominate a slate of directors.
On September 30, 1997, the ITT Board held a telephonic meeting to review
the court's ruling. Present at the meeting were all directors of ITT (except for
Paul G. Kirk), all executive officers and certain other employees of ITT,
representatives of Goldman Sachs and Lazard Freres, attorneys from Cravath,
Swaine & Moore and Simpson Thacher & Bartlett and a representative from ITT's
public relations firm. Participants at
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the meeting discussed the Nevada Federal court's ruling and the status of the
Comprehensive Plan. At the meeting, the ITT Board set the date of ITT's 1997
annual meeting of stockholders for November 12, 1997.
On September 30, 1997, Mr. Sternlicht sent a short letter to Mr. Bowman and
followed up such letter with a telephone call, to express his interest in
meeting to discuss a possible transaction between ITT and Starwood Lodging. In
addition, in early October two other third parties approached ITT regarding a
possible transaction with ITT. Although the ITT Board continued to believe the
Comprehensive Plan was superior to the Hilton Offer, in light of the
restrictions of the court ruling and the ITT Board's strong belief that if ITT
were to be sold consideration substantially greater than $70 per share should be
available, the ITT Board, at a meeting held on October 7, 1997, concurred that
management should determine more precisely the feasibility and possible terms of
alternative transactions so the ITT Board could make an informed judgment about
the wisdom of maintaining its policy of independence. The ITT Board did not
authorize negotiations with any party at this point and did not alter its policy
of independence for ITT, although the ITT Board understood ITT would need to
cooperate in due diligence so interested parties could provide meaningful and
concrete proposals. In addition, at its October 7 meeting, the ITT Board
nominated the existing ITT directors for re-election and approved proxy
materials. Present at this meeting were all directors of ITT, all executive
officers and certain other employees of ITT, representatives of Goldman Sachs
and Lazard Freres, attorneys from Cravath, Swaine & Moore and Simpson Thacher &
Bartlett and representatives from ITT's proxy solicitation firm and public
relations firm. Following this meeting, ITT filed proxy materials with the
Commission to solicit proxies for the re-election of the existing members of the
ITT Board, which indicated that the existing ITT Board, subject to its fiduciary
duties, planned to pursue the Comprehensive Plan.
In early October 1997, after determining to pursue a transaction with ITT,
the Starwood Lodging Boards determined that it was necessary to retain Starwood
Capital as its financial advisor because of the expertise and capabilities that
Starwood Capital's principals could provide in connection with numerous
significant tasks involved in a transaction with ITT, the general lack of
personnel resources of Starwood Lodging to execute a transaction as large as the
acquisition of ITT, the need to keep Starwood Lodging's senior executives
focused on operating Starwood Lodging's business and completing the Westin
Acquisition and other pending and recently concluded acquisitions and the
importance of preserving the confidentiality of the transaction. At the time
Starwood Capital was engaged, Starwood Lodging's independent Trustees and
Directors agreed that Starwood Capital would not bill its time but instead would
be paid a fee equal to ten percent of any break-up fee negotiated with ITT and
paid upon the termination of the acquisition agreement. At the time the
independent Trustees and Directors engaged Starwood Capital, they decided to
defer consideration on compensation for Starwood Capital in the event the Merger
was consummated. In November 1997, Starwood Lodging's independent Trustees and
Directors determined that if the Merger was consummated, Starwood Capital would
be paid a fee equal to the fee it would have received if the Merger Agreement
terminated.
As part of the process of considering alternative transactions, after
execution of a confidentiality agreement, senior management and financial
advisors of each of ITT and Starwood Lodging met at ITT's headquarters to
discuss generally the two companies and to agree on a process for Starwood
Lodging to obtain additional information regarding ITT. Simultaneously, Mr.
Sternlicht met with Rand V. Araskog, Chairman and Chief Executive of ITT, and
Richard S. Ward, Executive Vice President, General Counsel and Corporate
Secretary of ITT, to discuss the status of the Hilton Offer and other procedural
matters relating to Starwood Lodging's due diligence investigation of ITT.
During early October, management of ITT and ITT's financial and legal advisors
had a number of discussions with management of Starwood Lodging and its
financial and legal advisors concerning financial and other information with
respect to each company and possible structures for a transaction between ITT
and Starwood Lodging.
On October 6, 1997, ITT also executed confidentiality agreements with the
two other parties expressing an interest in a transaction with ITT and due
diligence information was made available to these parties. Neither of these
parties ever presented an offer to ITT and no negotiations with them commenced.
The ITT Board held another meeting on October 10, 1997 to review the status
of the Comprehensive Plan, the proxy solicitation process and the indications of
interest received from third parties. Present at this meeting were all directors
of ITT, all executive officers and certain other employees of ITT,
representatives of
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Goldman Sachs and Lazard Freres, attorneys from Cravath, Swaine & Moore and
Simpson Thacher & Bartlett and representatives of ITT's proxy solicitation firm
and public relations firm.
The Starwood Lodging Boards met by telephone on October 17, 1997. All
Trustees and Directors (other than Michael Leven) were present, as were certain
executives of the Trust and the Corporation and attorneys from Sidley & Austin,
counsel for Starwood Lodging. Representatives from Bear Stearns were present for
portions of the meeting involving presentations by Bear Stearns. The Starwood
Lodging Boards received presentations concerning the proposed acquisitions,
including the Starwood Lodging Boards' duties, the current status of the
litigation between ITT and Hilton, the background of discussions with ITT, the
expected effects on future accretiveness to Starwood Lodging's FFO and the
impact of varying components of stock and cash. The Boards discussed the current
businesses conducted by ITT, the possible severance costs involved in acquiring
ITT, possible competing bids, the management of the ongoing enterprise
post-acquisition, the expected accretiveness to Starwood Lodging's FFO of
acquiring ITT, the financing required for the transaction, the components of
stock and cash of a possible offer for ITT and the public relations aspects of a
possible acquisition of ITT. The Starwood Lodging Boards authorized the
retention of Bear Stearns and of Starwood Capital as financial advisors in
connection with a possible ITT acquisition. The Starwood Lodging Boards
authorized commencement of negotiations for the acquisition of ITT, either for
all stock or for cash and stock, with or without a collar, subject to review of
the ultimate consideration and transaction by the Starwood Lodging Boards. The
Starwood Lodging Boards determined that they would meet again in person on
Sunday, October 19, 1997 in the event that negotiations had proceeded by then to
the point of requiring board meetings to authorize the transaction.
At approximately 7:00 p.m. on October 17, 1997, Mr. Sternlicht, another
Trustee of Starwood Lodging and representatives of Bear Stearns met with Mr.
Bowman and other members of senior management of ITT and representatives of
Goldman Sachs and Lazard Freres. At this meeting, Starwood Lodging orally
presented a proposal to acquire ITT and presented a draft of the Agreement and
Plan of Merger dated as of October 19, 1997, among the Corporation, Merger Sub,
the Trust and ITT (the "Original Merger Agreement"). The acquisition proposal
originally consisted of an offer to acquire ITT at $78 per share of ITT Common
Stock upon the terms of the draft of the Original Merger Agreement presented to
ITT. The material terms of the draft of the Original Merger Agreement presented
by Starwood Lodging at this time were substantially similar to the terms of the
executed Original Merger Agreement, except that the draft presented did not have
a "collar" provision. After discussion of the original proposal that evening,
Starwood Lodging amended its proposal by increasing its offer to acquire ITT to
$82 per share of ITT Common Stock. During subsequent negotiations, the
representations and warranties, covenants, conditions and other provisions of
the first draft of the Original Merger Agreement were modified in immaterial
respects.
At that point negotiations between the parties commenced. On the morning of
Saturday, October 18, 1997, the ITT Board convened a telephonic meeting during
which Starwood Lodging and its proposal to acquire ITT were discussed. The ITT
Board was concerned with several aspects of Starwood Lodging's acquisition
proposal and authorized management of ITT to negotiate with Starwood Lodging
concerning Starwood Lodging's proposal. Present at this meeting were all
directors of ITT, all executive officers and certain other employees of ITT,
representatives of Goldman Sachs and Lazard Freres and attorneys from Cravath,
Swaine & Moore and Simpson Thacher & Bartlett. Discussion at this meeting
focused on procedures for negotiating with Starwood Lodging.
During the weekend, the terms of the Original Merger Agreement were
negotiated between representatives of ITT and Starwood Lodging. Such terms
included a "collar" provision, which was designed in part to provide some
certainty to stockholders with respect to the consideration they would receive
in the Merger. The parties understood that, because part of the consideration
stockholders would receive is to consist of Paired Shares, ITT stockholders
would not know the exact value of the stock portion of the Merger consideration
and that the value of the consideration to be received in the Merger could be
less than $85 per share of ITT Common Stock if the trading prices of Paired
Shares were below the lowest point of the collar during the Averaging Period.
See "Risk Factors -- If the Paired Shares Trade Below Collar, Consideration Paid
May be Below $85."
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At 7:00 p.m. on Sunday, October 19, 1997, the ITT Board met at the offices
of Cravath, Swaine & Moore to discuss the transaction and the terms of the
Original Merger Agreement. Present at the ITT Board meeting were all directors
of ITT, all executive officers and certain other employees of ITT,
representatives of Goldman Sachs and Lazard Freres, attorneys from Cravath,
Swaine & Moore, Simpson Thacher & Bartlett and ITT's Nevada and New Jersey local
counsel and a representative from ITT's public relations firm. At this meeting,
ITT's legal advisors reviewed the duties applicable to the ITT Board members in
light of then current circumstances. Mr. Araskog discussed the status of
negotiations with Starwood Lodging. Senior members of ITT management presented
an overview of the proposed acquisition of ITT by Starwood Lodging, the
structure of Starwood Lodging, Starwood Lodging's agreement to acquire Westin
and operational issues related to a combination of ITT and Starwood Lodging.
ITT's legal advisors discussed the terms of the Original Merger Agreement
(including provisions regarding benefits to employees and directors of ITT), the
enforceability of "break-up" fees, the tax consequences of the Merger, timing
considerations and related litigation matters. Representatives of Goldman Sachs
and Lazard Freres described the financial aspects of the Original Merger
Agreement, including the consideration to be received by ITT stockholders and
the "collar" provisions of the Original Merger Agreement, and made a
presentation concerning recent stock prices for ITT and Starwood Lodging, the
pro forma effects of the Original Merger on Starwood Lodging and the financial
analyses performed by them. At this meeting, the ITT Board unanimously approved
the Original Merger Agreement.
The Starwood Lodging Boards met on the evening of October 19, 1997 at the
offices of Bear Stearns. All Trustees and Directors (except for Messrs. Leven
and Danziger) were present at the meeting. Also present were executives of the
Trust and the Corporation, executives of Starwood Capital Group, representatives
of a Starwood Capital Group investor, a representative of Coopers & Lybrand and
lawyers from Sidley & Austin. Representatives of Bear Stearns and BT Alex. Brown
were present for their respective presentations. The Starwood Lodging Boards
received presentations from Messrs. Sternlicht and Eilian updating the status of
negotiations with ITT; from Starwood Capital relating to its due diligence
investigation and a review of certain financial information; from Bear Stearns
covering the matters described under "Opinion of Financial Advisor to Starwood
Lodging"; from BT Alex. Brown concerning available financing, the market for
financing of transactions of the type being proposed, various alternatives, and
that BT Alex. Brown was highly confident of its ability to raise the necessary
amount of debt for the transaction; and from Sidley & Austin concerning the
duties of the Starwood Lodging Boards, the principal terms of the Original
Merger Agreement and Starwood Lodging's litigation exposure. Bear Stearns orally
gave its fairness opinion (which was subsequently confirmed in writing). By
unanimous vote of all Directors and Trustees present, the Starwood Lodging
Boards approved the Original Merger and authorized the execution of the Original
Merger Agreement.
Promptly following the ITT Board meeting and the Starwood Lodging Board
meetings, the parties executed the Original Merger Agreement. The Original
Merger Agreement provided for a merger (the "Original Merger") of Merger Sub
with and into ITT pursuant to which each outstanding share of ITT Common Stock
(other than shares owned by ITT, the Starwood Companies or any of their
respective subsidiaries) would have been converted into the right to receive $15
in cash and Paired Shares with a value of $67, subject to the same collar
provisions as the Merger described herein. Other than the consideration
described in the preceding sentence, the material terms of the Original Merger
Agreement were substantially similar to the terms of the Merger Agreement,
except that the Original Merger Agreement provided ITT the right to designate
three members of the Corporation Board and one member of the Trust Board.
Advisors to Starwood Lodging estimated that Starwood Lodging could achieve tax
efficiencies based on the structure of the acquisition contemplated by the
Original Merger Agreement and the structure of Starwood Lodging after the
acquisition.
In reaching its determination to sell ITT, the alternatives considered by
the ITT Board consisted of the acquisition of ITT contemplated by the Original
Merger Agreement, the Hilton Transaction, the possibility that another party
might make an offer for ITT and ITT remaining independent and pursuing the
Comprehensive Plan. Of the available alternatives, the ITT Board determined that
the acquisition of ITT by Starwood Lodging offered the most value to, and was in
the best interests of, the stockholders of ITT. The ITT Board also determined
that, subject to the restrictions in the Original Merger Agreement on the
solicitation of alternative transactions, it would closely consider unsolicited
alternative proposals to sell ITT that might
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provide more value to ITT stockholders than the acquisition by Starwood Lodging
pursuant to the Original Merger Agreement.
On November 2, 1997, The Association of Sheraton Franchisees (which
represents 77% of Sheraton and Four Points owners in North America) issued a
press release which stated that it believed "that the merger with Starwood
Lodging . . . would fulfill both the long and short term objectives of the
Sheraton franchisees. This transaction is also more likely to increase the value
of ITT Corporation. Starwood Lodging has both knowledge of the high-end market
of the hotel industry and experience in operating quality facilities."
On November 3, 1997, Hilton announced that it was raising the consideration
payable in the Hilton Offer to $80 per share of ITT Common Stock and
simultaneously increased the number of shares it was offering to purchase to 65
million and indicated that the Proposed Squeeze Out Merger would be amended so
that each share of ITT Common Stock not tendered and purchased in the Hilton
Offer would have been converted into two shares of Hilton Common Stock and two
shares of Contingent Value Preferred Stock (the "CVP Shares") of Hilton (the
Hilton Transaction, as so amended, the "Amended Hilton Transaction"). Each CVP
Share would have entitled the holder to receive from Hilton, in cash or shares
of Hilton Common Stock, the amount by which $40 exceeds the weighted average per
share price of Hilton Common Stock measured during a valuation period ending on
the one-year anniversary of the closing of the Proposed Squeeze Out Merger, up
to a maximum of $12 per CVP Share. Concurrently with announcing the Amended
Hilton Transaction, Hilton filed a lawsuit against ITT, the individual members
of the ITT Board and the Starwood Companies seeking to rescind the Original
Merger Agreement and to recover damages from the members of the ITT Board due to
alleged violations of their fiduciary duties. Neither Starwood Lodging nor ITT
believes there is any merit to these claims. If the Merger is consummated,
Starwood Lodging, as the sole stockholder of ITT, will not pursue these claims
and will seek their dismissal.
The ITT Board held a telephonic meeting on November 3, 1997 to review the
Amended Hilton Transaction. Present at this meeting were all directors of ITT,
all executive officers and certain other employees of ITT, representatives of
Goldman Sachs and Lazard Freres, attorneys from Cravath, Swaine & Moore, Simpson
Thacher & Bartlett and ITT's Nevada and New Jersey local counsel and
representatives of ITT's proxy solicitation firm and public relations firm.
ITT's legal advisors reviewed the duties applicable to the ITT Board members and
discussed with the ITT Board the terms of the Amended Hilton Transaction, the
relevant terms of the Original Merger Agreement and the litigation that Hilton
had commenced. The ITT Board considered the advisability of discussing the
Amended Hilton Transaction with representatives of Hilton and authorized ITT to
enter into a confidentiality agreement with Hilton and begin discussions with
Hilton and its advisors. Following this meeting, on November 4, 1997,
representatives of Goldman Sachs, Lazard Freres and Cravath, Swaine & Moore had
discussions with representatives of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), Hilton's financial advisor, and Wachtell, Lipton, Rosen &
Katz, Hilton's counsel, and later that evening representatives of Lazard Freres
and Goldman Sachs met with representatives of DLJ and an officer of Hilton. On
November 5, 1997, representatives of DLJ were given access to the information
that had been made available to Starwood Lodging and the opportunity to meet
with members of the senior management of ITT's subsidiaries. Shortly thereafter,
Hilton ceased the discussions between its representatives and advisors and those
of ITT, supposedly because ITT was not providing due diligence materials to
Hilton. ITT and its legal advisors vigorously denied these claims and repeatedly
offered to provide Hilton and its representatives with whatever reasonable
information Hilton might request. Hilton did not request any further information
or due diligence assistance from ITT nor did it ever identify any information it
had requested that ITT failed to provide. Hilton did, however, request that ITT
release one of the two other parties expressing an interest in ITT from its
standstill obligations to enable Hilton to explore with such other party an
enhancement to Hilton's bid and ITT granted such request.
The ITT Board met again on November 5, 1997. At this meeting, Mr. Araskog
described the discussions with Hilton and statements by representatives of
Hilton that ITT had not provided equivalent information and assistance to Hilton
as it had to Starwood Lodging. Mr. Araskog assured the ITT Board that such
statements were false. ITT's legal advisors reviewed the duties applicable to
the ITT Board members and described ITT's obligations under the Original Merger
Agreement with respect to the consideration of alternative transactions and
timing, litigation and tax issues. Representatives of Goldman Sachs and Lazard
Freres reviewed the stock
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trading history of ITT, Starwood Lodging and Hilton and described the terms of
the Amended Hilton Transaction, the perception of the two competing offers in
the market and the financial analyses performed by Goldman Sachs and Lazard
Freres. The ITT directors emphasized their belief that ITT was in "auction" mode
and that Hilton and all other bidders must be treated fairly and resolved to
continue the auction process for ITT to maximize stockholder value.
On Thursday, November 6, 1997, the Starwood Lodging Boards met
telephonically and authorized Mr. Sternlicht to present a revised proposal to
the ITT Board. That evening, Mr. Sternlicht sent a letter to the ITT Board
proposing to amend the terms of the Original Merger Agreement to increase the
aggregate consideration to be paid in the Merger to $85 per share of ITT Common
Stock and allow holders of ITT Common Stock to elect between cash and Paired
Shares on the terms and subject to the limitations described herein. Starwood
Lodging also proposed that if the Merger were to close after January 31, 1998,
each holder of ITT Common Stock would also be entitled to receive for each share
of ITT Common Stock converted in the Merger additional cash consideration in an
amount equal to the interest that would accrue (without compounding) on $85 at
an annual rate of 7% during the period from January 31, 1998 to but excluding
the date of closing of the Merger. Mr. Sternlicht's letter constituted an offer
to acquire ITT on the terms contained in the draft of the Merger Agreement
presented with it and stated that the offer would be withdrawn at 11:59 p.m. on
November 12, 1997. ITT acknowledged receipt of Mr. Sternlicht's letter and
continued to state that ITT was conducting an auction among all potential
bidders.
ITT announced on November 7, 1997 that the ITT Board had established a
special committee of four independent directors (the "ITT Special Committee") to
oversee the auction process for ITT. The ITT Special Committee was formed to
evaluate all offers for ITT in order to maximize stockholder value and ensure
impartiality. The ITT Special Committee retained Gleacher NatWest and Cleary,
Gottlieb, Steen & Hamilton to act as its financial advisor and legal advisor,
respectively. The ITT Special Committee consists of Paul G. Kirk, Jr., Nolan D.
Archibald, Robert A. Burnett and Edward C. Meyer.
ITT held its 1997 annual meeting of stockholders on November 12, 1997 at
which all the incumbent members of the ITT Board were re-elected and that the
nominees proposed by Hilton were defeated. At the annual meeting, the Chief
Executive Officer of Hilton stated that the Amended Hilton Transaction was
superior to Starwood's revised proposal because, among other things, the Amended
Hilton Transaction included "more cash -- $2.2 billion more. No ifs, ands or
buts. Better than the Starwood offer. You get your cash sooner. . . ." Shortly
thereafter, Mr. Sternlicht stated that $25.50 was the minimum cash that an ITT
stockholder would receive under Starwood's revised proposal. Mr. Sternlicht's
statement assumed, based on the previous statement of Hilton's CEO, that all ITT
stockholders elected to receive all cash. As described under "The Merger
Agreement -- Proration," to the extent that some ITT stockholders elect to
receive Paired Shares, the amount of cash to be received by stockholders
electing all cash will increase above $25.50. Under any scenario, the only ITT
stockholders who will receive less than $25.50 per share of cash are those who
do not elect to receive all cash. If no ITT stockholder elects to receive any
cash, a scenario not publicly contemplated by either Mr. Sternlicht or Hilton's
CEO at the annual meeting, the minimum cash each ITT stockholder would receive
is $15.30 per share of ITT Common Stock. See "The Merger Agreement --
Proration."
Following the annual meeting, the ITT Special Committee and the ITT Board
met and reviewed the amended terms of the Merger proposed by Starwood Lodging.
The ITT Special Committee, together with representatives of Gleacher NatWest and
Cleary, Gottlieb, Steen & Hamilton, met separately to consider the Merger
Agreement. The ITT Special Committee reported to the ITT Board that it was in
favor of the Merger and recommended that the ITT Board approve the Merger and
the Merger Agreement. The ITT Board, based in part on the recommendation of the
ITT Special Committee, approved the amended terms of the Merger and the Merger
Agreement. Present at this meeting were all directors of ITT, all executive
officers and certain other employees of ITT, representatives of Goldman Sachs,
Lazard Freres and Gleacher NatWest, attorneys from Cravath, Swaine & Moore,
Simpson Thacher & Bartlett, ITT's New Jersey local counsel and Cleary, Gottlieb,
Steen & Hamilton. Mr. Araskog reviewed preliminary indications of the voting and
the events that occurred at the annual meeting. ITT's legal advisors reviewed
the duties applicable to ITT Board members and discussed with the ITT Board the
terms of the Merger Agreement and how they differed from the terms of the
Original Merger Agreement and the litigation commenced by Hilton.
Representatives of Goldman
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Sachs and Lazard Freres reviewed the principal economic terms of the Merger
Agreement and the Amended Hilton Transaction and described the financial
analyses performed by them in comparing the two transactions. Representatives of
Gleacher NatWest described their analysis and stated that they agreed with the
results of the analyses performed by Goldman Sachs and Lazard Freres. Shortly
thereafter the parties executed and delivered the Merger Agreement.
On November 13, 1997, Hilton terminated the Hilton Offer.
RECOMMENDATION OF THE STARWOOD LODGING BOARDS; REASONS FOR THE MERGER
THE TRUST BOARD AND THE CORPORATION BOARD HAVE UNANIMOUSLY APPROVED THE
SHARES ISSUANCE PROPOSAL AND UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF THE
TRUST AND STOCKHOLDERS OF THE CORPORATION VOTE FOR APPROVAL OF THE SHARES
ISSUANCE PROPOSAL.
The recommendations of the Trust Board and the Corporation Board are based
on a number of factors, including the following factors, each of which the
Starwood Lodging Boards considered positive:
- The Starwood Lodging Boards' belief that the acquisition of ITT will
enhance Starwood Lodging's competitive position by creating a fully
integrated hotel and casino owner and operator with multiple global,
premier brand names, including such well known brand names as Westin,
Sheraton, CIGA, Four Points, The Luxury Collection and Caesars.
- ITT combined with Starwood Lodging will serve all segments of the upscale
global hotel market and have a major presence in resorts and gaming.
- The combined company, with its multiple premier brand names and
international scope, will be unique among real estate investment trusts.
- ITT will provide Starwood Lodging with hotel brand and pricing leadership
in major markets worldwide.
- The combined management team of Starwood Lodging and ITT will have
significant industry expertise and enhanced management depth.
- As the largest hotel company in the world in terms of revenues, Starwood
Lodging will be able to achieve purchasing, marketing and reservation
efficiencies.
- ITT provides Starwood Lodging with enhanced entry to global investment
opportunities and provides Starwood Lodging with enhanced acquisition
opportunities.
- ITT provides Starwood Lodging with a new avenue of growth in franchising
and managing hotels for third parties.
- The transaction is expected to provide Starwood Lodging and ITT with the
ability to achieve franchise, management and operating synergies through
the elimination of franchise fees and other costs and the opportunity to
enhance revenues at Starwood Lodging's hotels which are converted to
brands owned by ITT.
- The transaction is expected to be approximately 17% accretive to Starwood
Lodging's 1998 per share funds from operations.
- The terms and conditions of the Merger Agreement and the Merger and the
course of negotiations thereof.
- The written opinion of Bear Stearns (a copy of which is attached as Annex
B to this Joint Proxy Statement/Prospectus) that, based on and subject to
certain matters stated therein, as of November 12, 1997, the Merger
Consideration is fair from a financial point of view to Starwood Lodging.
The Trust Board and the Corporation Board also considered the following
factors, each of which the Boards considered negative, in making their
recommendations:
- The market might perceive that Starwood Lodging could not maintain its
historic growth rate because of the size of the organization.
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- The acquisition of ITT represents diversification into the gaming
business. Over the previous 18 months, gaming companies have generally
traded at lower multiples than hotel companies and have had less
predictable earnings. Because of this factor and the preceding factor,
the trading multiple of the Paired Shares (then approximately 12 times
the average estimate of industry analysts of Starwood Lodging's 1998
EBITDA) could decline, with a concomitant decrease in the trading price
of the Paired Shares.
- The fact that ITT World Directories and ITT Educational were not related
to ITT's core lodging business and did not fit with Starwood Lodging's
existing strategy.
- Incurrence of debt could have detrimental effects on Starwood Lodging
especially if there is a downturn in the economy. The fact that the debt
to total market capitalization of Starwood Lodging before the Merger was
38% compared to 47% after the Merger. The Board determined that compared
to other real estate investment companies Starwood Lodging's debt levels
would be in line with industry averages after the Merger. The Starwood
Lodging Boards also considered the favorable interest rates and financing
that its financial advisors indicated would be available.
The Starwood Lodging Boards did not find it practicable to and did not
quantify or otherwise assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, the Starwood
Lodging Boards view their recommendations as being based on the totality of the
information presented and considered by them. In making their recommendations
the Starwood Lodging Boards determined that the positive effects of the factors
outlined above outweighed the negative effect of the factors outlined above.
RECOMMENDATION OF THE ITT BOARD; REASONS FOR THE MERGER
THE ITT BOARD HAS UNANIMOUSLY APPROVED THE ITT PROPOSAL AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS OF ITT VOTE FOR APPROVAL OF THE ITT PROPOSAL.
The recommendation of the ITT Board is based on a number of factors,
including the factors listed below.
- The ITT Board considered information and presentations by management of
ITT with respect to the financial condition, results of operations,
businesses and properties of ITT and Starwood Lodging, on both a
historical and prospective basis, and current industry conditions.
- The ITT Board considered presentations by, and the advice and views of
Goldman Sachs and Lazard Freres, financial advisors to ITT, concerning
ITT, Starwood Lodging and the financial aspects of the Merger. The ITT
Board also considered the opinion of Lazard Freres to the effect that, as
of October 19, 1997, and subject to the qualifications and limitations
set forth in such opinion, the consideration to be received by
stockholders of ITT pursuant to the Original Merger Agreement was fair to
such stockholders from a financial point of view and the opinion of
Lazard Freres, as of November 12, 1997, subject to the qualifications and
limitations set forth in such opinion, to the effect that the
consideration to be received by stockholders of ITT pursuant to the
Merger Agreement is superior to the consideration proposed to be paid to
stockholders of ITT in the Amended Hilton Transaction from a financial
point of view. See "-- Opinion of Financial Advisor to ITT."
- The ITT Board closely reviewed the terms and conditions of the Merger
Agreement, including the provisions protecting the value of the
transaction against fluctuation in the market price of the Paired Shares
and the likelihood that the conditions to the Merger will be satisfied.
The ITT Board also took into account the terms of the Merger Agreement
that permit ITT, to the extent required by the fiduciary duty of the ITT
Board, as determined in good faith by a majority of the disinterested
directors based on the advice of counsel, in response to unsolicited
requests, to participate in discussions or negotiations with or furnish
information, subject to an appropriate confidentiality agreement, to any
person. To the extent required by its fiduciary obligations, as
determined in good faith by a majority of the disinterested directors
based on the advice of counsel, the ITT Board may, upon payment of the
Termination Fee and Expenses, withdraw its recommendation of the Merger,
terminate the Merger Agreement and approve or recommend an alternative
change-of-control transaction for ITT that the
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ITT Board determines in its good faith judgment (based on the opinion of
independent financial advisors that the alternative transaction provides
consideration in excess of the consideration provided for in the Merger)
is more favorable to ITT and its stockholders than the Merger, and
provided that such alternative transaction, to the extent it requires
financing, is fully financed or, in the opinion of the ITT Board (based
on the advice of independent financial advisors), is reasonably capable
of being financed. The ITT Board believes that the provisions of the
Merger Agreement should not deter a more attractive offer for ITT if any
party is prepared to initiate one. The ITT Board also considered the
provisions of the Merger Agreement relating to the treatment of employee
stock options, directors' and officers' insurance, indemnification and
exculpation and the other covenants and agreements of the parties. See
"The Merger Agreement."
- The ITT Board considered the terms of the Merger Agreement relating to
the conversion of ITT Common Stock into cash and Paired Shares,
historical trading prices for Paired Shares and the possibility that the
market prices of Paired Shares used to calculated the Exchange Ratio
could fall below the bottom, or rise above the top, of the "collar"
provisions of the Merger Agreement. See "Summary -- Comparative Market
Prices," "-- The Merger" and "Risk Factors -- If the Paired Shares Trade
Below Collar, Consideration Paid May be Below $85."
- The ITT Board considered the recommendation of the ITT Special Committee
in favor of the Merger and the Merger Agreement. In making its
recommendation, the ITT Special Committee considered the same
presentations by, and the advice and views of Goldman Sachs and Lazard
Freres and the opinion of Lazard Freres as were considered by the ITT
Board with respect to the Merger and the Merger Agreement. In addition,
the ITT Special Committee considered a presentation by, and the advice
and views of Gleacher NatWest, the financial advisor to the ITT Special
Committee. The ITT Special Committee also considered the opinion of
Gleacher NatWest, as of November 12, 1997, subject to the qualifications
and limitations set forth in such opinion, to the effect that the
consideration to be received by stockholders of ITT pursuant to the
Merger Agreement is fair to such stockholders from a financial point of
view and is superior from a financial point of view to the consideration
proposed to be paid to the stockholders of ITT in the Amended Hilton
Transaction. See "-- Opinion of Financial Advisor to the ITT Special
Committee."
- The ITT Board considered that the Merger would be fully taxable to
stockholders of ITT. See "Federal Income Tax Consequences -- Federal
Income Tax Consequences of the Merger."
The ITT Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the foregoing factors or determine that any
factor was of particular importance. Rather, the ITT Board views its
recommendation as being based on the totality of the information presented and
considered by it. The ITT Board determined that the positive effects of the
foregoing factors outweighed the negative effects of the foregoing factors and
based on such determination, and its determination that the consideration to be
received by ITT stockholders in the Merger is fair, resolved to approve the
Merger Agreement and recommend that stockholders of ITT vote to approve the
Merger Agreement.
OPINION OF FINANCIAL ADVISOR TO STARWOOD LODGING
Bear Stearns was retained by Starwood Lodging to act as its financial
advisor in connection with the transactions contemplated by the Merger
Agreement, and to render its opinion as to whether the Merger Consideration is
fair, from a financial point of view, to Starwood Lodging. Bear Stearns is an
internationally recognized investment banking firm and is continually engaged in
the valuation of businesses and their securities and in rendering opinions in
connection with mergers, acquisitions, corporate transactions and other
purposes. Starwood Lodging retained Bear Stearns based on its qualifications,
expertise and reputation in providing advice to companies with respect to
transactions similar to the Merger.
Bear Stearns has delivered its written opinion dated as of November 12,
1997, to the Starwood Lodging Boards to the effect that, based upon and subject
to the various considerations set forth in such opinion, as of November 12,
1997, the Merger Consideration was fair, from a financial point of view, to
Starwood Lodging. The summary of the Bear Stearns Opinion set forth in this
Joint Proxy Statement/Prospectus is qualified in its
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entirety by reference to the full text of such opinion, which is attached as
Annex B to this Joint Proxy Statement/Prospectus. Starwood Lodging shareholders
are urged to, and should, read such opinion carefully in its entirety in
connection with this Joint Proxy Statement/Prospectus for assumptions made,
matters considered and limits of the review by Bear Stearns.
The Bear Stearns Opinion was directed to the Starwood Lodging Boards and
addresses solely the fairness, from a financial point of view, of the Merger
Consideration to Starwood Lodging. The Bear Stearns Opinion does not address
Starwood Lodging's underlying business decision to effect the Merger and was not
a recommendation to the Starwood Lodging Boards, and is not a recommendation to
Starwood Lodging shareholders as to whether to approve or vote for the Merger.
Although Bear Stearns evaluated the fairness of the Merger Consideration to
Starwood Lodging, the Merger Consideration itself was determined by Starwood
Lodging and ITT through arm's-length negotiations. Starwood Lodging did not
provide specific instructions to, or place any limitations upon, Bear Stearns
with respect to the procedures to be followed or factors to be considered by
Bear Stearns in performing its analyses or rendering the Bear Stearns Opinion.
Bear Stearns has not been requested by Starwood Lodging, and does not intend, to
update such opinion based on information since such date.
In arriving at its opinion, Bear Stearns: (i) reviewed the Merger
Agreement; (ii) reviewed Starwood Lodging's and ITT's Annual Reports to
Stockholders and Annual Reports on Form 10-K for the fiscal years ended December
31, 1994 through 1996, and their respective Quarterly Reports on Form 10-Q for
the periods ended March 31, 1997 and June 30, 1997; (iii) reviewed certain
operating and financial information, including projections and projected cost
savings and synergies provided to Bear Stearns by Starwood Lodging's and ITT's
respective managements, relating to their respective business and prospects;
(iv) met with certain members of Starwood Lodging's and ITT's senior management
to discuss the operations, historical financial statements and future prospects
of Starwood Lodging and ITT and their view of the business, operational and
strategic benefits, cost savings, potential synergies and other implications of
the Merger; (v) reviewed the historical prices and trading volumes of Paired
Shares and ITT Common Stock; (vi) reviewed publicly available financial data and
stock market performance data of companies that Bear Stearns deemed generally
comparable to Starwood Lodging and ITT or otherwise relevant to its inquiry;
(vii) reviewed the terms, to the extent publicly available, of recent
acquisitions of companies that Bear Stearns deemed generally comparable to the
Merger or otherwise relevant to its inquiry and (viii) considered such other
information and conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by Starwood Lodging and ITT. With respect to
projected financial results (including projected divestitures, cost savings and
synergies resulting from, and contemplated tax and accounting effects of, the
Merger and related transactions), Bear Stearns assumed with the consent of the
Starwood Lodging Boards that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the respective
managements of Starwood Lodging and ITT as to the expected future performance of
their respective companies. Bear Stearns does not assume any responsibility for
the information provided to it and Bear Stearns relied upon the assurances of
management of Starwood Lodging and ITT that they were unaware of any facts that
would make the information provided to Bear Stearns incomplete or misleading.
Bear Stearns assumed with the consent of the Starwood Lodging Boards that the
Merger would be consummated in accordance with the terms described in the Merger
Agreement. In arriving at the Bear Stearns Opinion, Bear Stearns did not perform
any independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Starwood Lodging or ITT and Bear Stearns was not furnished with
any such evaluation or appraisal.
The following is a summary of the principal financial and valuation
analyses that were performed by Bear Stearns to arrive at the Bear Stearns
Opinion. The analyses set forth below are based on certain assumptions,
including those set forth in the immediately preceding paragraph and that (i)
30% of the Merger Consideration would be paid in cash, (ii) the synergies and
projected cost savings (see "Anticipated Synergies") and projections provided by
the respective managements of Starwood Lodging and ITT would be achieved and
(iii) certain assets, primarily ITT World Directories, would be divested as of
the Effective Time. Based on these financial and valuation analyses and the
other factors discussed herein, Bear Stearns
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determined that, as of the date of its opinion, the Merger Consideration is
fair, from a financial point of view, to Starwood Lodging. In arriving at its
opinion, Bear Stearns did not attribute any particular weight to any analysis or
factor considered by it, but rather made a single judgment as to fairness based
on its experience and professional judgment and the analyses as a whole. The
Bear Stearns Opinion is not subject to any limitations based on whether the
Paired Shares trade within the "collar" set forth in the Merger Agreement. The
Bear Stearns Opinion represents Bear Stearns' opinion as of November 12, 1997,
the date of such opinion, taking into account all factors which Bear Stearns
considered relevant, including that on such date, the closing sales price of the
Paired Shares, as reported by the NYSE Composite Tape, was within the "collar."
RELATIVE CONTRIBUTION ANALYSIS. Bear Stearns analyzed the contributions of
FFO by Starwood Lodging and ITT to the pro forma combined entity relative to the
ownership of Starwood Lodging and ITT shareholders in the combined entity. FFO
was based on Starwood Lodging management estimates for such amounts before
synergies and asset sales. In order to take into account the $25.50 per share of
ITT Common Stock to be paid in the Merger, ITT's FFO was adjusted for the
interest cost, after tax, of a hypothetical pre-transaction cash dividend of
$25.50 per share to ITT's shareholders. Based on the foregoing, Bear Stearns
noted that Starwood Lodging's contribution to FFO was 37.8% and 37.9% based on
the 1997 and 1998 estimates, respectively. Depending on the Market Price of the
Paired Shares during the Averaging Period, the Starwood Lodging shareholders
will hold from 39.4% to 42.8% of the combined entity.
PRO FORMA MERGER ANALYSIS. Bear Stearns analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on Starwood Lodging's projected FFO for fiscal years 1998, 1999 and 2000,
based on Starwood Lodging management estimates of projected FFO for Starwood
Lodging and ITT. The results of the pro forma merger analysis suggested that the
Merger would increase FFO per share by 17.2%, 18.5% and 13.2% in 1998, 1999 and
2000, respectively, assuming Starwood Lodging issued in the Merger the number of
shares it would issue if the Market Price during the Averaging Period were
$57.263 (the mid-point of the collar). If the Market Price during the Averaging
Period were lower than the mid-point of the collar, the number of shares issued
in the Merger would increase and the increase in FFO per share would be less.
The Merger would increase FFO per share by 11.8%, 13.1% and 7.9% in 1998, 1999
and 2000, respectively, assuming Starwood Lodging issued in the Merger the
maximum number of shares contemplated by the "collar."
BUILD-UP ANALYSIS. Bear Stearns estimated a range of values of ITT's
business segments on a trading basis (that is, how such business segments might
trade on stock markets) and a sales basis (that is, the price an acquiror might
pay for such segments) and the value of potential synergies and tax savings
resulting from the Merger, based on estimates and projections provided by the
managements of Starwood Lodging and ITT. The range of values was estimated to be
$92.01 to $101.43 per share of ITT Common Stock on a trading basis and $97.47 to
$103.82 per share of ITT Common Stock on a sale basis.
DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis to calculate a present value of the estimated cash flows of
Starwood Lodging and ITT based on Starwood Lodging management estimates of
projected free cash flows for each company for the years 1998 to 2003, a 12%
equity discount rate and a terminal value calculated assuming a 3% growth of
levered free cash flow into perpetuity. Depending on the Market Price of the
Paired Shares during the Averaging Period, Starwood Lodging shareholders will
hold from 39.4% to 42.8% of Starwood Lodging/ITT combined. Based on the
foregoing analysis, the value of such interest would exceed Starwood Lodging's
standalone value by 5.3% to 14.4%.
ILLUSTRATIVE STARWOOD LODGING SHAREHOLDER VALUE ANALYSIS. Bear Stearns
calculated the hypothetical pro forma impact of the Merger on the trading price
of a Paired Share based on a range of potential FFO amounts and FFO multiples.
Bear Stearns used a range of potential FFO multiples of 10.0x to 14.0x Starwood
Lodging management estimated of pro forma 1998 FFO per share (based on
management's estimates), and a potential range of deviation from these estimates
of +$100 million to -$100 million. In determining a range of hypothetical FFO
multiples, Bear Stearns noted that the shares of FelCor Suite Hotels, Inc. and
Patriot American Hospitality Inc./Patriot American Hospitality Operating Company
("Patriot American"), two other REITs, were trading at approximately 11.0x and
12.0x analysts' estimates of 1998 FFO per share and that Paired Shares were
trading approximately 14.0x analysts' estimates of 1998 FFO per share. Bear
Stearns
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calculated that the hypothetical pro forma trading price of a Paired Share as of
the Effective Time ranged from a low of $43.52, assuming an FFO multiple of
10.0x and a deviation from Starwood Lodging estimated pro forma 1998 FFO of
- -$100 million, to a midpoint of $57.96, assuming an FFO multiple of 12.0x and no
deviation from Starwood Lodging estimated pro forma 1998 FFO to a high of
$74.31, assuming an FFO multiple of 14.0x and a deviation from Starwood Lodging
estimated pro forma 1998 FFO of +$100 million. Bear Stearns noted that these
imputed prices would respectively represent changes of -24.0%, +1.2% and +29.8%
from the midpoint of the collar of $57.263 and -21.2%, +4.9% and +34.5% from the
November 11, 1997 closing price of $55.25 per Paired Share. Bear Stearns
performed similar analyses based on EBITDA multiples and noted that the results
were similar to those based on FFO multiples.
In performing these analyses, Bear Stearns was not expressing any opinion
as to the price or range of prices at which Paired Shares may trade. The prices
at which such shares trade in the stock market is and will be driven by a
variety of quantitative and qualitative factors, any of which could cause actual
trading prices to differ materially from the amounts set forth above. For
example, the FFO multiple at which Paired Shares are ultimately valued by
potential investors and the degree to which the stock market accepts Starwood
Lodging management estimates of pro forma FFO may be significantly more or less
favorable than the illustrative ranges set forth above.
OTHER ANALYSES. Bear Stearns conducted certain other analyses, including
reviewing trading prices for the Paired Shares (see "Summary -- Comparative
Market Prices") and reviewing historical and projected financial and operating
data for both Starwood Lodging and ITT individually and on a combined basis (see
the historical and pro forma financial data included herein or incorporated
herein by reference).
The foregoing summary does not purport to be a complete description of the
analyses performed and factors considered by Bear Stearns in arriving at its
opinion, although it includes the material factors considered by Bear Stearns.
The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the analysis
as a whole, could create an incomplete view of the processes underlying the Bear
Stearns Opinion. In arriving at its opinion, Bear Stearns considered the results
of all such reviews, calculations and analyses. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading or private market values of the company or companies to which they are
being compared.
The analyses were prepared solely for purposes of providing the Bear
Stearns Opinion as to the fairness, from a financial point of view, of the
Merger Consideration to Starwood Lodging and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities might actually
be sold to other parties. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. Because such analyses
are inherently subject to uncertainty, being based on numerous factors or events
beyond the control of the parties or their respective advisors, none of Starwood
Lodging, ITT, Bear Stearns or any other person assumes responsibility if future
results are materially different from those forecast. The Bear Stearns Opinion
is necessarily based on economic, market and other conditions, and the
information made available to Bear Stearns, as they existed and could be
evaluated on the date of the opinion. The Bear Stearns Opinion does not imply
any conclusion as to the likely trading range of the Paired Shares either prior
to or subsequent to the consummation of the Merger, which may vary depending
upon, among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities.
In the ordinary course of business, Bear Stearns may actively trade the
securities of Starwood Lodging and ITT for its own account and for the account
of customers and, accordingly, may at any time hold a long or short position in
such securities. Bear Stearns has previously rendered investment banking and
financial advisory services to Starwood Lodging and ITT for which Bear Stearns
received customary compensation. In addition, Bear Stearns rendered investment
banking and financial advisory services in connection with the proposed sale of
ITT World Directories for which Bear Stearns will receive customary
compensation.
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Pursuant to a letter agreement dated October 19, 1997, entered into by
Starwood Lodging and Bear Stearns, Starwood Lodging has agreed to pay Bear
Stearns (i) a cash fee of $1,000,000 upon execution of the Bear Stearns
engagement letter, (ii) an additional cash fee of $5,000,000 upon the rendering
of the Bear Stearns Opinion and (iii) a success fee of $22,000,000 (less a
credit for fees previously paid) upon consummation of the Merger. Starwood
Lodging has agreed to reimburse Bear Stearns for its out-of-pocket expenses,
including the fees and disbursements of counsel. Starwood Lodging has agreed to
indemnify Bear Stearns and certain related persons against certain liabilities
in connection with the engagement of Bear Stearns, including certain liabilities
under the federal securities laws.
OPINION OF FINANCIAL ADVISOR TO ITT
Lazard Freres delivered its written opinion dated as of October 19, 1997 to
the ITT Board to the effect that, as of October 19, 1997, the consideration to
be received by holders of ITT Common Stock pursuant to the Original Merger
Agreement was fair to such holders from a financial point of view. Lazard Freres
has confirmed its opinion as of the date of this Joint Proxy
Statement/Prospectus with respect to the consideration to be received by holders
of ITT Common Stock pursuant to the Merger Agreement, with its subsequent
written opinion dated as of the date of this Joint Proxy Statement/Prospectus
(the "Lazard Freres Opinion"). Lazard Freres also delivered its written opinion
dated as of November 12, 1997 (the "November 12 Lazard Freres Opinion") to the
effect that, as of November 12, 1997, the Merger Consideration to be received by
holders of ITT Common Stock is superior to the consideration such holders of ITT
Common Stock would have received in the Amended Hilton Transaction from a
financial point of view.
A COPY OF THE FULL TEXT OF EACH OF THE LAZARD FRERES OPINION DATED THE DATE
OF THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE NOVEMBER 12 LAZARD FRERES
OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C-1 AND C-2 TO THIS JOINT PROXY
STATEMENT/PROSPECTUS, RESPECTIVELY, AND SUCH OPINIONS ARE INCORPORATED HEREIN BY
REFERENCE. THE SUMMARIES OF THE LAZARD FRERES OPINIONS SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINIONS. HOLDERS OF SHARES OF ITT COMMON STOCK ARE URGED TO
READ THE LAZARD FRERES OPINION AND THE NOVEMBER 12 LAZARD FRERES OPINION
CAREFULLY AND IN THEIR ENTIRETY. THE OPINIONS ARE NOT INTENDED TO AND DO NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ITT AS TO WHETHER SUCH HOLDER
SHOULD VOTE FOR THE ITT PROPOSAL.
LAZARD FRERES OPINION
In the course of performing its review and analyses for rendering the
Lazard Freres Opinion, Lazard Freres: (i) reviewed the financial terms and
conditions of the Original Merger Agreement and the Merger Agreement; (ii)
analyzed certain historical business and financial information relating to ITT
and Starwood Lodging; (iii) reviewed various financial forecasts and other data
provided to Lazard Freres by ITT and Starwood Lodging relating to their
respective businesses and the benefits projected by Starwood Lodging to be
realized in connection with a combination of Starwood Lodging and ITT; (iv)
participated in discussions with members of the senior management of ITT and
Starwood Lodging with respect to the business and prospects of ITT and Starwood
Lodging, the strategic objectives of each and the possible benefits which might
be realized following a combination of Starwood Lodging and ITT; (v) reviewed
public information with respect to certain other companies in lines of business
Lazard Freres believes to be generally comparable to those of ITT and Starwood
Lodging; (vi) reviewed the financial terms of certain business combinations
involving companies in lines of business Lazard Freres believed to be generally
comparable to those of ITT and Starwood Lodging; (vii) reviewed the historical
stock prices and trading volumes of ITT Common Stock and the Paired Shares;
(viii) held discussions with ITT's legal advisors concerning legal, structural
and tax aspects of the Original Merger; and (ix) conducted such other financial
studies, analyses and investigations as Lazard Freres deemed appropriate.
Lazard Freres did not assume any responsibility for independent
verification of the accuracy and completeness of any of the financial and other
information reviewed by it for the purposes of its opinion. Lazard Freres
assumed that the financial forecasts provided to it, including the potential
synergies and tax
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savings projected to be realized from the Original Merger, were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management of ITT and Starwood Lodging as to the future financial
performance of ITT and Starwood Lodging, respectively, and that the synergies
and tax savings projected to be realized from a combination of Starwood Lodging
and ITT would be realized substantially in accordance with such projections,
both as to the financial effect and timing thereof. Lazard Freres expressed no
view as to such forecasts or the assumptions on which they were based, and there
can not be any assurance that the actual results of ITT and Starwood Lodging
will not differ materially from those reflected in the forecasts. Lazard Freres
did not assume any responsibility for or prepare any independent evaluation or
appraisal of any of the assets or liabilities of ITT or Starwood Lodging or
their respective subsidiaries or trusts, as the case may be, nor was Lazard
Freres furnished with any independent evaluations or appraisals.
In connection with rendering its opinion, Lazard Freres did not solicit,
and was not asked to solicit, any third party acquisition interest in ITT. In
addition, Lazard Freres does not express any opinion as to the price or range of
prices at which the Paired Shares may trade subsequent to the announcement of
the execution of the Original Merger Agreement or the consummation of the
Merger. The Lazard Freres Opinion is directed only to the fairness, from a
financial point of view, of the consideration that would have been received by
the holders of ITT Common Stock in the Merger and does not address the business
judgment of the ITT Board in entering into the Merger Agreement. The Lazard
Freres Opinion also was necessarily based on economic, market, legislative and
other conditions as in effect on, and information made available to Lazard
Freres as of, the date of the Lazard Freres Opinion.
In rendering its opinion, Lazard Freres assumed that the Merger would be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by ITT and that obtaining the necessary
regulatory approvals for the Merger would not have a material adverse effect on
ITT, Starwood Lodging or the trading of Paired Shares.
The following is a summary of the material financial analyses used by
Lazard Freres in connection with rendering the Lazard Freres Opinion.
COMPARABLE COMPANIES ANALYSIS. Lazard Freres reviewed and compared certain
financial information relating to Starwood Lodging to corresponding financial
information, ratios and public market multiples for three other paired-share
real estate investment trusts that Lazard Freres deemed to be comparable to
Starwood Lodging. The paired-shared real estate investment trusts included in
the analysis were: Meditrust Corporation, Patriot American and First Union Real
Estate Equity and Mortgage Investments (collectively, the "Selected
Paired-Shared REITs"). With respect to the Selected Paired-Shared REITs, Lazard
Freres considered the ratios of market price to estimated calendar year 1998 FFO
(based on Wall Street financial analysts' estimates), which ratios for the
Selected Paired-Shared REITs ranged from a low of 11.8x to a high of 12.9x for
1998, compared to 13.9x for 1998 for Starwood Lodging.
Lazard Freres also reviewed and compared certain financial information
relating to ITT to corresponding financial information, ratios and public market
multiples for 11 other companies in the hotel industry and four companies in the
gaming industry that Lazard Freres deemed to be comparable to ITT. The hotel
companies included in the analysis were: Hilton, Host Marriott Corporation
("Host Marriott"), Parent Holding Corp. ("Parent Holding") (whose constituent
companies are Promus Hotel Corporation and Doubletree Corporation) (pro forma
for the announced merger), La Quinta Inns, Inc. ("La Quinta"), Four Seasons
Hotels Corporation ("Four Seasons"), Marriott International, Inc. ("Marriott
International"), Bass PLC, Granada Group PLC, Accor S.A., Whitbread PLC and
Ladbroke Group PLC; the gaming companies included in the analysis were: Mirage
Resorts, Incorporated ("Mirage"), Circus Circus Enterprises, Inc. ("Circus
Circus"), Harrah's Entertainment, Inc. ("Harrah's") and MGM Grand, Inc. ("MGM
Grand") (such hotel and gaming companies are hereafter referred to as the
"Selected Comparable Companies"). Lazard Freres examined, among other things,
multiples of enterprise value to (i) 1997 and 1998 estimated earnings before
interest, taxes, depreciation and amortization ("EBITDA") (based on Wall Street
financial analysts' estimates) and (ii) 1997 and 1998 estimated price to
earnings ("P/E") ratios (based on Wall Street financial analysts' estimates).
The analysis indicated that the Selected Comparable Companies traded at ranges
of 7.6x to 23.6x and 6.7x to 20.3x to 1997 and 1998 estimated EBITDA,
respectively, compared to multiples for ITT
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of 10.1x to 1997 estimated EBITDA and 8.7x to 1998 estimated EBITDA. The
analysis also indicated that the Selected Comparable Companies traded at ranges
of 14.4x to 35.0x and 13.0x to 28.6x 1997 and 1998 estimated P/E, respectively,
compared to multiples for ITT of 31.8x 1997 estimated P/E and 24.5x 1998
estimated P/E.
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available
information, Lazard Freres reviewed and analyzed certain financial and operating
information relating to nine selected transactions in the hotel industry since
1994 (for purposes of this section, the "Selected Hotel Transactions") and five
selected transactions in the gaming industry since 1994 (for purposes of this
section, the "Selected Gaming Transactions").
The Selected Hotel Transactions and the dates the transactions were
announced are as follows: Starwood Lodging's acquisition of Westin (September
1997); Promus Hotel Corporation's ("Promus") pending acquisition of Doubletree
Corporation ("Doubletree") (September 1997); Patriot American's acquisition of
Wyndham Hotel Corporation ("Wyndham") (February 1997); Marriott International's
acquisition of Renaissance Hotel Group N.V. ("Renaissance") (February 1997);
Doubletree's acquisition of Red Lion Hotels Inc. ("Red Lion") (September 1996);
Granada Group PLC's acquisition of Forte PLC (November 1995); FelCor Suite
Hotels Inc.'s acquisition of 18 Crown Sterling Suites Hotels (November 1995);
Forte PLC's acquisition of Meridian (Air France) (September 1994) and ITT's
acquisition of Ciga (February 1994).
Lazard Freres compared, among other things, the "transaction value" (i.e.,
the price per share multiplied by the sum of the number of shares outstanding
and the number of options outstanding plus the liquidation values of any
preferred stock, short term debt, long term debt and the value of minority
interests less cash and equivalents and proceeds from exercisable options) of
the Selected Hotel Transactions as a multiple of last twelve months ("LTM")
sales, LTM EBITDA and LTM earnings before interest and taxes ("EBIT"). The
ranges of the transaction values as a multiple of LTM sales, LTM EBITDA and LTM
EBIT for such acquisitions were as follows: (i) transaction value to LTM sales
ranged from 1.6x to 7.3x (with a median of 3.3x and a mean of 4.0x); (ii)
transaction value to LTM EBITDA ranged from 12.0x to 22.9x (with a median of
13.2x and a mean of 15.3x); and (iii) transaction value to LTM EBIT ranged from
14.8x to 45.5x (with a median of 19.8x and a mean of 25.9x). Lazard Freres also
compared the premium paid to the closing market price one month prior to the
announcement of the acquisitions of Doubletree, Wyndham, Renaissance, Red Lion
and Forte PLC, which ranged from 3% to 76% (with a median of 32% and a mean of
34%). Lazard Freres compared their multiple to the 13.8x multiple of estimated
LTM economic EBITDA indicated by the Original Merger.
The Selected Gaming Transactions and the dates the transactions were
announced are as follows: Sun International Hotels Ltd.'s acquisition of Griffin
Gaming and Entertainment (August 1996); Trump Hotels & Casino Resorts Inc.'s
acquisition of Trump Castle Hotel & Casino (June 1996); Hilton's acquisition of
Bally Entertainment Corporation (June 1996); Circus Circus's acquisition of Gold
Strike Resorts (March 1995) and ITT's acquisition of Caesars World, Inc.
(December 1994).
Lazard Freres compared, among other things, the transaction value of the
Selected Gaming Transactions as a multiple of LTM sales, LTM EBITDA and LTM
EBIT. The ranges of the transaction values as a multiple of LTM sales, LTM
EBITDA and LTM EBIT for such acquisitions were as follows: (i) transaction value
to LTM sales ranged from 1.2x to 4.7x (with a median of 1.8x and a mean of
2.5x); (ii) transaction value to LTM EBITDA ranged from 7.2x to 15.2x (with a
median of 11.0x and a mean of 11.0x); and (iii) transaction value to LTM EBIT
ranged from 9.8x to 20.0x (with a median of 15.4x and a mean of 15.4x). Lazard
Freres compared their multiple to the 13.8x multiple of estimated LTM economic
EBITDA indicated by the Original Merger. Lazard Freres also compared the premium
paid to the closing market price one month prior to the announcement of the
acquisitions of Griffin Gaming and Entertainment, Bally Entertainment
Corporation and Caesars, which ranged from 39% to 65% (with a median of 54% and
a mean of 53%).
DISCOUNTED CASH FLOW ANALYSIS. Lazard Freres performed a discounted cash
flow analysis for ITT after giving effect to ITT's Comprehensive Plan at June
30, 1997. The management of ITT informed Lazard Freres that the Comprehensive
Plan would have included, among other things, (i) a stock tender offer for up to
30 million shares of ITT Common Stock at a price of $70 per share, (ii) a debt
tender offer to repurchase in the
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aggregate approximately $2.0 billion of ITT's publicly held debt securities and
(iii) the separation of ITT into three publicly owned companies to be effected
through the distribution of all the shares owned by ITT of ITT Destinations,
Inc., a new subsidiary that was formed to hold ITT's hotel and gaming business
("ITT Destinations") and ITT Educational. Pursuant to the Comprehensive Plan,
after the distributions described in (iii) above, ITT's remaining business would
have been its telephone directories publishing business and it was expected that
ITT would change its name to ITT Information Services, Inc. ("ITT Information
Services").
Based on forecasts provided by the management of ITT, Lazard Freres
calculated ranges of equity values for ITT based upon the present value of the
projected stream of unlevered free cash flow through 2001 and a projected
calendar year 2001 terminal value, based on multiples of estimated EBITDA for
ITT Destinations and ITT Information Services ranging from 8.0x to 12.0x and
7.0x to 11.0x, respectively, and a value of $6.17 per share of ITT Educational
to ITT stockholders. In performing its analyses, Lazard Freres utilized a range
of discount rates for ITT Destinations and ITT Information Services,
respectively.
PRO FORMA FFO ANALYSIS. Lazard Freres analyzed certain pro forma effects
resulting from the Original Merger, including the potential impact of the
Original Merger on projected FFO for the combined company assuming (on the basis
of projections provided by the management of ITT and Starwood Lodging) annual
operating synergies of $45 million and assuming (on the basis of projections
provided by the management of ITT and Starwood Lodging) no tax savings, as well
as a range of annual tax savings. In all scenarios, the analysis indicated that
the Original Merger would be accretive in the years 1998 and 1999 to FFO on a
per Paired Share basis.
NOVEMBER 12 LAZARD FRERES OPINION
In the course of performing its review and analyses for rendering the
November 12 Lazard Freres Opinion, Lazard Freres: (i) reviewed the financial
terms and conditions of (a) the Merger Agreement and (b) the Amended Hilton
Transaction (including the terms of Hilton's proposed merger agreement); (ii)
analyzed certain historical business and financial information relating to ITT,
Starwood Lodging and Hilton; (iii) reviewed various financial forecasts and
other data provided to Lazard Freres by ITT, Starwood Lodging and Hilton
relating to their respective businesses and the benefits projected by Starwood
Lodging and Hilton to be realized in connection with the Merger and the Amended
Hilton Transaction, respectively; (iv) with respect to ITT and Starwood Lodging,
participated in discussions with members of the senior management of ITT and
Starwood Lodging with respect to the business and prospects of ITT and Starwood
Lodging, and the strategic objectives of each and the possible benefits which
might be realized following the Merger, and with respect to Hilton, participated
in discussions with members of the management of Hilton with respect to the
results of Hilton's pro forma financial analysis after giving effect to the
Amended Hilton Transaction, including the assumptions underlying such analysis;
(v) reviewed public information with respect to certain other companies in lines
of business which Lazard Freres believed to be generally comparable to those of
ITT, Starwood Lodging and Hilton; (vi) reviewed the financial terms of certain
business combinations involving companies in lines of business which Lazard
Freres believed to be generally comparable to those of ITT, Starwood Lodging and
Hilton; (vii) reviewed the historical stock prices and trading volumes of ITT
Common Stock, the Paired Shares and the Hilton Common Stock; (viii) held
discussions with ITT's attorneys concerning legal, structural, regulatory and
tax aspects of the Merger and the Amended Hilton Transaction; and (ix) conducted
such other financial studies, analyses and investigations as Lazard Freres
deemed appropriate.
Lazard Freres did not assume any responsibility for independent
verification of the accuracy and completeness of any of the financial and other
information reviewed by it for the purposes of its opinion. Lazard Freres
assumed that the financial forecasts provided to it, including the potential
synergies and tax savings projected to be realized from the Merger and the
synergies projected to be realized from the Amended Hilton Transaction, were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of management of ITT, Starwood Lodging and Hilton as to the future
financial performance of ITT, Starwood Lodging and Hilton, respectively, and
that the synergies and tax savings projected to be realized from the Merger and
the synergies projected to be realized from the Amended Hilton Transaction would
be realized substantially in accordance with such projections, both as to the
financial effect and timing thereof. Lazard Freres expressed no view as to such
forecasts or the assumptions on which they were based,
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and there can not be any assurance that the actual results of ITT, Starwood
Lodging and Hilton will not differ materially from those reflected in the
forecasts. Lazard Freres did not assume any responsibility for or prepare any
independent evaluation or appraisal of any of the assets or liabilities of ITT
or Starwood Lodging or their respective subsidiaries or trusts, as the case may
be, nor was Lazard Freres furnished with any independent evaluations or
appraisals. Lazard Freres had only very limited access to both confidential
information regarding Hilton and members of Hilton's management team. In
rendering the November 12 Lazard Freres Opinion, Lazard Freres, with ITT's
permission, relied upon the advice of ITT and its legal counsel concerning the
expected time required to satisfy the conditions to the Merger.
In connection with rendering its opinion, Lazard Freres did not solicit,
and was not asked to solicit, any third party acquisition interest in ITT. In
addition, Lazard Freres did not express any opinion as to the price or range of
prices at which the Paired Shares or Hilton Common Stock may trade subsequent to
the consummation of the Merger or the Amended Hilton Transaction. The November
12 Lazard Freres Opinion does not address the business judgment of the ITT Board
in amending the Original Merger Agreement or recommending the Merger. The
November 12 Lazard Freres Opinion also was necessarily based on economic,
monetary market, legislative and other conditions as in effect on, and
information made available to Lazard Freres as of, the date of the November 12
Lazard Freres Opinion.
In rendering its opinion, Lazard Freres assumed that the Merger would be
consummated on the terms described in the Merger Agreement and that the Amended
Hilton Transaction would be consummated on the terms described in Amendment
Number 36 to the Hilton Schedule 14D-1, in each case without any waiver of any
material terms or conditions by ITT. In addition, in rendering its opinion
Lazard Freres also assumed that (i) obtaining the necessary regulatory approvals
for the Merger would not have a material adverse effect on ITT, Starwood Lodging
or the trading of Paired Shares and (ii) obtaining the necessary regulatory
approvals for the Amended Hilton Transaction would not have a material adverse
effect on ITT, Hilton or the trading of Hilton Common Stock. Lazard Freres also
assumed the absence of any change in the United States tax laws and regulations
applicable to the Merger of the Amended Hilton Transaction and in effect on the
date of the November 12 Lazard Freres Opinion.
The following is a summary of the material financial analyses used by
Lazard Freres in connection with providing the November 12 Lazard Freres Opinion
to the ITT Board:
COMPARATIVE ANALYSIS OF NOMINAL VALUE OF COMPETING OFFERS. Lazard Freres
reviewed and compared the nominal value of the consideration per share of ITT
Common Stock to be received in the Merger and the Amended Hilton Transaction. In
performing its analysis, Lazard Freres assumed that, with respect to the Merger,
30% of the aggregate consideration in the Merger would be paid in cash and that
the Paired Shares would trade between $53.263 and $61.263 at the consummation of
the Merger. Lazard Freres also assumed that, with respect to the Amended Hilton
Transaction, 65,000,000 shares of ITT Common Stock (representing approximately
55.5% of the outstanding shares of ITT Common Stock as of November 12, 1997)
would be purchased for $80 in cash and that the per share value of Hilton Common
Stock to be issued in the Amended Hilton Transaction would be $31.00 (based on
the closing price of Hilton Common Stock on November 12, 1997). In addition,
Lazard Freres calculated a range of hypothetical values between approximately
$6.00 and $6.80 for CVP Share to be issued in the Amended Hilton Transaction and
assumed for the illustrative purposes of its analysis that the hypothetical
value for each CVP Share was $6.40. Based on these assumptions, Lazard Freres
calculated the nominal consideration per share of ITT Common Stock to be
received in the Merger to consist of $25.50 in cash and $59.50 in Paired Shares,
for a total consideration per share of ITT Common Stock of $85.00, as compared
to the nominal consideration per share of ITT Common Stock to be received in the
Amended Hilton Transaction, which Lazard Freres calculated to consist of $44.37
in cash, $27.61 in Hilton Common Stock and $5.70 in CVP Shares, for a total
consideration per share of ITT Common Stock of $77.68.
COMPARATIVE ANALYSIS OF DISCOUNTED VALUE OF CONSIDERATION FROM DATE
RECEIVED OF COMPETING OFFERS. Lazard Freres reviewed and compared the value of
the consideration per share of ITT Common Stock to be received in the Merger and
the Amended Hilton Transaction, in each case discounted to November 12, 1997. In
performing its analysis, Lazard Freres assumed that, with respect to the Merger,
30% of the aggregate
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consideration in the Merger would be paid in cash, that the consideration to be
received in the Merger would be received on January 31, 1998 and that the Paired
Shares would trade between $53.263 and $61.263 at the consummation of the
Merger. For purposes of its analysis, Lazard Freres assumed that the
consideration to be received in the Merger would be received on January 31,
1998, as opposed to three months from November 12, 1997 (the date that Lazard
Freres assumed the portion of the Amended Hilton Transaction consideration
consisting of shares of Hilton Common Stock and CVP Shares would be received),
because if the consummation of the Merger occurs after January 31, 1998, ITT
stockholders would receive additional cash consideration per share of ITT Common
Stock in an amount equal to (i) $85.00 times (ii) 7% per annum (without
compounding) accrued from and including January 31, 1998, to but excluding the
date of the consummation of the Merger. Lazard Freres assumed that the cash
consideration portion to be received in the Amended Hilton Transaction would be
received on November 19, 1997 and that the portion of the Amended Hilton
Transaction consideration consisting of shares of Hilton Common Stock and CVP
Shares would be received 3 months from November 12, 1997. As indicated above,
Lazard Freres assumed for the illustrative purposes of its analysis that the
hypothetical value for each CVP Share was $6.40 and that the per share value of
Hilton Common Stock to be issued in the Amended Hilton Transaction would be
$31.00 (based on the closing price of Hilton Common Stock on November 12, 1997).
Based on these assumptions, and assuming a 12% discount rate, Lazard Freres
calculated the aggregate consideration per share of ITT Common Stock to be
received in the Merger to be $82.91, as compared to the aggregate consideration
per share of ITT Common Stock to be received in the Amended Hilton Transaction,
which Lazard Freres calculated to be $77.53. Based on these assumptions, and
assuming a 15% discount rate, Lazard Freres calculated the aggregate
consideration per share of ITT Common Stock to be received in the Merger to be
$82.44, as compared to the aggregate consideration per share of ITT Common Stock
to be received in the Amended Hilton Transaction, which Lazard Freres calculated
to be $77.49. Lazard Freres also calculated the discounted value per share of
ITT Common Stock to be received in the Merger and the Amended Hilton Transaction
assuming that (i) the portion of the Amended Hilton Transaction consideration
consisting of Hilton Common Stock and CVP Shares and (ii) the consideration to
be received in the Merger would in each case be received 6 months from November
12, 1997 (the "6 Month Case"). Assuming a 12% discount rate and the 6 Month
Case, Lazard Freres calculated the aggregate consideration per share of ITT
Common Stock to be received in the Merger to be $81.90, as compared to the
aggregate consideration per share of ITT Common Stock to be received in the
Amended Hilton Transaction, which Lazard Freres calculated to be $77.37.
Assuming a 15% discount rate and the 6 Month Case, Lazard Freres calculated the
aggregate consideration per share of ITT Common Stock to be received in the
Merger to be $80.82, as compared to the aggregate consideration per share of ITT
Common Stock to be received in the Amended Hilton Transaction, which Lazard
Freres calculated to be $77.30.
SPECIAL CONSIDERATIONS; INVOLVEMENT OF LAZARD FRERES AND GOLDMAN SACHS
The preparation of a fairness opinion and a superiority opinion is a
complex process and involves various judgments and determinations as to the most
appropriate and relevant assumptions and financial analyses and the application
of these methods to the particular circumstances involved. Such an opinion is
therefore not readily susceptible to partial analysis or summary description and
taking portions of the analyses set out above, without considering each analysis
as a whole, would, in the view of Lazard Freres, create an incomplete and
misleading picture of the processes underlying the analyses considered in
rendering its opinion. The Lazard Freres Opinion and the November 12 Lazard
Freres Opinion necessarily involved making complex considerations and judgments
concerning differences in the potential financial and operating characteristics
of the precedent transactions. In arriving at its opinions, Lazard Freres
considered the results of its analyses and did not attribute particular weight
to any one analysis or factor considered by it. No transaction in the precedent
transaction analysis summarized above is identical to the Merger or the Original
Merger. The analyses performed by Lazard Freres, particularly those based on
forecasts, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of Lazard Freres'
analysis of the fairness and/or superiority of the consideration to be paid in
the Original Merger, the Merger or the Amended Hilton
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Transaction, from a financial point of view, to the stockholders of ITT. The
foregoing summary does not purport to be a complete description of the analyses
prepared by Lazard Freres.
Lazard Freres is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts and valuations for estate, corporate and other purposes. Lazard Freres
was selected to act as financial advisor to the ITT Board because of its
expertise and its reputation in investment banking and mergers and acquisitions
and its familiarity with ITT.
Goldman Sachs, which is also acting as financial advisor to ITT in
connection with the Merger and the Original Merger, did not deliver an opinion
to the ITT Board with respect to the Merger or the Original Merger. Goldman
Sachs advised the ITT Board that it believed it to be inappropriate for Goldman
Sachs to deliver an opinion with respect to the Merger or the Original Merger in
light of Goldman Sachs' involvement and financial interest in the Westin
Acquisition. Goldman Sachs, through certain of its affiliates, has a significant
equity interest in Westin. As a result of the consummation of the Westin
Acquisition, certain affiliates of Goldman Sachs have an equity interest in
Starwood Lodging and have one representative on each of the Trust Board and the
Corporation Board. In addition, Goldman Sachs is serving as financial advisor to
Westin in the Westin Acquisition and will receive advisory fees in connection
therewith.
Although Goldman Sachs did not render an opinion as to the fairness or
superiority of the consideration to be paid pursuant to the Original Merger or
the Merger to the holders of the ITT Common Stock, Goldman Sachs did provide the
ITT Board with advice and views, in conjunction with Lazard Freres and subject
to the assumptions and conditions described above, concerning the financial
aspects of the Merger and the Original Merger. In its capacity as financial
advisor to ITT, Goldman Sachs participated with Lazard Freres in the review and
analysis of the financial information and the preparation of other materials
that were presented to the ITT Board. Goldman Sachs also participated with
Lazard Freres in each presentation to the ITT Board. In addition, Goldman Sachs
was involved in arranging (i) the issuance by ITT Promedia CVA ("Promedia"), a
wholly owned subsidiary of ITT World Directories, of approximately DM 575
million of Senior Subordinated DM Notes due 2007 and (ii) the issuance by ITT
Publimedia, B.V., a wholly-owned subsidiary of Promedia, of approximately $225
million of Senior Subordinated Notes due 2007.
Pursuant to an engagement letter with Goldman Sachs and Lazard Freres, ITT
has paid each of Goldman Sachs and Lazard Freres for their services 50% of (a)
an initial fee equal to $1,000,000 and (b) an additional advisory fee equal to
$19,000,000. ITT has also agreed to reimburse Goldman Sachs and Lazard Freres
for their reasonable out of pocket expenses, including fees of counsel and any
sales, use or similar taxes, and to indemnify Goldman Sachs and Lazard Freres
against certain liabilities in connection with their engagement, including
certain liabilities arising under Federal securities laws.
Goldman Sachs and Lazard Freres have provided financial advisory and
investment banking services to ITT from time to time for which they have
received customary compensation. Kendrick R. Wilson III is a Managing Director
of Lazard Freres. In the ordinary course of their businesses, each of Goldman
Sachs and Lazard Freres may actively trade the securities of ITT and/or Starwood
Lodging for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
OPINION OF FINANCIAL ADVISOR TO THE ITT SPECIAL COMMITTEE
The ITT Special Committee retained Gleacher NatWest to act as the ITT
Special Committee's financial advisor in connection with the Merger and related
matters. At the meeting of the ITT Special Committee on November 12, 1997,
Gleacher NatWest delivered an oral opinion (subsequently confirmed in writing on
November 16, 1997) (the "Gleacher NatWest Opinion") to the ITT Special Committee
to the effect that, as of November 12, 1997, (i) the Merger Consideration is
fair to holders of ITT Common Stock from a financial point of view and (ii) the
Merger Consideration is superior to the consideration proposed to be paid to ITT
stockholders in the Amended Hilton Transaction from a financial point of view.
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THE FULL TEXT OF THE GLEACHER NATWEST OPINION, WHICH SETS FORTH, AMONG
OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C-3 TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. ITT STOCKHOLDERS ARE URGED TO READ THE GLEACHER
NATWEST OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE GLEACHER
NATWEST OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE GLEACHER
NATWEST OPINION IS ADDRESSED ONLY TO THE ITT SPECIAL COMMITTEE AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF ITT COMMON STOCK AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE ITT MEETING OR AS TO ANY OTHER MATTER.
In connection with rendering its opinion, Gleacher NatWest, among other
things: (i) analyzed the historical publicly filed financial statements of ITT,
Starwood Lodging and Hilton; (ii) analyzed the Merger and the Amended Hilton
Transaction; (iii) reviewed the Merger Agreement, the draft agreement and plan
of merger filed by Hilton with the Commission and the Hilton Schedule 14D-1;
(iv) reviewed the historical market prices and reported trading activity of the
ITT Common Stock, the Paired Shares, and Hilton Common Stock; (v) compared the
financial performance of Starwood Lodging with, and reviewed the historical
market prices and reported trading activity of the common shares of, publicly
traded real estate investment trusts whose operating characteristics and
ownership structure resemble those of Starwood Lodging; (vi) reviewed public
information with respect to the financial performance of certain other companies
in lines of business it believed to be comparable to the businesses of ITT,
Starwood Lodging and Hilton and reviewed the historical market prices and
reported trading activity of such companies; (vii) reviewed the financial terms
of certain business combinations involving companies in lines of business which
it believed to be comparable to the businesses of ITT, Starwood Lodging and
Hilton; (viii) reviewed selected financial analyses and other presentation
materials as prepared by ITT's financial advisors, Lazard Freres and Goldman
Sachs (including certain estimated financial results of ITT contained therein
for the fiscal years ending on December 31, 1997 and 1998); and (ix) performed
such other analyses as it deemed appropriate.
In rendering its opinion, Gleacher NatWest assumed and relied upon, without
assuming responsibility for independent verification, the accuracy and
completeness of the information reviewed by it. With respect to the estimated
financial results and other financial analyses and materials provided to it,
Gleacher NatWest assumed that they had been reasonably prepared and reflect the
best currently available estimates and judgments of the senior management of ITT
as to the future financial performance of ITT. Gleacher NatWest also assumed
based upon the information which has been provided to it and without assuming
responsibility for independent verification thereof that no material undisclosed
or contingent liability exists with respect to Starwood Lodging or ITT. Other
than the estimated financial results referred to in clause (viii) above,
Gleacher NatWest has reviewed no financial projections of ITT or Starwood
Lodging. Gleacher NatWest did not solicit, and was not asked to solicit, any
third party acquisition interests in ITT. In addition, the Gleacher NatWest
Opinion does not express any view as to the price or range of prices at which
the Paired Shares or the Hilton Common Stock or the CVP Shares would trade
subsequent to the consummation of the Merger or the Amended Hilton Transaction,
as the case may be. Gleacher NatWest was not requested to, and did not, address
the business judgment of the ITT Board or of the Special Committee in amending
the Original Merger Agreement or recommending the Merger. The Gleacher NatWest
Opinion is based necessarily on the economic, market, and other conditions as in
effect on, and the information made available to it as of, the date of its
opinion.
In rendering its opinion, Gleacher NatWest assumed that the Merger would be
consummated on the terms described in the Merger Agreement and that the Amended
Hilton Transaction would be consummated on the terms described in the Hilton
Schedule 14D-1, in each case without waiver or variation of any material terms
or conditions. Gleacher NatWest in rendering its opinion also assumed that
obtaining all necessary approvals and consents including, but not limited to,
regulatory approvals, would not have a material adverse effect, in the case of
the Merger, on ITT, the Starwood Companies or the value and trading price of the
Paired Shares and in the case of the Amended Hilton Transaction, on ITT, Hilton
or the value and trading price of the Hilton Common Stock or the CVP Shares.
Finally, Gleacher NatWest assumed the absence of any material change in the tax
laws of the United States, any state or any political subdivision thereof, or
any
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regulations promulgated thereunder, and the absence of any material change in
the laws and regulations affecting the gaming or lodging industries in the
United States, any state or any political subdivision thereof.
The following is a summary of the material analyses performed by Gleacher
NatWest in connection with rendering its opinion.
COMPARISON OF OFFERS. Gleacher NatWest performed a comparative valuation
analysis of the Amended Hilton Transaction and the Merger. In performing its
analysis, Gleacher NatWest assumed that, with respect to the Merger, (i) 30% of
the aggregate consideration would be paid in cash, (ii) 70% of the aggregate
consideration would be paid in Paired Shares and (iii) the Market Price of
Paired Shares used to calculate the Exchange Ratio would be between $53.263 and
$61.263. Gleacher NatWest also assumed that, with respect to the Amended Hilton
Transaction, (i) 65,000,000 shares of ITT Common Stock would be purchased for
$80.00 per share in cash, (ii) the per share value of Hilton Common Stock issued
to holders of ITT Common Stock in the Amended Hilton Transaction would be $31.00
(the closing price on November 11, 1997) and (iii) the hypothetical value of
each CVP Share issued to holders of ITT Common Stock was $6.44. Based on these
assumptions, Gleacher NatWest indicated that the nominal value of the Merger was
$85.00 per share of ITT Common Stock (consisting of $59.50 in Paired Shares and
$25.50 in cash) and the nominal value of the Amended Hilton Transaction was
$77.72 per share of ITT Common Stock (consisting of $44.37 in cash, $27.61 in
Hilton Common Stock and $5.73 in CVP Shares).
Gleacher NatWest also analyzed both proposals on a net present value basis,
to account for the difference in time at which the transaction consideration was
assumed to be received by ITT stockholders. This analysis indicated that using a
discount rate of 12%, the Merger was valued at $82.91 per share of ITT Common
Stock and the Amended Hilton Transaction was valued at $77.56 per share of ITT
Common Stock, and that using a discount rate of 15%, the Merger was valued at
$82.44 per share of ITT Common Stock and the Amended Hilton Transaction was
valued at $77.52 per share of ITT Common Stock.
BREAKEVEN ANALYSIS. Gleacher NatWest provided an analysis to the ITT
Special Committee which calculated the Paired Share price at which the Merger
and the Amended Hilton Transaction would have equal nominal values assuming the
price of Hilton Common Stock remained at $31.00 per share (the price at which it
closed on November 11, 1997). Gleacher NatWest indicated that if the Paired
Share price decreased to $46.74 per share, then the nominal value of the Merger
would decline to $77.72, which would make it of equivalent nominal value to the
Amended Hilton Transaction assuming the price of Hilton Common Stock remained at
$31.00 per share. Gleacher NatWest noted that a Paired Share price of $46.74
represented a 15.4% decline from the closing price of the Paired Shares of
$55.25 on November 11, 1997.
COMPARABLE COMPANIES ANALYSIS. Gleacher NatWest reviewed and compared
certain financial, operating and market trading information of ITT to (i)
selected hotel ownership and/or management companies and (ii) selected gaming
companies, whose operating characteristics and/or industry focus Gleacher
NatWest believed resemble those of ITT. The hotel ownership and management
companies analyzed by Gleacher NatWest included: Host Marriott, La Quinta,
Parent Holding (whose constituent companies are Promus Hotel Corporation and
Doubletree) (pro forma for the announced merger), Four Seasons and Marriott
International (collectively, the "Selected Hotel Companies"). With respect to
the Selected Hotel Companies, Gleacher NatWest considered, among other things,
multiples of Enterprise Value (defined as the price per share multiplied by the
sum of the number of shares outstanding and the number of options outstanding
plus the liquidation values of any preferred stock, short term debt, long term
debt and the value of minority interests less cash and equivalents and proceeds
from exercisable options) to estimated calendar year 1997 and 1998 EBITDA as
well as estimated calendar year 1997 and 1998 P/E ratios (based on Wall Street
financial analysts' estimates). This analysis indicated that the Selected Hotel
Companies traded in the following ranges (with the median indicated in
parentheses) for the following multiples: (i) Enterprise Value to 1997 estimated
EBITDA: 9.4x to 23.1x (median of 11.5x); (ii) Enterprise Value to 1998 estimated
EBITDA: 7.7x to 21.3x (median of 9.7x); (iii) 1997 estimated P/E: 18.3x to 29.7x
(median of 25.8x); and (iv) 1998 estimated P/E: 15.0x to 22.5x (median of
20.2x). The gaming companies analyzed by Gleacher NatWest included: Circus
Circus, Harrah's, MGM Grand and Mirage (collectively, the "Selected Gaming
Companies"). With respect to the Selected Gaming Companies, Gleacher NatWest
considered, among other things,
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multiples of Enterprise Value to estimated calendar year 1997 and 1998 EBITDA,
as well as estimated calendar year 1997 and 1998 P/E ratios (based on Wall
Street financial analysts' estimates). This analysis indicated that the Selected
Gaming Companies traded in the following ranges (with the median indicated in
parentheses) for the following multiples: (i) Enterprise Value to 1997 estimated
EBITDA: 7.9x to 12.2x (median of 8.6x); (ii) Enterprise Value to 1998 estimated
EBITDA: 6.4x to 10.5x (median of 7.6x); (iii) 1997 estimated P/E: 17.9x to 22.7x
(median of 18.2x); and (iv) 1998 estimated P/E: 14.0x to 19.8x (median of
15.9x).
Gleacher NatWest noted that the $85.00 per share nominal value of the ITT
Common Stock implied by the Merger implied multiples for ITT as follows: (i)
Enterprise Value to 1997 and 1998 estimated EBITDA of 13.5x and 10.2x,
respectively, and (ii) 1997 and 1998 estimated P/E ratios of 30.8x and 22.2x,
respectively. Gleacher NatWest noted that in all instances these multiples were
higher than the median multiples for the Selected Hotel Companies and for the
Selected Gaming Companies.
Gleacher NatWest also reviewed and compared certain financial, operating
and market trading information of Starwood Lodging to selected paired-share real
estate investment trusts. The paired-share real estate investment trusts
analyzed by Gleacher NatWest included: Meditrust Corporation, Patriot American
and First Union Real Estate Equity and Mortgage Investments (collectively, the
"Selected Paired-Share REITs"). With respect to the Selected Paired-Share REITs,
Gleacher NatWest considered the ratios of market price to estimated calendar
year 1997 and 1998 FFO per share (based on Wall Street financial analysts'
estimates). This analysis indicated that the Selected Paired-Share REITs traded
in the following ranges (with the median indicated in parentheses) for the
following multiples: (i) market price to 1997 estimated FFO per share: 12.0x to
16.8x (median of 15.7x) and (ii) market price to 1998 estimated FFO per share:
11.4x to 12.6x (median of 12.3x). Gleacher NatWest noted that Starwood Lodging's
multiples of market price to 1997 and 1998 estimated FFO per share were 18.7x
and 14.1x, both of which were higher than the respective median multiples of the
Selected Paired-Share REITs, respectively.
COMPARABLE TRANSACTIONS ANALYSIS. Using publicly available information,
Gleacher NatWest reviewed and analyzed certain financial and operating
information relating to five selected transactions in the hotel industry
("Gleacher Selected Hotel Transactions") and the five Selected Gaming
Transactions.
The Gleacher Selected Hotel Transactions analyzed by Gleacher NatWest are
as follows: Starwood Lodging's pending acquisition of Westin; Promus's pending
acquisition of Doubletree; Patriot American's acquisition of Wyndham; Marriott
International's acquisition of Renaissance; and Doubletree's acquisition of Red
Lion.
With respect to the Gleacher Selected Hotel Transactions, Gleacher NatWest
considered, among other things, the Enterprise Value offered as a multiple of
LTM EBITDA and LTM EBIT, as well as the Equity Value (defined as the price per
share multiplied by the sum of the number of shares outstanding and the number
of options outstanding less the proceeds from exercisable options) offered as a
multiple of LTM net income. The analysis of the multiples offered in the
Gleacher Selected Hotel Transactions indicated that: (i) Enterprise Value to LTM
EBITDA ranged from 11.3x to 22.4x (with a median of 12.8x); (ii) Enterprise
Value to LTM EBIT ranged from 14.6x to 29.3x (with a median of 17.9x; and (iii)
Equity Value to net income ranged from 24.3x to 31.3x (with a median of 25.6x).
With respect to the Selected Gaming Transactions, Gleacher NatWest
considered, among other things, the Enterprise Value offered as a multiple of
LTM EBITDA and LTM EBIT, as well as the Equity Value offered as a multiple of
net income. The analysis of the multiples offered in the Selected Gaming
Transactions indicated that: (i) Enterprise Value to LTM EBITDA ranged from 7.7x
to 15.2x (with a median of 10.7x); (ii) Enterprise Value to LTM EBIT ranged from
10.4x to 18.7x (with a median of 15.3x and a mean of 15.0x); and (iii) Equity
Value to net income ranged from 17.6x to 27.6x (with a median of 23.9x).
Gleacher NatWest noted that the $85.00 per share nominal value of the ITT
Common Stock implied by the Merger implied multiples for ITT as follows: (i)
Enterprise Value to LTM EBITDA and LTM EBIT of 13.7x and 18.9x, respectively;
and (ii) Equity Value to LTM net income of 33.3x. Gleacher NatWest noted
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that in all instances these multiples were higher than the median of multiples
offered in the Gleacher Selected Hotel Transactions and in the Selected Gaming
Transactions.
The preparation of a fairness and superiority opinion is a complex process
and is not necessarily susceptible to a partial analysis or summary description.
Gleacher NatWest believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion and the
presentation to the ITT Special Committee. Gleacher NatWest has not indicated
that any of the analyses which it performed had a greater significance from any
other. In addition, Gleacher NatWest may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to be Gleacher
NatWest's view of the actual value of ITT, Starwood Lodging or Hilton.
In performing its analyses, Gleacher NatWest made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ITT, Starwood Lodging or
Hilton. The analyses performed by Gleacher NatWest are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as a part of
Gleacher NatWest's analysis of the fairness and superiority of the Merger to the
ITT stockholders from a financial point of view and were provided to the ITT
Special Committee in connection with the delivery of the Gleacher NatWest
Opinion. The analyses do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities might actually be sold, which are
inherently subject to uncertainty. In addition, as described above, the Gleacher
NatWest Opinion and presentation to the ITT Special Committee was one of many
factors taken into consideration by the ITT Special Committee in making its
determination to approve the Merger. Consequently, the Gleacher NatWest analyses
described above should not be viewed as determinative of the ITT Special
Committee's or ITT management's opinion with respect to the value of ITT,
Starwood Lodging and Hilton.
Gleacher NatWest is an internationally recognized investment banking and
advisory firm that regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
BENEFITS TO ITT EMPLOYEES AND DIRECTORS
In considering the recommendation of the ITT Board, ITT stockholders should
be aware that, as described below, certain members of ITT's management and the
ITT Board may have interests in the Merger that are different from, or in
addition to, the interests of ITT stockholders generally, and that may create
potential conflicts of interest. Two executive officers of ITT, Mr. Araskog and
Mr. Bowman, are members of the ITT Board that approved the Merger.
EQUITY-BASED AWARDS. Holders of all awards of stock options and
related stock appreciation rights outstanding at the Effective Time under any
equity-based incentive award plan maintained by ITT will have the option to
convert such awards into similar awards with respect to the number of Paired
Shares determined by multiplying (i) the number of shares of ITT Common Stock
subject to such option or right by (ii) the Exchange Ratio, at an exercise price
per Paired Share equal to the difference between (A) the exercise price per
share of ITT Common Stock immediately prior to the Effective Time divided by the
Exchange Ratio and (B) the amount, if any, of the Additional Payment payable per
share of ITT Common Stock pursuant to the Merger Agreement divided by the
Exchange Ratio. The vesting of such equity-based awards will be accelerated upon
consummation of the Merger in accordance with their terms. See "The Merger
Agreement -- ITT Stock Options."
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The following tables set forth as of December 31, 1997 the number of stock
options, stock appreciation rights and shares of restricted stock held by
executive officers and directors of ITT.
STOCK OPTIONS
<TABLE>
<CAPTION>
NUMBER OF DATE OF EXERCISE
NAME SHARES GRANT PRICE
------------------------------------ --------- ------------------- --------
<S> <C> <C> <C>
Rand V. Araskog..................... 336,675 October 14, 1993 $35.23
429,971 October 11, 1994 $35.17
429,971 May 9, 1995 $45.53
150,000 February 6, 1996 $55.88
162,500 February 4, 1997 $56.75
Robert A. Bowman.................... 26,111 May 7, 1991 $22.74
39,168 December 12, 1991 $19.53
13,057 September 15, 1992 $25.04
26,111 February 1, 1993 $27.81
130,558 October 14, 1993 $35.23
143,324 October 11, 1994 $35.17
143,324 May 9, 1995 $45.53
100,000 February 6, 1996 $55.88
108,300 February 4, 1997 $56.75
Ann N. Reese........................ 13,057 December 11, 1990 $18.62
14,884 December 12, 1991 $19.53
65,279 October 14, 1993 $35.23
71,662 October 11, 1994 $35.17
71,662 May 9, 1995 $45.53
40,000 February 6, 1996 $55.88
43,300 February 4, 1997 $56.75
Richard S. Ward..................... 29,506 December 12, 1991 $19.53
65,279 October 14, 1993 $35.23
83,605 October 11, 1994 $35.17
83,605 May 9, 1995 $45.53
40,000 February 6, 1996 $55.88
43,300 February 4, 1997 $56.75
</TABLE>
In addition, on January 13, 1998, the ITT Board, upon the recommendation of
its Compensation and Personnel Committee, issued 162,500 stock options to Rand
V. Araskog, 50,000 stock options to Ann N. Reese and 50,000 stock options to
Richard S. Ward. These options have an exercise price equal to $85 per share of
ITT Common Stock or the "Formula Price" per share determined in accordance with
ITT's existing stock option plan.
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RESTRICTED STOCK AWARDS
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES DATE OF GRANT
---------------------------------------------- --------- ------------------
<S> <C> <C>
Rand V. Araskog............................... 59,718 May 9, 1995
Robert A. Bowman.............................. 23,887 May 9, 1995
Ann N. Reese.................................. 11,944 May 9, 1995
Richard S. Ward............................... 5,972 May 9, 1995
Bette B. Anderson............................. 811 May 14, 1996
633 November 12, 1997
Nolan Archibald............................... 811 May 14, 1996
633 November 12, 1997
Robert A. Burnett............................. 811 May 14, 1996
633 November 12, 1997
Paul G. Kirk.................................. 811 May 14, 1996
633 November 12, 1997
Edward C. Meyer............................... 811 May 14, 1996
633 November 12, 1997
Benjamin F. Payton............................ 811 May 14, 1996
633 November 12, 1997
Margita E. White.............................. 811 May 14, 1996
633 November 12, 1997
Vin Weber..................................... 744 May 14, 1996
633 November 12, 1997
Kendrick R. Wilson III........................ 744 May 14, 1996
633 November 12, 1997
</TABLE>
SEVERANCE AGREEMENTS. ITT is a party to severance agreements with the
following individuals who are executive officers of ITT: Robert A. Bowman, Ann
N. Reese and Richard S. Ward. If these individuals are terminated under certain
circumstances or terminate their employment under certain circumstances within
two years following a change of control (including the Merger), they will be
entitled to (i) a lump sum equal to (A) three times their annual base salary in
effect immediately prior to termination and (B) three times the highest bonus
paid to them under ITT's compensation plans in respect of the three years
immediately preceding the change of control and (ii) certain welfare benefits,
fringe benefits, perquisites and outplacement services. Each of the severance
agreements provides that if any payment made under it to an executive would be
subject to an Excise Tax, then the executive shall be entitled to receive from
ITT a Gross-up Payment in an amount such that the net amount of such payment and
the Gross-up Payment retained by the executive, after the calculation and
deduction of Excise Taxes (including any interest or penalties imposed with
respect to such taxes) on such payment and all federal, state and local income
tax, employment tax and Excise Tax (including any interest or penalties imposed
with respect to such taxes) on the Gross-up Payment, shall be equal to such
payment.
ITT is a party to an employment agreement with Mr. Araskog that provides
for, among other things: (i) a base salary of $2 million per year, a bonus and
additional incentive compensation as may be awarded in the discretion of ITT's
Compensation and Personnel Committee and certain benefits and (ii) Mr. Araskog's
service as a consultant from November 1, 2000 through October 11, 2003 for a fee
of not less than $400,000 per year. If Mr. Araskog is involuntarily terminated
other than for cause or he terminates his employment for good reason within two
years following a change in control (including the Merger), he shall receive a
lump sum equal to the remaining payments owed to him for the respective
employment and consulting terms. Mr. Araskog's employment agreement provides for
Gross-up Payments similar to those contained in the severance agreements
described above.
The aggregate amount of all severance payments ITT would make under the
agreements described above, assuming all parties thereto were terminated after
consummation of the Merger, would be approximately $68 million.
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INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that all
rights to indemnification and exculpation from liabilities existing in favor of
the current or former directors or officers of ITT and its subsidiaries as
provided in their respective certificates of incorporation and the by-laws and
existing indemnification agreements of ITT will be assumed by Starwood Lodging
and will continue in effect in accordance with their terms. The Merger Agreement
also provides that for six years after the Effective Time, Starwood Lodging will
provide liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who were covered by ITT's
directors' and officers' liability insurance policy on terms with respect to
such coverage and amounts no less favorable than those in effect on the date of
the Merger Agreement, provided that Starwood Lodging will not be required to pay
more than 150% of the current amount paid by ITT to maintain such insurance. In
connection with its obligation as described in the foregoing sentence, Starwood
Lodging is permitted under the Merger Agreement to substitute policies of
Starwood Lodging or its subsidiaries containing terms with respect to coverage
and amount no less favorable to the directors and officers in question.
BENEFITS TO INSIDERS OF STARWOOD LODGING
In considering the recommendations of the Starwood Lodging Boards, Starwood
Lodging shareholders and stockholders should be aware that, as described below,
certain members of Starwood Lodging's management and the Starwood Lodging Boards
may have interests in the Merger that are different from, or in addition to, the
interests of Starwood Lodging shareholders and stockholders generally, and that
may create potential conflicts of interest.
STARWOOD CAPITAL. Starwood Lodging engaged Starwood Capital to act as its
financial advisor in connection with the transactions contemplated by the Merger
Agreement. As of the Trust Record Date and the Corporation Record Date, Starwood
Capital and its affiliates and Mr. Sternlicht beneficially owned 8.0% of the
Paired Shares on a fully diluted basis. See "Ownership of Paired Shares." In
addition, Madison F. Grose, a Trustee of the Trust, is Managing Director and
General Counsel of, and holds an indirect ownership interest in, Starwood
Capital. Jonathan D. Eilian, a Director of the Corporation, is Managing Director
of, and holds an indirect ownership interest in, Starwood Capital. Daniel H.
Stern, a Trustee of the Trust, is also an affiliate of a limited partner of
Starwood Capital. Starwood Capital will receive a fee of $17.5 million (of which
$10.5 million will be paid in cash and $7 million will be paid in Paired Shares)
plus a tax gross-up payment in an amount not to exceed $5 million upon the
closing of the Merger as full consideration for services rendered in connection
with the Merger and related dispositions. Pursuant to its engagement by Starwood
Lodging, Starwood Capital's principals led the structuring and negotiations of
the Merger, conducted and coordinated the due diligence investigation (including
conducting management interviews, reviewing and analyzing financial data and
visiting properties), advised and procured financing, oversaw the implementation
of the public and investor relations and political lobbying campaigns,
coordinated the receipt of gaming regulatory approvals and coordinated legal and
tax advice. In addition, Starwood Capital's principals have led and continue to
lead negotiations for the disposition of non-strategic ITT assets, including the
disposition of ITT World Directories, and are advising Starwood Lodging with
respect to the integration of both ITT and Westin into Starwood Lodging.
Substantially all of Starwood Capital's senior principals actively participated
in the transaction.
In accordance with the change in control provisions of the Long-Term
Incentive Plan of the Trust and the Long-Term Incentive Plan of the Corporation,
all Paired Options granted under such plans will become immediately exercisable
for the full amount of Paired Shares subject thereto and all Restricted Stock
Awards granted thereunder will immediately vest in full at the Closing. Paired
Options granted to non-employee Directors and Trustees as board compensation are
vested at the time of grant.
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Excluding non-employee Directors and Trustees that only hold vested Paired
Options which they have received as board compensation, Directors, Trustees and
executive officers of Starwood Lodging hold Paired Options as follows:
PAIRED OPTIONS
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
NAME PAIRED SHARES EXERCISE PRICE
- ------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
Ronald C. Brown.................................................... 201,847 $ 26.32
Eric A. Danziger................................................... 300,000 $ 24.28
Theodore W. Darnall................................................ 190,000 $ 29.32
Jonathan D. Eilian................................................. 120,000 $ 18.28
Steven R. Goldman.................................................. 209,000 $ 27.56
Madison F. Grose................................................... 120,000 $ 18.28
Gary M. Mendell.................................................... 300,000 $ 37.42
Alan M. Schnaid.................................................... 39,250 $ 37.29
Barry S. Sternlicht................................................ 2,579,500 $ 26.26
</TABLE>
Directors, Trustees and executive officers of Starwood Lodging hold
Restricted Stock Awards as follows:
RESTRICTED STOCK AWARDS
<TABLE>
<CAPTION>
NAME NUMBER OF PAIRED SHARES
- ------------------------------------------------------------------------ -----------------------
<S> <C>
Ronald C. Brown......................................................... 22,500
Eric A. Danziger........................................................ 100,223
Theodore W. Darnall..................................................... 45,284
Steven R. Goldman....................................................... 37,500
Madison F. Grose........................................................ 15,000
Barry S. Sternlicht..................................................... 45,000
</TABLE>
Under an employment agreement between the Trust and Barry S. Sternlicht
dated as of June 30, 1997, if Mr. Sternlicht's employment is terminated by the
Trust for a reason other than cause or is terminated by him for "good reason,"
Mr. Sternlicht is entitled to severance pay equal to two years' base salary, the
immediate vesting of all options and other awards under the Trust's 1995
Long-Term Incentive Plan and 1995 Share Option Plan and medical insurance
benefits at the Trust's expense for 12 months following such termination. A
termination of employment by Mr. Sternlicht following the consummation of the
Merger would constitute a termination for "good reason" for this purpose. If Mr.
Sternlicht terminated employment with the Trust for good reason in 1997, he
would receive severance pay under such agreement in an amount equal to $730,000,
and the Paired Options and other awards granted to Mr. Sternlicht set forth
above would become vested.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using purchase accounting, with
ITT being deemed to have acquired Starwood Lodging.
REGULATORY APPROVALS
The following discussion is an abbreviated description of the various
gaming regulatory requirements applicable to Starwood Lodging, ITT and their
subsidiaries and affiliates engaged in gaming activities. For a more detailed
description of such gaming regulatory requirements please see "Item 2,"
"Properties" -- "Regulation and Licensing" of the Starwood Lodging Form 10-K and
"Item 1," "Business of ITT" -- "Governmental Regulation and Related Matters" of
the ITT Form 10-K.
NEVADA GAMING REGULATIONS. The ownership and operation of casino gaming
facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the
regulations of the Nevada Gaming Commission and the Nevada State Gaming Control
Board (collectively, the "Nevada Act") and (ii) various local regulations.
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Starwood Lodging's and ITT's respective gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), the
Clark County Liquor and Gaming Licensing Board (the "CCLGLB") and the Douglas
County Commission. The Nevada Commission, the Nevada Board, the CCLGLB and the
Douglas County Commission are collectively referred to as the "Nevada Gaming
Authorities."
Regulations of the Nevada Commission provide that control of a registered
publicly traded corporation such as ITT cannot be acquired through a tender
offer, merger, consolidation, acquisition of assets, management or consulting
agreements or any form of takeover whatsoever without the prior approval of the
Nevada Commission. Starwood Lodging has filed applications for the necessary
approvals with the Nevada Board and the Nevada Commission on behalf of Starwood
Lodging, ITT and Merger Sub. The Nevada Board reviews and investigates
applications for such approvals and makes recommendations on such applications
to the Nevada Commission for final action. Starwood Lodging is currently
registered as a publicly traded corporation and has been found suitable to own
the shares of a subsidiary that has licensed gaming facilities in Nevada.
Accordingly, Starwood Lodging does not expect significant delays in obtaining
necessary approvals and anticipates completing the Nevada regulatory process in
January 1998. However, there can be no assurances that such approvals will be
granted or will be granted within such time. Furthermore, any such approval, if
granted, does not constitute a finding, recommendation or approval by the Nevada
Board or the Nevada Commission as to the merits of the Merger. Any
representation to the contrary is unlawful.
In seeking approval to acquire control of ITT, Starwood Lodging must
satisfy the Nevada Commission as to a variety of stringent standards. The Nevada
Board and the Nevada Commission will consider all relevant material facts in
determining whether to grant such approval, and may consider not only the
effects of the Merger but also any other facts that are deemed relevant. Such
facts may include, among others, (i) the business history of the applicant,
including its record of financial stability, integrity and success of its
operations, as well as its current business activities, and (ii) whether the
Merger will create a significant risk that Starwood Lodging, ITT or their
subsidiaries will not satisfy their financial obligations as they become due or
satisfy all financial and regulatory requirements imposed by the Nevada Act.
The Nevada Commission must approve Starwood Lodging as a controlling
stockholder of ITT. Following receipt of the necessary approvals of the Nevada
Commission and consummation of the Merger, ITT will be registered by the Nevada
Commission as an intermediary company of Starwood Lodging.
Certain officers, directors and key employees of Starwood Lodging and ITT,
who will be actively and directly involved in ITT's gaming activities, may also
be required to be found suitable or licensed by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing or
registration for any cause that they deem reasonable. A finding of suitability
is comparable to licensing, and both require the submission of detailed personal
and financial information followed by a thorough investigation. All individuals
required to file applications for findings of suitability as such officers and
directors of Starwood Lodging and ITT had applications filed with the Nevada
Board and the Nevada Commission on November 12, 1997, and, assuming favorable
recommendations from the Nevada Board, anticipate receiving the required
approvals from the Nevada Commission in February 1998. However, there can be no
assurances that such approvals will be granted or will be granted within such
time.
NEW JERSEY GAMING REGULATIONS. The New Jersey Casino Control Act (the "New
Jersey Act") requires prior approval from the New Jersey Casino Control
Commission (the "New Jersey Commission") before control of a casino licensee can
be transferred. However, pursuant to an interim casino authorization, the New
Jersey Act permits an entity that obtains publicly traded securities relating to
a casino licensee to acquire and own securities conferring control of such
licensee prior to obtaining approval from the New Jersey Commission. During the
period of interim authorization the publicly traded securities of such licensee
must be held in a trust pursuant to the provisions of the New Jersey Act.
As a result of the acquisition of ITT by Starwood Lodging pursuant to the
Merger, Starwood Lodging will be required to timely file a completed application
with the New Jersey Commission for qualification as a holding and intermediary
company of a New Jersey casino licensee, which application must include a fully
executed and approved, but not operative, trust agreement. Such completed
application will require that the
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New Jersey Commission render decisions with respect to the interim authorization
(within 120 days of its submission) and plenary qualification (within twelve
months of its decision with respect to interim authorization) of Starwood
Lodging as a holding and intermediary company of a New Jersey casino licensee.
Accordingly, Starwood Lodging has prepared a trust agreement that provides for
the deposit of the shares of the New Jersey gaming subsidiary of the surviving
corporation in the Merger or a subsidiary of such surviving corporation in trust
pending plenary qualification by the New Jersey Commission. The trustee may not
exercise rights incident to the ownership of the property unless the New Jersey
Commission orders that the trust agreement become operative, which order may not
be made unless the New Jersey Commission denies interim authorization, finds
reasonable cause to believe that any person required to be qualified may be
found unqualified or denies plenary qualification. The New Jersey Commission may
grant interim authorization where it finds by clear and convincing evidence that
(1) statements of compliance have been issued under the New Jersey Act, (2) the
casino hotel is an approved hotel in accordance with the New Jersey Act, (3) the
trustee satisfies qualification criteria applicable to casino key employees
except for residency and casino experience and (4) interim operation will best
serve the interests of the public. The New Jersey Commission may also permit,
upon written petition of the New Jersey casino licensee, a proposed but not yet
qualified new director of Starwood Lodging or its qualified New Jersey
intermediary company to perform duties and exercise powers relating to such
position pending plenary qualification, provided that such proposed director
timely files a completed application with the New Jersey Commission.
Accordingly, the New Jersey Commission is authorized to (i) approve the form of
trust agreement in respect of a trust arrangement for the shares of the
surviving corporation or subsidiary of the surviving corporation to be acquired
pending plenary qualification of Starwood Lodging, (ii) approve a trustee of
such trust agreement as satisfying the applicable qualification criteria and
(iii) permit proposed new directors of ITT or its qualified New Jersey
intermediary company to perform duties and exercise powers relating to such
position pending their plenary qualifications. The Merger Agreement provides
that Starwood Lodging shall use its reasonable efforts to cause the foregoing
trust arrangements to be in full force and effect as soon as practicable after
the date of the Merger Agreement. Starwood Lodging has caused appropriate
applications to be made to the New Jersey Commission and anticipates a decision
from the New Jersey Commission with respect to the trust arrangements, Starwood
Lodging's trustee designate, interim authorization and proposed new directors of
ITT and its qualified New Jersey intermediary company during January 1998. On
January 7, 1998, Starwood Lodging announced that the New Jersey Commission
granted the interim authorization and approved the form of trust agreement for
the placement of the shares of the New Jersey gaming subsidiary pending final
approval. Starwood Lodging also appointed Robert L. Clifford, who has been
qualified by and is acceptable to the New Jersey Commission, to serve as trustee
of the interim authorization trust. There can be no assurance that a favorable
decision will be granted or will be granted within such time.
If a holder of publicly traded securities transfers such securities to a
trust in applying for interim casino authorization and the New Jersey Commission
thereafter, upon denial of interim authorization or finding reasonable cause to
believe that any person required to be qualified may be found unqualified,
orders that the trust become operative, the applicant, during the time the trust
is operative, may not participate in the earnings of the casino hotel or receive
any return on its investment or debt security holdings. If the New Jersey
Commission thereafter denies qualification, the trustee shall dispose of the
trust property. In such event, the proceeds distributed to the unqualified
applicant may not exceed the lower of the actual cost of the securities to the
unqualified applicant or their value calculated as if the investment has been
made on the date the trust became operative. Any excess remaining proceeds shall
be paid to the Casino Revenue Fund maintained in the New Jersey Department of
the Treasury provided by the New Jersey Act.
The qualification criteria with respect to the holder of a casino license
include its financial stability, integrity and responsibility; the integrity and
adequacy of its financial resources which bear any relation to the casino
project; its good character, honesty and integrity; and the sufficiency of its
business ability and casino experience to establish the likelihood of a
successful, efficient casino operation.
If the New Jersey Commission finds that a holder of such securities is not
qualified under the New Jersey Act, it has the right to take any remedial action
it may deem appropriate, including the right to force divestiture by such
qualified holder of such securities. In the event that certain disqualified
holders fail to
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divest themselves of such securities, the New Jersey Commission has the power to
revoke or suspend the casino license affiliated with the casino licensee which
issued the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities or (ii) to receive any dividends or interest upon
any such securities or any remuneration, in any form, from its affiliated casino
licensee or services rendered or otherwise.
MISSISSIPPI GAMING REGULATIONS. The ownership and operation of casino
gaming facilities in Mississippi are subject to: (i) the Mississippi Gaming
Control Act (the "Mississippi Act") and (ii) various local regulations. ITT's
gaming operations are subject to the licensing and regulatory control of the
Mississippi Gaming Commission (the "Mississippi Commission").
Regulations of the Mississippi Commission provide that control of a
registered publicly traded corporation such as ITT cannot be acquired through a
tender offer, merger, consolidation, acquisition of assets, management or
consulting agreements or any form of takeover whatsoever without the prior
approval of the Mississippi Commission. Starwood Lodging has filed applications
for the necessary approvals with the Mississippi Commission and anticipates
receiving the required approvals from the Mississippi Commission in January
1998. Accordingly, Starwood Lodging does not expect significant delays in
obtaining necessary approvals in January 1998. However, there can be no
assurances that such approvals will be granted or will be granted within such
time. Furthermore, any such approval, if granted, does not constitute a finding,
recommendation or approval by the Mississippi Commission as to the merits of the
Merger. Any representation to the contrary is unlawful.
In seeking approval to acquire control of ITT, Starwood Lodging must
satisfy the Mississippi Commission as to a variety of stringent standards. The
Mississippi Commission will consider all relevant material facts in determining
whether to grant such approval, and may consider not only the effects of the
Merger but also any other facts that are deemed relevant. Such facts may
include, among others, (i) the business history of the applicant, including its
record of financial stability, integrity and success of its operations, as well
as its current business activities; and (ii) whether the Merger will create a
significant risk that Starwood Lodging, ITT or their subsidiaries will not
satisfy their financial obligations as they become due or satisfy all financial
and regulatory requirements imposed by the Mississippi Act.
The Mississippi Commission must approve Starwood Lodging as a controlling
stockholder of ITT. Following receipt of the necessary approvals of the
Mississippi Commission and consummation of the Merger, ITT will be registered by
the Mississippi Commission as an intermediary company of Starwood Lodging.
Certain officers, directors and key employees of the Starwood Companies
prior to the Merger, or ITT after the Merger, who will be actively and directly
involved in ITT's gaming activities, may also be required to be found suitable
or licensed by the Mississippi Commission. The Mississippi Commission may deny
an application for licensing or registration for any cause that they deem
reasonable. A finding of suitability is comparable to licensing, and both
require the submission of detailed personal and financial information followed
by a thorough investigation. All individuals required to file applications for
findings of suitability as such officers and directors of Starwood Lodging
anticipate receiving the required approvals from the Mississippi Commission in
January 1998. However, there can be no assurances that such approvals will be
granted.
ONTARIO GAMING REGULATIONS. Windsor Casino Limited, the Ontario
corporation which operates the Windsor, Ontario facility, of which ITT owns a
one-half interest, is licensed under the Gaming Control Act, 1992 (the "Ontario
Act"). Under the Ontario Act, the Registrar of the Gaming Control Commission
must approve any change in the directors or officers of Windsor Casino Limited.
No other prior approval or consent is required under the Ontario Act in respect
of the Merger. However, under the Ontario Act, the Registrar of the Gaming
Control Commission may require information and material from any person who has
an interest in Windsor Casino Limited. As a result, Starwood Lodging is
currently preparing and will submit to the Registrar the information required
with respect to them. Under the Ontario Act, no person may provide goods or
services for a casino or any other business operated by, on behalf of or under
contract with the Ontario Casino Corporation unless, among other things, the
person is registered as a supplier under that Act. Windsor Casino Limited is
registered as a supplier under the Ontario Act. The Registrar has the power,
subject to the
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Ontario Act, to grant or renew registrations, or suspend or revoke
registrations. The Registrar is entitled to make such inquiries and conduct such
investigations as are necessary to determine that applicants for registration
meet the requirements of the Ontario Act, and to require information or material
from any person who is interested in an applicant for registration or a
registrant. The criteria to be considered in connection with registration under
the Ontario Act include financial responsibility, integrity, honesty and the
public interest. The Registrar may, at any time, subject to the provisions of
the Ontario Act, revoke or suspend Windsor Casino Limited's registration under
the Ontario Act, or refuse to grant a renewal of its registration. Although
Starwood Lodging does not anticipate unfavorable action by the Gaming Control
Commission prior to the consummation of the Merger, in part because it has been
found suitable to own the shares of a subsidiary that has licensed gaming
facilities in Nevada, there can be no assurance that Windsor Casino Limited will
not have its registration revoked or suspended prior to the Effective Time.
NOVA SCOTIA GAMING REGULATIONS. ITT, through a subsidiary (the "NS
Subsidiary"), operates casinos in Halifax and Sydney, Nova Scotia, and is
required to be registered and comply with licensing requirements and operational
regulations under the Gaming Control Act (the "Nova Scotia Act"). Under the Nova
Scotia Act, the Director of Registration of the Nova Scotia Gaming Control
Commission must be notified, within 15 days, of any change in the officers or
directors of the NS Subsidiary. The NS Subsidiary is also required to file a
disclosure form with the Director of Registration within 15 days of (i) a person
acquiring a beneficial interest in the business of the NS Subsidiary; (ii) a
person exercising control, either directly or indirectly, over the business of
the NS Subsidiary; or (iii) a person providing financing, either directly or
indirectly, to the business of the NS Subsidiary. Starwood Lodging intends to
file any required disclosure forms within the applicable time period. No prior
approval or consent is required under the Nova Scotia Act in respect of the
Merger. However, under the Nova Scotia Act, the Director of Registration may
require information or material from the NS Subsidiary or any person who has an
interest in the NS Subsidiary. Starwood Lodging will submit to the Director of
Registration any information required with respect to them.
OTHER GAMING REGULATIONS. ITT owns and operates gaming facilities in a
number of domestic and foreign jurisdictions in addition to those discussed
above. The relevant statutes and regulatory schemes governing such gaming
operations may require that prior to or following the consummation of the
Merger, Starwood Lodging must qualify or otherwise be approved to conduct such
gaming operations. It is the intention of Starwood Lodging to comply with any
such statutes and regulations and to seek any required approvals or to otherwise
become qualified as may be necessary to consummate the Merger. There can be no
assurance that Starwood Lodging will receive such approvals or become so
qualified or as to the timing of any such approvals or qualifications.
FEDERAL COMMUNICATIONS COMMISSION APPROVALS. On July 1, 1996, in
partnership with Dow Jones & Company, Inc. ("Dow Jones"), ITT acquired
television station WBIS+ from the City of New York. The Communications Act of
1934, as amended (the "Communications Act"), and applicable Federal
Communications Commission ("FCC") regulations require prior FCC approval for the
transfer or deemed transfer of control or ownership of companies holding FCC
licenses. Applications must be filed with the FCC seeking such approval. The
Communications Act requires that the FCC find that the proposed transfer would
serve the public interest, convenience and necessity as a prerequisite to
granting its approval. To this end, the FCC requires that the transferee
demonstrate that it possesses the requisite legal, financial, technical and
other qualifications to operate the licensed entities in order for the transfer
to be approved.
Before Starwood Lodging can acquire control of ITT's interests in the
partnership that operates WBIS+, prior FCC approval will be required. On
November 18, 1997, Starwood Lodging filed with the FCC an application seeking
such FCC approval (the "FCC Approval"). There can be no assurance that the FCC
will grant the FCC Approval.
On May 12, 1997, ITT and Dow Jones reached a definitive agreement to sell
WBIS+ to Paxson Communications Corporation. The closing of the sale of ITT's
interest in WBIS+ is subject to FCC approval, which has been applied for, and is
expected to occur in the first quarter of 1998. If the closing of such
transaction occurs prior to the Effective Time, the approval of the Merger by
the FCC described above will not be needed.
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ANTITRUST. On December 21, 1997, the Antitrust Division of the Department
of Justice (the "Antitrust Division") and the Federal Trade Commission (the
"FTC") granted early termination of the waiting period under the HSR Act.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the Antitrust Division or FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
shares of ITT Common Stock or the divestiture of substantial assets of Starwood
Lodging or its subsidiaries, or ITT or its subsidiaries. Private parties may
also bring legal action under the antitrust laws under certain circumstances.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if such a challenge is made, of the results thereof.
REGULATION OF EDUCATIONAL INSTITUTIONS. The ownership and operation of
educational institutions in the United States and the continued availability of
Federal financial aid funds to students of such educational institutions are
subject to extensive federal and state laws and regulations. In this regard, ITT
Educational must obtain certain approvals under the applicable laws, regulations
and standards of the U.S. Department of Education (the "ED"), the two
accrediting commissions that accredit the technical institutes operated by ITT
Educational (the "Accrediting Commissions") and state educational regulatory
authorities (the "States").
The ED, the Accrediting Commissions and most of the States have laws,
regulations and/or standards (collectively "Educational Regulations") pertaining
to changes in ownership and/or control (collectively "change in control") of the
educational institutions they regulate. The change in control Educational
Regulations do not, however, uniformly define what constitutes a change in
control. The ED's change in control Educational Regulations generally subject
ITT Educational to the change in control standards of the federal securities
laws. Most States and the Accrediting Commissions include the sale of a
controlling interest of common stock in the definition of a change in control.
Practically all change in control Educational Regulations adopted by the ED, the
Accrediting Commissions and the States are subject to varying interpretations as
to whether a particular transaction constitutes a change in control. The ED,
many of the States and one of the Accrediting Commissions consider the Merger to
constitute a change in control of ITT Educational and all of the technical
institutes operated by it under the applicable Educational Regulation. Starwood
Lodging, ITT Educational and ITT are seeking to obtain all necessary approvals
of the Merger by the ED, the Accrediting Commissions and the States.
Upon a change in control of ITT Educational under the ED's Educational
Regulations, each of ITT Educational's technical institutes immediately would
become ineligible to continue participating in Federal student financial aid
programs and their students would be unable to obtain Federal financial aid to
pay their costs of education (except for certain funds already committed to the
students) until such time as the ED recertifies the entire such technical
institute campus group (defined as the main campus and all of its additional
locations) to participate in Federal student financial aid programs. The ED will
reinstate a campus group's eligibility to participate in Federal student
financial aid programs upon review and approval of a complete application
following the campus group's change in control. To be complete, among other
things, such application must demonstrate that all of the technical institutes
operated by ITT Educational that comprise a particular campus group are
authorized by the appropriate States and accredited by the appropriate
Accrediting Commission. Therefore, before any such technical institute campus
group may regain its eligibility to participate in Federal student financial aid
programs following a change in control (a) all of such campus group's technical
institutes must be reaccredited (or continue to be accredited) by the
appropriate Accrediting Commission and reauthorized (or continue to be
authorized) by the appropriate States and (b) the change in control must
otherwise be approved by the ED. The ED will begin recertifying the eligibility
of each ITT Educational campus group to participate in Federal student financial
aid programs on an individual basis upon receipt of a complete application for
such campus group. The ED will not delay the recertification of any campus group
pending submission of applications or ED review with respect to other campus
groups.
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Most States in which ITT Educational operates require that a change in
control of an institution be approved before it occurs in order for the
institution to maintain its authorization. Some States will only review a change
in control of an institution after it occurs. Management of ITT Educational
believes that ITT Educational will be able to obtain all necessary approvals
from the ED, the Accrediting Commissions and the States required by the Merger.
There can be no assurance, however, that such approvals can be obtained in a
timely manner that would not unreasonably delay the availability of Federal
student financial aid program funds to ITT Educational students.
Except as set forth above, the Starwood Companies and ITT know of no other
U.S. Federal or state regulatory requirements or approvals with which they must
comply in order to consummate the Merger, other than the filing of the Articles
of Merger with the Nevada Secretary of State and the filings required to be made
with liquor licensing and similar authorities.
VOTES REQUIRED FOR APPROVAL
STARWOOD LODGING
Approval of the Shares Issuance Proposal requires the affirmative vote of a
majority of the votes cast by Trust shareholders and by Corporation
stockholders, respectively, provided that the total votes cast by Trust
shareholders and Corporation stockholders, respectively, on the Shares Issuance
Proposal represent over 50% of all securities of each of the Trust and the
Corporation, respectively, entitled to vote on the Shares Issuance Proposal.
Consequently, shares which are voted to abstain from voting on approval of the
Shares Issuance Proposal and shares which are not voted with respect to such
approval (including broker non-votes) will have the effect of votes against the
Shares Issuance Proposal.
ITT
Approval of the ITT Proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of ITT Common Stock. Consequently,
shares which are voted to abstain from voting on approval of the ITT Proposal
and shares which are not voted with respect to such approval (including broker
non-votes) will have the effect of votes against such approval.
NO DISSENTERS' RIGHTS
Under Nevada law, holders of ITT Common Stock are not entitled to dissent
from the Merger and obtain a valuation of their shares of ITT Common Stock in
connection with the Merger because ITT Common Stock was listed on the NYSE on
the ITT Record Date and the Paired Shares that such holders will be entitled to
receive in the Merger will be listed on the NYSE at the Effective Time. Holders
of Paired Shares are not entitled to dissenters' rights under Maryland law in
connection with the Merger because neither the Corporation nor the Trust is a
constituent corporation in the Merger.
FEDERAL SECURITIES LAWS CONSEQUENCES
This Joint Proxy Statement/Prospectus does not cover any resales of Paired
Shares to be received by the stockholders of ITT upon consummation of the
Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
All Paired Shares received by ITT stockholders in the Merger will be freely
transferable, except that Paired Shares received by persons who are deemed to be
"affiliates" of ITT under the Securities Act at the time of the ITT Meeting may
be resold by them only in transactions permitted by Rule 145 or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of ITT for such purposes generally include individuals or entities that control,
are controlled by, or are under common control with, ITT and may include certain
officers, directors and principal stockholders of ITT. The Merger Agreement
requires ITT to use its reasonable best efforts to cause each of such affiliates
to execute a written agreement to the effect that such persons will not offer or
sell or otherwise dispose of any of the Paired Shares issued to such persons in
the Merger in violation of the Securities Act or the rules and regulations
promulgated by the Commission thereunder.
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THE MERGER AGREEMENT
The description of the Merger Agreement contained in this Joint Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Annex A and is incorporated herein by reference. Capitalized terms
used in this section but not defined in this Joint Proxy Statement/Prospectus
have the meanings assigned to them in the Merger Agreement. All shareholders and
stockholders are urged to read carefully the Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides for the merger of Merger Sub with and into
ITT at the Effective Time, whereupon the separate corporate existence of Merger
Sub will cease and ITT will continue as the surviving corporation (the
"Surviving Corporation"). As a result of the Merger, ITT will become a
subsidiary of the Corporation and shall succeed to and assume all the rights and
obligations of Merger Sub in accordance with the NGCL.
EFFECTIVE TIME
The Merger will be consummated as promptly as practicable after
satisfaction or, to the extent permitted under the Merger Agreement, waiver of
all of the conditions to each party's obligation to consummate the Merger
contained in the Merger Agreement, by duly filing the Articles of Merger, in
such form as is required by, and executed in accordance with, the relevant
provisions of the NGCL. The Merger will be effective at such time as the
Articles of Merger are duly filed with the Secretary of State of the State of
Nevada or at such later time agreed to by the parties as is specified in the
Articles of Merger (the "Effective Time"), provided, however, that the Effective
Time must not be on a date that is more than 30 days after the date the Articles
of Merger are filed. The Articles of Merger will be filed on the date of the
Closing. The date on which the Effective Time will occur is referred to as the
"Closing Date."
CONVERSION OF SHARES
As of the Effective Time, by virtue of the Merger and without any action on
the part of Merger Sub, ITT or the holders of any securities of ITT or Merger
Sub:
(a) each issued and outstanding share of common stock, no par value,
of Merger Sub will be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving
Corporation;
(b) all shares of ITT Common Stock that are held in the treasury of
ITT and shares of ITT Common Stock owned by the Corporation, the Trust or
Merger Sub (together, in each case, with the associated Right) will be
cancelled and no cash, capital stock of the Corporation or the Trust or
other consideration will be delivered in exchange therefor. All shares of
ITT Common Stock that are held by any wholly owned subsidiary of ITT, the
Corporation, Merger Sub or the Trust (together, in each case, with the
associated Right) will be converted into validly issued, fully paid and
nonassessable shares of common stock, no par value, of the Surviving
Corporation;
(c) each share of ITT Common Stock (including restricted shares of ITT
Common Stock issued under ITT equity-based incentive plans) issued and
outstanding immediately prior to the Effective Time (other than shares to
be cancelled or converted into shares of the Surviving Corporation in
accordance with the Merger Agreement), together with the associated Right,
which share is to be converted into cash as described under "-- Proration"
below, will be converted into the right to receive $85 in cash, without
interest (except to the extent specified in (f) below);
(d) except as otherwise provided under "--Proration" below, each share
of ITT Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled or converted into shares
of the Surviving Corporation in accordance with (b) above or converted into
the right to receive cash as described in (c) above), together with the
associated Right, will be converted into the right to receive validly
issued, fully paid and nonassessable Paired Shares at the Exchange Ratio;
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(e) all such shares of ITT Common Stock (other than shares to be
cancelled in accordance with (b) above), and the associated Rights, when so
converted as provided in (c) or (d) above, will no longer be outstanding
and will automatically be cancelled and retired and will cease to exist and
each holder of a certificate theretofore representing any such shares (and
the associated Rights) will cease to have any rights with respect thereto,
except the right to receive, upon the surrender of such certificate, (i)
any dividends and other distributions in accordance with the Merger
Agreement, (ii) certificates representing the Paired Shares into which such
shares (and the associated Rights) are converted pursuant to (d) above,
(iii) cash into which such shares are converted pursuant to the (c) above
and cash payable pursuant to (f) below and (iv) any cash, without interest,
in lieu of fractional Paired Shares to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with the
Merger Agreement;
(f) if (but only if) the Closing Date occurs after January 31, 1998,
then each holder of ITT Common Stock issued and outstanding immediately
prior to the Effective Time that is entitled under (c) and (d) above to
receive either cash or Paired Shares will in addition be entitled to
receive the Additional Payment in cash in an amount per share of ITT Common
Stock equal to (i) $85 times (ii) 7% per annum accrued from and including
January 31, 1998, to but excluding the date of Closing (without
compounding).
ELECTION OF STOCK OR CASH
A Form of Election will be mailed separately to each ITT stockholder of
record. Each ITT stockholder is requested to specify the number of shares of ITT
Common Stock which such stockholder desires to have converted into Paired Shares
in the Merger and the number of shares of ITT Common Stock which such
stockholder desires to have converted into cash. ITT STOCKHOLDERS WHO DO NOT
INTEND TO VOTE IN FAVOR OF THE MERGER SHOULD NEVERTHELESS GIVE CONSIDERATION TO
FILING A FORM OF ELECTION IN ORDER TO AVOID BEING TREATED AS NON-ELECTING
STOCKHOLDERS IN THE EVENT THE MERGER IS APPROVED AND CONSUMMATED.
An Election will have been properly made only if the Exchange Agent
receives, by 5:00 p.m., New York City time, on February 9, 1998, a Form of
Election properly completed and signed and accompanied by the certificate or
certificates (the "Certificates") representing the shares of ITT Common Stock
(and associated Rights) to which such Form of Election relates (or by an
appropriate guarantee of delivery of such Certificate or Certificates as set
forth in such Form of Election from a member of any registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, provided such Certificate or Certificates are in fact delivered
by the time set forth in such guarantee of delivery). Any holder of record of
shares of ITT Common Stock may at any time prior to the Election Date change
such holder's Election by written notice received by the Exchange Agent at or
prior to the Election Date accompanied by a properly completed Form of Election.
Any holder of record of shares of ITT Common Stock may at any time prior to the
Election Date revoke such holder's Election by written notice received by the
Exchange Agent at or prior to the Election Date or by withdrawal prior to the
Election Date of such holder's Certificates previously deposited with the
Exchange Agent. Any stockholder of ITT who will have deposited Certificates with
the Exchange Agent will have the right to withdraw such Certificates by written
notice received by the Exchange Agent and thereby revoke such holder's Election
as of the Election Date at any time after the expiration of the period of 60
days following the Election Date if the Merger has not been consummated prior
such period. All written notices to the Exchange Agent should be sent to
ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road, Ridgefield Park,
New Jersey 07660, Attention: .
STOCKHOLDERS OF ITT SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
ITT COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR THE CONSIDERATION PAYABLE IN
THE MERGER FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH THE TERMS OF
THE MERGER AGREEMENT AND THE FORM OF ELECTION.
A FORM OF ELECTION WILL BE MAILED SEPARATELY TO EACH PERSON WHO IS A HOLDER
OF OUTSTANDING SHARES OF ITT COMMON STOCK ON THE ITT RECORD DATE AND, UPON
REQUEST TO THE EXCHANGE AGENT, WILL BE MAILED TO EACH PERSON WHO BECOMES A
HOLDER OR BENEFICIAL OWNER OF ITT COMMON STOCK PRIOR TO THE ELECTION DATE.
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PRORATION
The Merger Agreement limits the Available Cash to ITT stockholders to the
product of (x) $85 and (y) 30% of the total number of shares of ITT Common Stock
outstanding immediately prior to the Effective Time. If Cash Elections are
received for shares representing more than 30% of the total number of
outstanding shares of ITT Common Stock, the Available Cash will be prorated
among those shares of ITT Common Stock for which Cash Elections have been made.
The Merger Agreement also limits the Available Shares to ITT stockholders to the
product of (x) the Exchange Ratio and (y) 82% of the total number of shares of
ITT Common Stock outstanding immediately prior to the Effective Time. Because
the cash available to ITT stockholders in the Merger will not be less than 18%
nor exceed 30% of the total number of outstanding shares of ITT Common Stock,
ITT stockholders making Cash Elections may receive Paired Shares instead of cash
for some of the shares of ITT Common Stock covered by such Cash Election if Cash
Elections are received for a number of shares of ITT Common Stock in excess of
30% of the total number of outstanding shares of ITT Common Stock. Similarly,
ITT stockholders making Stock Elections may receive cash instead of Paired
Shares for some of the shares of ITT Common Stock covered by such Stock Election
if Stock Elections are received for more than 82% of the total number of
outstanding shares of ITT Common Stock. At the time of the ITT Meeting, ITT
stockholders will not know the number of Cash Elections or Stock Elections that
have been made or whether the Available Cash or Available Shares will be
prorated. A more detailed explanation of the proration mechanics is provided in
the following paragraphs.
The determination of whether shares of ITT Common Stock, and the associated
Rights, will be converted in the Merger into Paired Shares at the Exchange
Ratio, the right to receive $85 in cash or a combination of both Paried Shares
and cash will be made as set forth below:
(a) If Cash Elections are received for a number of shares of ITT
Common Stock that is more than 30% of the total number of shares of ITT
Common Stock issued and outstanding immediately prior to the Effective
Time, each Non-Electing Share and each share of ITT Common Stock for which
a Stock Election has been received (in each case, together with the
associated Right) will be converted in the Merger into Paired Shares at the
Exchange Ratio and the shares of ITT Common Stock for which Cash Elections
have been received (and the associated Rights) will be converted in the
Merger into right to receive cash and Paired Shares at the Exchange Ratio
in the following manner: the largest whole number of shares of ITT Common
Stock (and the associated Rights) covered by each Cash Election which is
not in excess of the number of shares of ITT Common Stock covered by such
Cash Election multiplied by a fraction the numerator of which will be a
number equal to 30% of the number of shares of ITT Common Stock issued and
outstanding immediately prior to the Effective Time and the denominator
will be the aggregate number of shares of ITT Common Stock covered by all
Cash Elections, will be converted into the right to receive $85 per share
in cash, without interest (except for the Additional Payment, if any). The
balance of the shares of ITT Common Stock covered by Cash Elections
(together with the associated Rights) will be converted into the right to
receive Paired Shares at the Exchange Ratio.
(b) If Stock Elections are received for a number of shares of ITT
Common Stock which is more than 82% of the total number of shares of ITT
Common Stock issued and outstanding immediately prior to the Effective
Time, each Non-Electing Share and each share of ITT Common Stock for which
a Cash Election has been received (in each case, together with the
associated Right) will be converted in the Merger into the right to receive
$85 in cash, without interest (except for the Additional Payment, if any),
and the shares of ITT Common Stock for which Stock Elections have been
received will be converted in the Merger into Paired Shares at the Exchange
Ratio and the right to receive cash in the following manner: the largest
whole number of shares of ITT Common Stock (and associated Rights) covered
by each Stock Election which is not in excess of the number of shares of
ITT Common Stock covered by such Stock Election multiplied by a fraction
the numerator of which will be a number equal to 82% of the number of
shares of ITT Common Stock issued and outstanding immediately prior to the
Effective Time and the denominator of which will be the aggregate number of
shares of ITT Common Stock covered by all Stock Elections, will be
converted into the right to receive Paired Shares at the Exchange Ratio.
The balance of the shares of ITT Common Stock covered by Stock Elections
(together with the associated
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Rights) will be converted into the right to receive $85 per share in cash,
without interest (except for the Additional Payment, if any).
(c) If Cash Elections are received for a number of shares of ITT
Common Stock which is greater than or equal to 18%, but less than or equal
to 30%, the total number of shares of ITT Common Stock issued and
outstanding immediately prior to the Effective Time, each share of ITT
Common Stock covered by a Cash Election will be converted in the Merger
into the right to receive $85 in cash, without interest (except for the
Additional Payment, if any), and each share of ITT Common Stock covered by
a Stock Election will be converted in the Merger into Paired Shares at the
Exchange Ratio.
(d) If Non-Electing Shares are not converted under either (b) or (c)
above, the Exchange Agent will determine by lot (or by such other method as
is deemed reasonable by Starwood Lodging) which of such Non-Electing Shares
will be converted in the Merger into the right to receive $85 in cash per
share, without interest (except for the Additional Payment, if any);
provided, however, that such selection by lot (or by such other method)
will cease when the sum of the shares converted in such manner, plus the
number of shares of ITT Common Stock covered by Cash Elections is equal to
such percentage, not less than 18% nor more than 30%, as will be specified
by Starwood Lodging, of the total number of shares of ITT Common Stock
issued and outstanding immediately prior to the Effective Time. Each
Non-Electing Share not so converted into cash will be converted into the
right to receive Paired Shares at the Exchange Ratio.
(e) Outstanding shares of ITT Common Stock (other than
Nonparticipating Shares) as to which an Election is not in effect at the
Election Date and shares as to which an Election has been withdrawn after
the 60-day period following the Election Date shall be called "Non-Electing
Shares." If Starwood Lodging and ITT determine for any reason that any
Election was not properly made with respect to shares of ITT Common Stock,
such Election shall be deemed to be ineffective and shares of ITT Common
Stock covered by such Election shall, for purposes hereof, be deemed to be
Non-Electing Shares.
EXCHANGE OF CERTIFICATES
STARWOOD LODGING HAS ESTABLISHED A TOLL-FREE TELEPHONE NUMBER
(1-800-347-4750) TO ENABLE STOCKHOLDERS OF ITT AND THE SHAREHOLDERS AND
STOCKHOLDERS OF STARWOOD LODGING TO RECEIVE INFORMATION REGARDING THE EXCHANGE
RATIO. Commencing January 15, 1998 and ending on February 17, 1998, stockholders
are encouraged to call such telephone number to listen to a recorded message
indicating what the Exchange Ratio would be as of the date of such call, based
on the average of the Average Prices of Paired Shares during the 30 consecutive
trading days ending as of the day prior to such call. Commencing on February 5,
1998, stockholders will be able to call in and obtain the actual Exchange Ratio.
Because the Market Price upon which the actual Exchange Ratio will be based
cannot be finally determined until the close of trading on February 4, 1998,
callers to such toll-free number prior to February 5, 1998 should bear in mind
that the actual Exchange Ratio may vary from the assumed Exchange Ratio
indicated on such recorded message prior to February 5, 1998 because (i) of
fluctuations in the trading price of Paired Shares during the 30 days ending
February 4, 1998 and (ii) the Exchange Ratio is calculated by randomly selecting
20 days out of the last 30 consecutive trading days.
As soon as practicable after the Effective Time, Starwood Lodging will
deposit with the Exchange Agent, in trust for the holders of shares of ITT
Common Stock converted in the Merger, certificates representing the Paired
Shares issuable and the cash then payable pursuant to the Merger Agreement (such
cash and Paired Shares, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund"). As soon
as practicable after the Effective Time, the Exchange Agent will distribute to
each holder of shares of ITT Common Stock converted into the right to receive
cash or Paired Shares pursuant to the Merger Agreement, upon surrender to the
Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Certificates for cancellation, a check for the amount
of cash to which such holder is entitled and certificates representing Paired
Shares to which such holder is entitled. As soon as practicable after the
Effective Time, the Exchange Agent will mail to each holder of record of a
Certificate or Certificates whose shares were converted pursuant to the Merger
Agreement (other than any holder who previously surrendered all his or her
Certificates with a Form of Election or pursuant to a
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guarantee of delivery set forth in a Form of Election) (A) a letter of
transmittal and (B) instructions for use in effecting the surrender of the
Certificates.
Upon surrender for cancellation to the Exchange Agent of a Certificate,
together with such letter of transmittal, duly executed, the holder of such
Certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole Paired Shares issuable and the cash payable to
such holder pursuant to the Merger Agreement. If any certificate representing
Paired Shares or cash or other property is to be issued or delivered in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of such exchange that the Certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such Paired Shares in a name other than that of the registered holder of the
Certificate surrendered, or will establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Starwood Lodging or the
Exchange Agent will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement to any holder of shares of
ITT Common Stock such amounts as Starwood Lodging or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or under any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Starwood Lodging or the Exchange Agent,
such withheld amounts will be treated for all purposes of the Merger Agreement
as having been paid to the holder of the shares of ITT Common Stock in respect
of which such deduction and withholding was made by Starwood Lodging or the
Exchange Agent.
After the Effective Time, there will be no further transfers of ITT Common
Stock on the stock transfer books of ITT. If a certificate representing ITT
Common Stock is presented for transfer, it will be canceled and a certificate
representing the appropriate number of whole Paired Shares and cash in lieu of
fractional shares and any dividends and distributions and/or the appropriate
amount of in cash per share will be issued in exchange therefor. After the
Effective Time and until surrendered, shares of ITT Common Stock will be deemed
for all corporate purposes, other than the payment of any dividends and
distributions, to evidence only the right to receive the Merger Consideration.
DIVIDENDS
No dividends or other distributions that are declared on or after the
Effective Time on the Paired Shares, or are payable to the holders of record
thereof on or after the Effective Time, will be paid to any person entitled by
reason of the Merger to receive a certificate representing Paired Shares until
such person surrenders the related Certificate or Certificates pursuant to the
terms of the Merger Agreement. Subject to the effect of applicable law, each
record holder of a new certificate representing such Paired Shares will be paid:
(i) at the time of such surrender or as promptly as practicable thereafter, the
amount, if any, of any dividends or other distributions theretofore paid with
respect to the Paired Shares represented by such new certificate and having a
record date on or after the Effective Time and a payment date prior to such
surrender; and (ii) at the appropriate payment date or as promptly as
practicable thereafter, the amount, if any, of any dividends or other
distributions payable with respect to such Paired Shares and having a record
date on or after the Effective Time but prior to such surrender and a payment
date on or subsequent to such surrender. In no event shall the person entitled
to receive such dividends or other distributions or cash be entitled to receive
interest on such dividends or other distributions or cash.
NO FRACTIONAL SECURITIES
No certificates or scrip representing fractional Paired Shares will be
issued upon the surrender for exchange of Certificates, and no Corporation or
Trust dividend or other distribution or stock split will relate to any
fractional share, and no fractional share will entitle the owner thereof to vote
or to any other rights of a security holder of the Corporation or the Trust, as
applicable. In lieu of any such fractional share, each holder of ITT Common
Stock who would otherwise have been entitled to a fraction of a Paired Share
upon surrender of Certificates for exchange will be paid an amount in cash
(without interest (except for the Additional Payment, if any)), rounded to the
nearest cent, determined by multiplying (i) the average of the per share closing
prices on the NYSE of a Paired Share (as reported in the NYSE Composite
Transactions Tape) during the five consecutive trading days ending on the
trading day immediately prior to the date of the
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Effective Time by (ii) the fractional interest to which such holder would
otherwise be entitled. As promptly as practicable after the determination of the
amount of cash to be paid to holders of fractional share interests, the Exchange
Agent will notify Starwood Lodging of such amount, and Starwood Lodging has
agreed to deposit such amount with the Exchange Agent and to cause the Exchange
Agent to forward payments to such holders of fractional share interests subject
to the provisions of the Merger Agreement. For purposes of paying such cash in
lieu of fractional shares, all Certificates surrendered for exchange by an ITT
stockholder shall be aggregated, and no such ITT stockholder will receive cash
in lieu of fractional shares in an amount equal to or greater than the value of
one full Paired Share with respect to such Certificates surrendered.
ITT STOCK OPTIONS
As of the Effective time, each stock option ("ITT Stock Option") and
related stock appreciation right ("SAR") that is outstanding immediately prior
to the Effective Time pursuant to ITT's stock option plans (other than any
"stock purchase plan" within the meaning of Section 423 of the Code) in effect
on the date of the Original Merger Agreement (the "Stock Plans") will be assumed
by the Corporation and become and represent a fully exercisable option (and
related SAR) to purchase the number of Paired Shares (a "Substitute Option")
(decreased to the nearest full share) determined by multiplying (i) the number
of shares of ITT Common Stock subject to such ITT Stock Option immediately prior
to the Effective Time by (ii) the Exchange Ratio, at an exercise price per
Paired Share (rounded up to the nearest tenth of a cent) equal to the difference
between (A) the exercise price per share of ITT Common Stock immediately prior
to the Effective Time divided by the Exchange Ratio and (B) the amount, if any,
of the Additional Payment payable per share pursuant to the Merger Agreement
divided by the Exchange Ratio. The Corporation has agreed to pay cash to holders
of ITT Stock Options in lieu of issuing fractional Paired Shares upon the
exercise of Substitute Options. As of the Effective Time, each Substitute Option
shall be subject to the same terms and conditions as were applicable immediately
prior to the Effective Time under the related ITT Stock Option and Stock Plan
under which it was granted, including those providing for the accelerated
exercisability and other special rights arising upon an "Acceleration Event" (as
defined below) in accordance with the terms of such Stock Plan. ITT has agreed
to use all reasonable efforts to obtain any necessary consents of holders of ITT
Stock Options and take such other actions as may be necessary to effect the
foregoing. The accelerated lapse of restrictions and other special rights with
respect to shares of restricted ITT Common Stock issued under the Stock Plans
will also be preserved following the Effective Time in accordance with the terms
of the Stock Plans.
Under the terms of the 1995 ITT Corporation Incentive Stock Plan (the
"Existing ITT Plan") upon the occurrence of an "Acceleration Event" (which will
occur if ITT stockholders vote to approve the ITT Proposal), Limited Stock
Appreciation Rights ("LSARs") will be automatically granted as to any ITT Stock
Option which is outstanding with respect to which stock appreciation rights were
not previously granted under the Existing ITT Plan. The LSARs will entitle each
holder, upon the exercise of the LSAR and surrender of the related ITT Stock
Option, to receive, without payment to ITT (except for applicable withholding
taxes), an amount in cash equal to the excess of the Formula Price (as defined
below) over the exercise price of the related ITT Stock Option. For purposes of
the Existing ITT Plan, the "Formula Price" is equal to the highest of (A) the
highest composite daily closing price of the ITT Common Stock, or any successor
security, during the period beginning on the 60th calendar day prior to the date
on which the LSAR is exercised and ending on the date such LSAR is exercised,
(B) the highest gross price paid for the ITT Common Stock during the same period
of time, as reported in a report on Schedule 13D filed with the Commission or
(C) the highest gross price paid or to be paid for a share of ITT Common Stock
in connection with the Acceleration Event (whether by way of exchange,
conversion, distribution upon merger, liquidation or otherwise).
The Existing ITT Plan also provides that, in the case of persons who are
considered directors and officers of ITT for purposes of the Exchange Act, LSARs
are not exercisable until they have been outstanding for at least six months.
This restriction on the senior officers' ability to exercise LSARs was designed
to eliminate any possibility that under Section 16(b) of the Exchange Act, and
the related rules previously in effect, that the grant and exercise of the LSARs
by officers subject to Section 16(b) would be subject to the short swing profit
recovery rules. In 1996, the Commission adopted a revised rule 16b-3 to the
Exchange Act and as a result this restriction on the senior officers' ability to
exercise LSARs is no longer necessary. As expressly permitted by the Merger
Agreement, at a meeting held on December 9, 1997, the ITT Board, upon the
recommendation of the
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Compensation and Personnel Committee of the ITT Board, adopted a resolution
amending the Existing ITT Plan to eliminate this restriction on the ability of
senior officers to exercise LSARs.
In addition, on January 13, 1998, the ITT Board, upon the recommendation of
its Compensation and Personnel Committee, issued 162,500 stock options to Rand
V. Araskog, 50,000 stock options to Ann N. Reese and 50,000 stock options to
Richard S. Ward. These options have an exercise price equal to $85 per share of
ITT Common Stock or the "Formula Price" per share determined in accordance with
ITT's existing stock option plan.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement includes joint and several representations and
warranties by the Starwood Companies as to, among other things: (i) the
organization, qualification, standing and power of the Starwood Companies and
each of their subsidiaries; (ii) the capital structure of the Starwood Companies
and certain of their subsidiaries; (iii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (iv)
the Merger Agreement's noncontravention of (a) their charters, declarations of
trust, trustees' regulations or by-laws, as applicable; (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Starwood
Lodging or any of its subsidiaries; or (c) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Starwood Lodging or any of its
subsidiaries or any of their respective properties, assets or operations; (v)
the absence of the need for governmental or other filings or actions with
respect to the Merger Agreement and the transactions contemplated thereby; (vi)
documents filed by Starwood Lodging with the Commission and Starwood Lodging's
financial statements and the accuracy of information contained therein; (vii)
the accuracy of information supplied by the Starwood Companies for inclusion in
the Registration Statement and this Joint Proxy Statement/Prospectus; (viii) the
absence of certain changes or events since December 31, 1996; (ix) the
possession of all necessary franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, certificates, approvals and
orders; (x) the timely filing and the accuracy of information of all material
Starwood Lodging tax returns and certain other tax matters; (xi) the absence of
any actions or proceedings against Starwood Lodging that have had or would
reasonably be expected to have a Material Adverse Effect on Starwood Lodging;
(xii) compliance with worker safety and environmental laws; (xiii) the absence
of liabilities of Starwood Lodging and its subsidiaries; (xiv) certain
intellectual property rights; (xv) receipt of the Bear Stearns Opinion; (xvi)
the requirement of certain approvals of stockholders and shareholders in
connection with the Merger; (xvii) the REIT status of the Trust; and (xviii)
brokers' and finders' fees and expenses.
The Merger Agreement also includes representations and warranties by ITT as
to, among other things: (i) the organization, standing, power and qualification
of ITT and each subsidiary of ITT; (ii) ITT's capitalization; (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (iv) the Merger Agreement's noncontravention of
(a) the charter or by-laws of ITT or any of its subsidiaries; (b) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to ITT or any of
its subsidiaries; or (c) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to ITT or any of its subsidiaries; (v) the absence
of the need for governmental or other filings or actions with respect to the
Merger Agreement and the transactions contemplated thereby; (vi) documents filed
by ITT with the Commission and ITT's financial statements and the accuracy of
information contained therein; (vii) the absence of certain changes or events
since December 31, 1996; (viii) the possession of all necessary franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders; (ix) the accuracy of information
supplied by ITT for inclusion in the Registration Statement and this Joint Proxy
Statement/Prospectus; (x) the timely filing and the accuracy of information of
all material ITT tax returns and certain other tax matters; (xi) the absence of
any actions or proceedings against ITT that would have a Material Adverse Effect
on ITT; (xii) the absence of changes in benefits plans; (xiii) the terms,
existence, operations, liabilities and compliance with applicable laws of ITT's
benefit plans and certain other matters relating to the Employee Retirement
Income Security Act of 1974, as amended; (xiv) compliance with worker safety and
environmental laws; (xv) the absence of liabilities of ITT and its subsidiaries
that have had and would not reasonably be expected to have a Material Adverse
Effect on ITT; (xvi) certain intellectual property rights; (xvii) amendment of
the Rights Agreement; (xviii) certain parachute payments; (xix) the
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Lazard Freres Opinion; (xx) exemption from Nevada State anti-takeover statutes;
(xxi) the requirement of stockholder approval of the Merger Agreement; and
(xxii) broker's and finders' fees and expenses.
BUSINESS OF ITT PENDING THE MERGER
ITT has agreed that from the date of the Original Merger Agreement to the
Effective Time, it will, and it will cause each of its subsidiaries to, carry on
its business in the usual, regular and ordinary course of business consistent
with past practice and, to the extent consistent therewith, use all reasonable
efforts to keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers, licensors, lessors and
others having business dealings with it to the end that goodwill and ongoing
businesses will not be impaired. ITT has agreed that, except as disclosed and
except as otherwise expressly permitted in the Merger Agreement, neither it nor
any of its subsidiaries will: (a) (i) declare, set aside or pay any dividends
on, or make any other actual, constructive or deemed distributions in respect
of, any of its capital stock, or otherwise make any payments to its stockholders
in their capacity as such (other than dividends and other distributions by
direct or indirect wholly owned subsidiaries), (ii) other than in the case of
any direct or indirect wholly owned subsidiary, split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of ITT
or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; (b) issue,
deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire any
such shares, voting securities, equity equivalent or convertible securities,
other than the issuance of shares of ITT Common Stock (and associated Rights)
upon the exercise of employee stock options pursuant to the Stock Plans
outstanding on the date of the Original Merger Agreement in accordance with
their current terms; (c) amend its articles or certificate of incorporation or
by-laws or other comparable organizational documents; (d) acquire or agree to
acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the assets of or equity in, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or (ii) any assets that are, individually or in the aggregate
material to ITT and its subsidiaries taken as a whole, other than transactions
that are in the ordinary course of business consistent with past practice and
not material to ITT and its subsidiaries taken as a whole; (e) sell, lease,
license, mortgage or otherwise encumber or subject to any lien or otherwise
dispose of, or agree to sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of, any of its assets, other than
transactions that are in the ordinary course of business consistent with past
practice and not material to ITT and its subsidiaries taken as a whole; (f)
incur any indebtedness for borrowed money, guarantee any such indebtedness,
issue or sell any debt securities or warrants or other rights to acquire any
debt securities, guarantee any debt securities or make any loans, advances or
capital contributions to, or other investments in, any other person, or enter
into any arrangement having the economic effect of any of the foregoing, other
than (i) indebtedness incurred in the ordinary course of business consistent
with past practice and (ii) indebtedness, loans, advances, capital contributions
and investments between ITT and any of its wholly owned subsidiaries or between
any of such wholly owned subsidiaries; (g) alter (through merger, liquidation,
reorganization, restructuring or in any other fashion) the corporate structure
or ownership of ITT or any subsidiary; (h) enter into or adopt any new, or amend
any existing, severance plan, agreement or arrangement or enter into certain new
or amend certain existing pension plans, welfare plans or other material benefit
plans or employment or consulting agreements, other than as required by law,
except that ITT or its subsidiaries may enter into (i) employment agreements if
such agreements (A) are no longer than one year in duration and (B) provide for
an annual base salary of less than $150,000, and (ii) consulting agreements in
the ordinary course of business that are terminable on no more than 90 days'
notice without penalty, and ITT or its subsidiaries may amend certain pension,
welfare or other benefit plans or other plans, programs, policies or
arrangements if such amendment will result in not more than a de minimis
additional cost to ITT or its subsidiaries; (i) increase the compensation
payable or to become payable to its officers or employees, except for (A)
increases in the ordinary course of business consistent with past practice in
salaries or wages of employees of ITT or any of its subsidiaries and (B) except
to the extent required under the terms of any applicable incentive plan, the
payment of annual incentive bonuses for 1997 which are not in the aggregate in
excess of two times the target bonus for 1997 established
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for 1997 prior to the date of the Original Merger Agreement; (j) grant or award
any stock options, restricted stock, performance shares, stock appreciation
rights or other equity-based incentive awards, other than an award which (A) is
made to a management employee or non-employee director who would be eligible to
receive such award under the terms of the ITT Stock Plans as applied
consistently with past practice and (B) is made on terms substantially the same
as the terms of awards previously awarded under such plan; (k) take any action,
other than reasonable and usual actions in the ordinary course of business
consistent with past practice, with respect to accounting policies or procedures
(other than actions required to be taken by generally accepted accounting
principles); (l) make or agree to make any new capital expenditure or
expenditures which, individually, is in excess of $5,000,000 or, in the
aggregate, are in excess of $50,000,000; (m) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of ITT filed with the Commission or incurred in the ordinary course of
business consistent with past practice; (n) settle or compromise any material
federal, state, local or foreign tax liability; (o) authorize, recommend,
propose or announce an intention to do any of the foregoing, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing.
BUSINESS OF STARWOOD LODGING PENDING THE MERGER
Starwood Lodging has agreed that, from the date of the Original Merger
Agreement to the Effective Time, they will, and will cause each of their
respective subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
keep available the services of their respective current officers and employees
and preserve their respective relationships with customers, suppliers,
licensors, lessors and others having business dealings with them to the end that
their goodwill and ongoing business will not be impaired. Starwood Lodging has
agreed that, except as disclosed and except as otherwise expressly permitted by
the Merger Agreement, neither they nor any of their respective subsidiaries
will: (a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such (other than (A) dividends in the aggregate amount not to exceed the greater
of (a) the current rate of Starwood Lodging's dividends and (b) the Trust's
"real estate investment taxable income" (as such term is defined for purposes of
the Code) without regard to any net capital gains or the deduction for dividends
paid and (B) dividends and other distributions by direct, indirect or wholly
owned subsidiaries) or (ii) other than in the case of any subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for Paired Shares; (b) in the case of Starwood Lodging only, amend any of its
articles or certificate of incorporation or declaration of trust, other than in
connection with the Corporation Amendment and the Trust Amendment; (c) take or
omit any action that would reasonably be expected to cause the Trust to cease to
qualify as a "real estate investment trust" for federal income tax purposes or
that would reasonably be expected to cause the Trust to become subject to
Section 269B(a)(3) of the Code; or (d) authorize, recommend, propose or announce
an intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
Notwithstanding the foregoing and except as expressly permitted by the
Merger Agreement, neither the Corporation nor the Trust shall declare, set aside
or pay any cash dividend or make any cash distribution or otherwise make any
payments in cash to its stockholders, having a record date for the determination
of the stockholders entitled to such dividend, distribution or other payment
occurring during the period from and including the first day of the Averaging
Period through and including the fourth trading day after the last day of the
Averaging Period.
ACQUISITION PROPOSALS
The Merger Agreement provides that ITT must not, nor may it permit any of
its subsidiaries to, nor may it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant, agent or other
advisor or representative of ITT or any of its subsidiaries to, (i) solicit,
initiate, or encourage the
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submission of, any takeover proposal (as defined below), (ii) except to the
extent permitted by the Merger Agreement, enter into any agreement with respect
to any takeover proposal or (iii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover proposal;
provided, however, that prior to the ITT Meeting, to the extent required by the
fiduciary obligations of the ITT Board, as determined in good faith by a
majority of the disinterested members thereof based on the advice of outside
counsel, ITT may, in response to unsolicited requests therefor, participate in
discussions or negotiations with, or furnish information pursuant to an
appropriate confidentiality agreement to, any person. Any violation of the
foregoing restrictions by any officer, director or employee, of or any
investment banker, attorney, accountant, agent or other advisor or
representative of, ITT or any of its subsidiaries, whether or not such person is
purporting to act on behalf of ITT or otherwise, shall be deemed to be a breach
by ITT. ITT immediately shall cease and cause to be terminated all existing
discussions or negotiations with any persons with respect to, or that could
reasonably be expected to lead to, any takeover proposal.
The Merger Agreement also provides that neither the ITT Board nor any
committee thereof may (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to the Corporation, the Trust or Merger Sub, the approval or
recommendation by the ITT Board or any such committee of the Merger Agreement or
the Merger or (ii) approve or recommend, or propose to approve or recommend, any
takeover proposal. Notwithstanding the foregoing, the ITT Board, to the extent
required by the fiduciary obligations thereof, as determined in good faith by a
majority of the disinterested members thereof based on the advice of outside
counsel, may approve or recommend (and, in connection therewith, withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger) a
superior proposal (as defined below). If the ITT Board approves or recommends a
superior proposal, ITT may take appropriate action to render the Rights
inapplicable to such superior proposal.
ITT has agreed to immediately advise the Corporation orally and in writing
of any takeover proposal or any inquiry with respect to or which could
reasonably be expected to lead to any takeover proposal, the material terms and
conditions of such takeover proposal or inquiry and the identity of the person
making any such takeover proposal or inquiry. ITT has agreed to keep the
Corporation fully informed of the status and details of any such takeover
proposal or inquiry. Starwood Lodging has agreed to waive any applicable
confidentiality provisions to the extent necessary to allow ITT solely to
explain the terms of this transaction to persons making takeover proposals. If,
to the extent permitted by the foregoing, the ITT Board approves or recommends a
superior proposal, ITT may take appropriate action to render the Rights
inapplicable to such superior proposal.
As used in the Merger Agreement and herein, "takeover proposal" means any
proposal, other than a proposal by the Corporation or the Trust for a merger,
consolidation, share exchange, business combination or other similar transaction
involving ITT or any of its Significant Subsidiaries (as defined below) or any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of ITT), other than a proposal or offer by the Corporation or the
Trust to acquire in any manner, directly or indirectly, an equity interest in,
any voting securities of, or a substantial portion of the assets of, ITT or any
of its Significant Subsidiaries. ITT immediately shall cease and cause to be
terminated all existing discussions or negotiations with any persons conducted
heretofore with respect to, or that could reasonably be expected to lead to, any
takeover proposal. "Significant Subsidiary" means any subsidiary that would
constitute a "significant subsidiary" within the meaning of Rule 1-02 of
Regulation S-X of the Commission.
As used in the Merger Agreement and herein, "superior proposal" means a
bona fide written proposal made by a third party to acquire ITT pursuant to a
tender or exchange offer, a merger, a share exchange, a sale of all or
substantially all its assets or otherwise on terms which a majority of the
disinterested members of the ITT Board determines in their good faith judgment
(based on the opinion, with only customary qualifications, of independent
financial advisors that the value of the consideration provided for in such
proposal exceeds the value of the consideration provided for in the Merger) to
be more favorable to ITT and its stockholders than the Merger and for which
financing, to the extent required, is then fully committed or which, in the good
faith
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judgment of a majority of such disinterested members (based on the advice of
independent financial advisors), is reasonably capable of being financed by such
third party.
Except to the extent reasonably required in connection with ITT's
obligations pursuant to the Merger Agreement and permitted pursuant to that
letter agreement dated as of November 6, 1997, among the Corporation, the Trust,
Merger Sub and ITT, during the period from the date of the Original Merger
Agreement through the Effective Time, ITT may not terminate, amend, modify or
waive any provision of any confidentiality or standstill or similar agreement to
which ITT or any of its subsidiaries is a party (other than any involving the
Corporation or the Trust) unless a majority of the disinterested members of the
ITT Board determines in their good faith judgment based on the advice of outside
counsel that failure to take such action would violate the fiduciary obligations
of such board under applicable law. Subject to the foregoing, during such
period, ITT has agreed to enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreements, including, but not
limited to, obtaining injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any court of the
United States or any state thereof having jurisdiction.
CERTAIN TRANSACTIONS
The Merger Agreement provides that ITT must use reasonable efforts to enter
into agreements to sell assets of ITT as agreed from time to time between ITT
and the Corporation on terms acceptable to ITT and must permit Starwood Lodging
and its financial and legal advisors to participate in such process; provided,
however, that such agreements may provide at ITT's election that any such sale
or disposition shall not be consummated until after the Effective Time and may
provide at ITT's election that such agreements are terminable by ITT if the
Merger Agreement is terminated for any reason; provided, however, that neither
ITT nor any of its subsidiaries may enter into a definitive agreement with
respect to any such sale without the prior approval of both the Corporation and
the Trust and the ITT Board;
Pursuant to the Merger Agreement, ITT has agreed not to implement the
Comprehensive Plan (as such term is defined in the Definitive Proxy Statement on
Schedule 14A filed by ITT with the Commission on October 9, 1997 (the "Proxy
Statement")), including, without limitation, consummating the Tender Offers (as
such term is defined in the Proxy Statement); provided, however, that ITT will
be permitted to pay the Termination Fee and Purchaser's Expenses (each as
defined in the CDRV Investment Agreement) and any other payments pursuant to the
CDRV Investment Agreement.
Promptly after the consummation of the Merger, the Trust must dispose of
any shares of common stock of the Surviving Corporation received by the Trust in
connection with the Merger.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
Pursuant to the Merger Agreement, Starwood Lodging has agreed that all
rights to indemnification and exculpation from liabilities for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers of ITT and its subsidiaries as provided in their
respective articles or certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification agreements of ITT will survive
the Merger and will continue in full force and effect in accordance with their
terms for a period of not less than six years from the Effective Time and the
obligations of ITT in connection therewith shall be assumed by Starwood Lodging.
The Corporation has agreed to provide, or to cause the Surviving Corporation to
provide, ITT's current directors and officers an insurance and indemnification
policy (including any fiduciary liability policy) that provides coverage with
respect to any claims made during the six-year period following the Effective
Time for events occurring prior to the Effective Time (the "D&O Insurance") that
is substantially similar to ITT's existing policies or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
provided, however, that the Surviving Corporation shall not be required to pay
an annual premium for the D&O Insurance in excess of 150 percent of the last
annual premium paid prior to the date of the Original Merger Agreement (which
premium ITT represents and warrants to be approximately $1.4 million in the
aggregate), unless such annual premium would but for this
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proviso exceed such amount, in which case the Corporation must purchase as much
coverage as possible for such amount.
CERTAIN EMPLOYEE MATTERS
Except with respect to Stock Plans, for not less than one year following
the Effective Time, Starwood Lodging has agreed to maintain, or to cause ITT and
its subsidiaries to maintain, compensation and employee benefits plans and
arrangements for employees of ITT and its subsidiaries ("Affected Employees")
that are, in the aggregate, no less favorable than as provided under the
compensation arrangements and ITT Plans as in effect on the date of the Original
Merger Agreement. Without limiting the generality of the foregoing, for not less
than one year following the Effective Time (or such longer period as may be
required under the applicable ITT Plan), Starwood Lodging has agreed to provide,
or to cause ITT and its subsidiaries to provide, severance pay and benefits to
each Affected Employee as of the Effective Time that are no less favorable than
under the ITT Plans and current practices of ITT as in effect as of the date of
the Original Merger Agreement. Notwithstanding the foregoing, Starwood Lodging
has the right (i) following the Effective Time to transfer to one or more
employee benefit plans maintained by Starwood Lodging any employee of ITT or any
subsidiary who becomes an employee of Starwood Lodging or any of its
subsidiaries and (ii) in the good faith exercise of it managerial discretion, to
terminate the employment of any employee.
Starwood Lodging has agreed to honor, or to cause ITT to honor, all ITT
Plans and other contractual commitments in effect immediately prior to the
Effective Time between ITT or its subsidiaries and Affected Employees or former
employees of ITT or its subsidiaries. Without limiting the generality or the
foregoing, Starwood Lodging has agreed to honor all vacation, holiday, sickness
and personal days accrued by Affected Employees and, to the extent applicable,
former employees of ITT and its subsidiaries ("Former Employees") as of the
Effective Time.
Employees and, to the extent applicable, Former Employees will be given
credit for all service with ITT and its subsidiaries (or service credited by ITT
or such subsidiaries) under all employee benefit plans and arrangements
currently maintained by Starwood Lodging or any of its respective subsidiaries
in which they are or will become participants for purposes of eligibility,
vesting, level of participant contributions and benefit accruals (but subject to
an offset, if necessary, to avoid duplication of benefits) to the same extent as
if rendered to Starwood Lodging or any of their respective subsidiaries.
Starwood Lodging has agreed to cause to be waived any pre-existing condition
limitation under their welfare plans that might otherwise apply to an Affected
Employee or, to the extent applicable, a Former Employee. Starwood Lodging has
agreed to recognize (or cause to be recognized) the dollar amount of all
expenses incurred by Affected Employees or, to the extent applicable, Former
Employees, during the calendar year in which the Effective Time occurs for
purposes of satisfying the calendar year deductions and co-payment limitations
for such year under the relevant benefit plans of Starwood Lodging and their
respective subsidiaries.
CERTAIN GAMING REGULATORY MATTERS
Pursuant to the Merger Agreement, Starwood Lodging has agreed to
disassociate itself and to cause its respective subsidiaries to disassociate and
to use all reasonable efforts to cause its respective affiliates other than
subsidiaries to disassociate themselves, if such disassociation is necessary to
obtain any regulatory approval for the Merger Agreement or the transactions
contemplated thereby, from any person or persons deemed, or reasonably likely to
be deemed, unacceptable by a governmental entity with authority to administer
gaming laws and, in the case of any such person who is a nominee to serve as a
director or trustee of Starwood Lodging or any subsidiary of Starwood Lodging,
Starwood Lodging has agreed to replace, and to cause the relevant subsidiary or
subsidiaries to replace, any such director nominee with a suitable substitute
nominee. Starwood Lodging also has agreed to use all reasonable efforts to cause
the trust arrangements described in paragraph (iii) under "-- Conditions to
Consummation of the Merger" below to be in full force and effect and has further
agreed that, if the requisite approvals are obtained from the New Jersey
Commission, they will place shares of ITT Common Stock or shares of common stock
of the Surviving Corporation, as applicable, in trust as contemplated by such
clauses.
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In connection with the application for qualification and licensing by
Starwood Lodging with the New Jersey Commission pursuant to the New Jersey Act
and the rules and regulations promulgated thereunder, if requested by Starwood
Lodging (for the purpose of permitting Starwood Lodging to hold directly (and
not in trust) the shares of ITT Common Stock to be acquired pursuant to the
Merger while Starwood Lodging's application for qualification and licensing is
pending with the New Jersey Commission), ITT has agreed to execute and deliver a
trust agreement prepared by Starwood Lodging and reasonably acceptable to ITT
and the New Jersey Commission and complying with the requirements of the New
Jersey Act and the rules and regulations promulgated thereunder.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of ITT, on the one hand, and Starwood Lodging,
on the other hand, to consummate the Merger are subject to the fulfillment (or
waiver by such party) at or prior to the Effective Time of the following
conditions:
(a) the Merger Agreement has been duly approved by the requisite vote
of stockholders of ITT in accordance with applicable law and the Restated
Articles of Incorporation, as amended, of ITT (the "ITT Articles") and ITT
By-laws, and the Shares Issuance Proposal, the Trust Amendment and the
Corporation Amendment have been duly approved by the requisite vote of the
stockholders or shareholders, as applicable, of each of the Corporation and
the Trust in accordance with applicable rules of the NYSE, applicable law
and the Corporation Articles and the Corporation By-laws and the Trust
Declaration and the Trustees' Regulations;
(b) the Paired Shares issuable in the Merger and pursuant to the
Substitute Options have been authorized for listing on the NYSE, subject to
official notice of issuance;
(c)(i) the waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act has expired or been
terminated;
(ii) all consents, approvals, orders or authorizations of or
registrations, declarations or filings with any governmental entity, which
the failure to obtain, make or occur would reasonably be expected to have a
Material Adverse Effect on ITT (assuming the Merger has taken place), have
been obtained, have been made or have occurred, and are in full force and
effect;
(iii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, (A) any governmental entity
with jurisdiction in respect of gaming laws (other than New Jersey), (B)
the FCC and (C) state educational authorities, non-governmental educational
accrediting commissions and the ED (in the case of this clause (C) which
are required to be made or obtained prior to consummation of the Merger),
in each case, which are required or necessary in connection with the Merger
and the Merger Agreement and the transactions contemplated by the Merger
Agreement (including the changes in the composition of the ITT Board) have
been obtained and are in full force and effect, and in the case of the New
Jersey Act and the rules and regulations promulgated thereunder, either, at
the option of Starwood Lodging, (x) as contemplated by "-- Certain Gaming
Regulatory Matters" above, all required shares of common stock have been
deposited in trust with a trustee qualified and otherwise acceptable to the
New Jersey Commission and the transactions and arrangements contemplated by
"-- Certain Gaming Regulatory Matters" above shall be in full force and
effect or (y) (1) the New Jersey Commission has approved a form of trust
agreement in form and substance reasonably satisfactory to Starwood Lodging
(including in respect of control by Starwood Lodging of ITT and its
subsidiaries) in respect of a trust arrangement for the shares of ITT
Common Stock to be acquired pursuant to the Merger or shares of the common
stock of the Surviving Corporation pending final qualification of Starwood
Lodging to hold a casino license under the New Jersey Act and the rules and
regulations thereunder, (2) a trustee qualified and otherwise acceptable to
the New Jersey Commission and Starwood Lodging in respect of such trust
arrangement for the shares of ITT Common Stock to be acquired pursuant to
the Merger or shares of the common stock of the Surviving Corporation has
been appointed or designated and (3) the directors of Merger Sub have been
qualified on a permanent or temporary basis to serve as directors of a
company (including ITT) that either directly, or
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through its subsidiaries, holds a casino license under the New Jersey Act
and the rules and regulations thereunder;
(d) the Registration Statement has become effective in accordance with
the provisions of the Securities Act. No stop order suspending the
effectiveness of the Registration Statement has been issued by the
Commission and no proceedings for that purpose have been initiated or, to
the knowledge of Starwood Lodging or ITT, threatened by the Commission. All
necessary state securities or blue sky authorizations have been received;
(e) no court or other governmental entity having jurisdiction over
ITT, the Corporation or the Trust, or any of their respective subsidiaries,
has enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) (after the date of the Merger
Agreement) which is then in effect and has the effect of making the Merger
or any of the transactions contemplated thereby illegal; provided, however,
that each of the parties has used all reasonable efforts to prevent and to
appeal as promptly as possible any such law, rule, regulation, executive
order, decree, injunction or other order; and
(f) no Federal legislative or regulatory change has occurred that
would cause the Trust to cease to qualify as a "real estate investment
trust" for federal income tax purposes or that would cause the Trust to
become subject to Section 269B(a)(3) of the Code.
The obligation of ITT to effect the Merger is subject to the fulfillment
(or waiver by ITT) at or prior to the Effective Time of the following additional
conditions:
(a) each of the Corporation, Merger Sub and the Trust has performed in
all material respects each of its agreements contained in the Merger
Agreement required to be performed at or prior to the Effective Time, each
of the representations and warranties of the Corporation, Merger Sub and
the Trust contained in the Merger Agreement that is qualified as to
materiality is true and correct at and as of the Effective Time as if made
at and as of such time (other than representations and warranties which
address matters only as of a certain date, which are true and correct as of
such certain date) and each of the representations and warranties that is
not so qualified is true and correct in all material respects at and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which are true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by the
Merger Agreement, and ITT has received certificates signed on behalf of
each of the Corporation, Merger Sub and the Trust by its Chief Executive
Officer and its Chief Financial Officer to such effect;
(b) there is not pending or threatened any suit, action or proceeding
by any governmental entity or any other person, or before any court or
governmental authority, agency or tribunal, domestic or foreign, in each
case that has a significant likelihood of success challenging the
acquisition by Starwood Lodging of any shares of ITT Common Stock, seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or seeking to obtain from
the Corporation, the Trust or Merger Sub any damages that are material in
relation to ITT, Starwood Lodging and their subsidiaries taken as a whole;
and
(c) the opinion of Sidley & Austin, counsel for Starwood Lodging, is
delivered to ITT on the Closing Date in form and substance reasonably
satisfactory to ITT stating that (i) the Trust is a "real estate investment
trust" for federal income tax purposes and the Trust is not subject to
Section 269B(a)(3) of the Code by reason of Section 136(c) of the Deficit
Reduction Act of 1984 and (ii) consummation of the transactions
contemplated by the Merger Agreement will not cause the Trust to cease to
qualify as a "real estate investment trust" for federal income tax purposes
and will not cause the Trust to become subject to Section 269B(a)(3) of the
Code. In rendering such opinion, such counsel is entitled to rely upon
customary representations reasonably requested by such counsel and made by
Starwood Lodging.
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The obligations of the Starwood Companies to effect the Merger are subject
to the fulfillment (or waiver by Starwood Lodging) at or prior to the Effective
Time of the following additional conditions:
(a) ITT has performed in all material respects each of its agreements
contained in the Merger Agreement required to be performed at or prior to
the Effective Time, each of the representations and warranties of ITT
contained in the Merger Agreement that is qualified as to materiality is
true and correct at and as of the Effective Time as if made at and as of
such time (other than representations and warranties which address matters
only as of a certain date, which are true and correct as of such certain
date) and each of the representations and warranties that is not so
qualified is true and correct in all material respects at and as of the
Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which are true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by the
Merger Agreement, and Starwood Lodging shall have received a certificate
signed on behalf of ITT by its Chief Executive Officer and its Chief
Financial Officer to such effect;
(b) ITT has obtained the consent or approval of each person that is
not a governmental entity whose consent or approval is required in
connection with the transactions contemplated hereby under any loan or
credit agreement, note, mortgage, indenture, lease, hotel management
agreement or other agreement or instrument, except as to which the failure
to obtain such consents and approvals, individually or in the aggregate,
would not be expected, in the reasonable opinion of Starwood Lodging, to
have a Material Adverse Effect on ITT or upon the consummation of the
transactions contemplated in the Merger Agreement; and
(c) the Corporation has received from certain persons identified as
affiliates of ITT an executed copy of an agreement relating to the resale
of Paired Shares;
(d) there is not pending or threatened any suit, action or proceeding
by any governmental entity or any other person, or before any court or
governmental authority, agency or tribunal, domestic or foreign, in each
case that has a significant likelihood of success (i) challenging the
acquisition by Starwood Lodging of any shares of ITT Common Stock, seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or seeking to obtain from
ITT any damages that are material in relation to ITT, Starwood Lodging and
their subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
ownership or operation by ITT, the Corporation or any of their respective
subsidiaries of any material portion of the combined business or assets of
ITT, the Corporation, the Trust and their respective subsidiaries, or to
compel ITT, the Corporation, the Trust and their respective subsidiaries to
dispose of or hold separate any material portion of the combined business
or assets of ITT, the Corporation, the Trust and their respective
subsidiaries, as a result of the Merger or any of the other transactions
contemplated by the Merger Agreement, (iii) seeking to impose limitations
on the ability of the Corporation, the Trust or Merger Sub to acquire or
hold, or exercise full rights of ownership of, any shares of ITT Common
Stock, including, without limitation, the right to vote any ITT Common
Stock purchased by it on all matters properly presented to the shareholders
of ITT, (iv) seeking to prohibit the Corporation, the Trust or any of their
respective subsidiaries from effectively controlling in any material
respect the business or operations of ITT or its subsidiaries or (v) which
otherwise would reasonably be expected to have a Material Adverse Effect on
ITT; and
(e) the Rights have not become nonredeemable, exercisable, distributed
or triggered pursuant to the terms of the Rights Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time whether before or after the approval by the stockholders of ITT or of the
shareholders of Starwood Lodging:
(a) by mutual written consent of Starwood Lodging and ITT;
(b) by either Starwood Lodging or ITT if there has been a material
breach of the representations, warranties, covenants and agreements on the
part of the other set forth in the Merger Agreement, which
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breach has not been cured within ten business days following receipt by the
breaching party of notice of such breach from the nonbreaching party;
(c) by either Starwood Lodging or ITT if any permanent order, decree,
ruling or other action of a court or other competent authority restraining,
enjoining or otherwise preventing the consummation of the Merger has become
final and non-appealable;
(d) by either Starwood Lodging or ITT if the Merger has not been
consummated before December 31, 1998, unless the failure to consummate the
Merger is the result of a material breach of the Merger Agreement by the
party seeking to terminate the Merger Agreement; provided, however, that
the passage of such period will be tolled for any part thereof during which
any party is subject to a nonfinal order, decree, ruling or other action
restraining, enjoining or otherwise preventing the consummation of the
Merger;
(e) by either Starwood Lodging or (if ITT has paid to the Corporation
an amount in cash equal to the sum of the Termination Fee plus all Expenses
if required by the Merger Agreement) the ITT Board if any required approval
of the Merger by the stockholders of ITT has not been obtained by reason of
the failure to obtain the required vote at a duly held meeting of such
stockholders or at any adjournment thereof;
(f) by Starwood Lodging if the ITT Board shall or shall resolve to (i)
not recommend, or withdraw its approval or recommendation of, the Merger,
the Merger Agreement or any of the transactions contemplated by the Merger
Agreement, (ii) modify such approval or recommendation in a manner adverse
to the Corporation, Merger Sub or the Trust or (iii) approve or recommend a
superior proposal;
(g) by the ITT Board if (i) the ITT Board has approved or recommended
a superior proposal and (ii) ITT has paid to the Corporation an amount in
cash equal to the sum of the Termination Fee plus all Expenses as provided
by the Merger Agreement; or
(h) by either Starwood Lodging or the ITT Board if the approval of the
Shares Issuance Proposal, the Trust Amendment and the Corporation Amendment
by the shareholders of the Trust or the stockholders of the Corporation has
not have been obtained by reason of the failure to obtain the required vote
at a duly held meeting of such shareholders or stockholders.
CERTAIN FEES AND EXPENSES
The Merger Agreement provides that, except as described below, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby, including
the fees and disbursements of counsel, financial advisors and accountants, shall
be paid by the party incurring such costs and expenses, except that expenses
incurred in connection with printing and mailing this Joint Proxy
Statement/Prospectus and the Registration Statement shall be borne equally by
the Corporation and ITT.
Provided that none of the Corporation, Merger Sub or the Trust is in
material breach of their representations, warranties and agreements under the
Merger Agreement, (i) if the Merger Agreement is terminated by the ITT Board
pursuant to paragraph (g) under "-- Termination" above, (ii) if the Merger
Agreement is terminated by Starwood Lodging pursuant to paragraph (b) under
"-- Termination" above, (iii) if the Merger Agreement is terminated by Starwood
Lodging pursuant to paragraph (f) under "-- Termination" above, or (iv) if (A)
after the date of the Original Merger Agreement, (x) any person or group has
made or indicated an intention to make or amend or modify (whether or not
subject to conditions) a takeover proposal or (y) it has been publicly disclosed
or the Corporation has otherwise learned that any person or group has beneficial
ownership of more than 15% of the outstanding shares of ITT Common Stock or (z)
the Corporation has the right to terminate the Merger Agreement pursuant to
paragraph (f) under "-- Termination" above because the ITT Board has taken or
has resolved to take an action referred to therein and (B) the stockholders of
ITT do not approve the Merger at the ITT Meeting or the Merger Agreement is
terminated pursuant to paragraph (d) under "-- Termination" above prior to the
ITT Meeting being held, then ITT must pay to the Corporation $225 million (the
"Termination Fee") in same-day funds, plus
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(notwithstanding the first paragraph of this section) all the Expenses, on the
date of such termination, in the case of clause (i), (ii) or (iii) above, or on
the date of the ITT Meeting or such termination, as the case may be, in the case
of clause (iv) above.
If the Merger Agreement is terminated for any reason (other than by ITT in
the event of breach by Starwood Lodging), ITT has agreed to, on the date of such
termination, pay to the Corporation the cash amount necessary to permit the
Corporation fully to reimburse itself, Merger Sub and the Trust and their
affiliates for all out-of-pocket fees and expenses incurred at any time prior to
such termination by any of them or on their behalf in connection with the
Merger, the preparation of the Merger Agreement and the transactions
contemplated by the Merger Agreement (including any currency or interest rate
hedging activities in connection with the transactions contemplated by the
Merger Agreement), including (x) all fees and expenses of counsel, investment
banking firms, financial advisors, accountants, experts and consultants to the
Corporation, Merger Sub and the Trust or any of their affiliates and (y) all
fees and expenses payable to banks, investment banking firms and other financial
institutions and their respective counsel, accountants and agents in connection
with arranging or providing financing (fees and expenses under clause (y)
collectively, "Financing Fees" and the fees and expenses contemplated by this
paragraph, collectively, but subject to the next succeeding proviso, the
"Expenses"); provided, however, that the aggregate amount of Expenses, other
than Financing Fees and all fees and expenses of counsel in connection with any
litigation, cannot exceed $25 million.
WAIVERS
At any time prior to the Effective Time, the parties may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties to be performed under the Merger Agreement, (ii) waive any inaccuracies
in the representations and warranties contained in the Merger Agreement or in
any document delivered pursuant thereto and (iii) waive compliance with any of
the agreements or conditions contained in the Merger Agreement which may legally
be waived. Neither Starwood Lodging nor ITT has any intention of waiving any
material provisions or conditions of the Merger Agreement.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger to Starwood Lodging, the shareholders and stockholders of Starwood
Lodging and the stockholders of ITT. This summary is for information purposes
only and is not tax advice. Except as discussed below, no ruling or
determination letters from the Internal Revenue Service ("IRS") or opinions of
counsel have been rendered or will be requested by ITT or Starwood Lodging on
any tax issue connected with the Merger or other matters discussed in this Joint
Proxy Statement/Prospectus. This summary is based upon the Code, as currently in
effect, applicable Treasury Regulations thereunder and judicial and
administrative interpretations thereof, all of which are subject to change,
including changes that may be retroactive.
This summary does not purport to deal with all aspects of taxation that may
be relevant to Starwood Lodging, to particular shareholders and stockholders of
Starwood Lodging or to particular stockholders of ITT in light of their personal
investment or tax circumstances. Sidley & Austin, counsel for Starwood Lodging,
is opining on certain Federal income tax consequences of the Merger for Starwood
Lodging and the shareholders and stockholders of Starwood Lodging and Cravath,
Swaine & Moore is opining on certain Federal income tax consequences of the
Merger to ITT stockholders. Such opinions have been filed as exhibits to the
Registration Statement. Sidley & Austin has advised Starwood Lodging and
Cravath, Swaine & Moore has advised ITT that their respective opinions are not
binding on the IRS or any court and that no assurance can be given that the IRS
will not challenge the propriety of part or all of their opinions or that such a
challenge would not be successful. Sidley & Austin's opinion relies upon and is
premised on the accuracy of statements and representations of Starwood Lodging
concerning its business and properties, ownership, organization, sources of
income, future operations, levels of distributions and recordkeeping, and the
judgments of Starwood Lodging with respect to the fair market value of the real
estate assets of ITT, the relative value of the Trust Shares and the Corporation
Shares to the value of the Paired Shares, the reasonableness of the guaranty fee
to
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be paid by the Corporation to the Trust with respect to indebtedness to be
incurred by the Corporation in connection with the Merger, and the ability of
the Corporation to have arranged for debt financing for the Merger without a
guaranty of the Trust. Such statements and representations by Starwood Lodging
are attached to and incorporated by reference into Sidley & Austin's opinion.
Except as specifically provided, the discussion below does not address foreign,
state, or local tax consequences, nor does it specifically address the tax
consequences to taxpayers subject to special treatment under the federal income
tax laws (including dealers in securities, foreign persons, life insurance
companies, tax-exempt organizations, financial institutions, and taxpayers
subject to the alternative minimum tax). The discussion below assumes that the
shares of Starwood Lodging and of ITT are or will be held as capital assets
within the meaning of Section 1221 of the Code. No assurance can be given that
legislative, judicial or administrative changes will not affect the accuracy of
any statements in this Joint Proxy Statement/Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes.
EACH SHAREHOLDER AND STOCKHOLDER OF STARWOOD LODGING AND EACH STOCKHOLDER
OF ITT IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE MERGER AND OF POTENTIAL CHANGES IN THE
APPLICABLE TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
FEDERAL INCOME TAX CONSEQUENCES TO ITT STOCKHOLDERS. Pursuant to the
Merger, a corporation jointly owned by the Trust and the Corporation will merge
with and into ITT. In the opinion of Cravath, Swaine & Moore, counsel to ITT,
the Merger will be treated for federal income tax purposes as if the ITT
stockholders had sold their ITT Common Stock in exchange for a combination of
Paired Shares and cash. As a result, an ITT stockholder (other than an "Ordinary
Income Stockholder" as defined below) will recognize gain in connection with the
Merger in an amount equal to the excess of (a) the amount of cash (including
cash received in lieu of fractional Paired Shares) and the fair market value of
Paired Shares received over (b) such stockholder's adjusted tax basis in his or
her ITT Common Stock. An ITT stockholder (other than an Ordinary Income
Stockholder) will recognize loss as a result of the Merger in an amount equal to
the excess of (a) such stockholder's adjusted tax basis in his or her ITT Common
Stock over (b) the amount of cash (including cash received in lieu of fractional
Paired Shares) and the fair market value of Paired Shares received in the
Merger. Any such gain or loss recognized by ITT stockholders will constitute
capital gain or loss and ITT stockholders who are individuals may be entitled to
lower capital gains tax rates, depending on the holding period of the ITT Common
Stock.
The federal income tax consequences of the Merger to an Ordinary Income
Stockholder will be the same as described above for all other ITT stockholders,
except that any cash (including cash received in lieu of fractional Paired
Shares) received by an Ordinary Income Stockholder in connection with the Merger
will be recharacterized as ordinary income to the extent of the current and
accumulated earnings and profits of ITT and Starwood Lodging. Based upon
estimates of such earnings and profits, it is expected that all cash received by
such Ordinary Income Stockholders will be recharacterized as ordinary income.
Ordinary Income Stockholders cannot use capital losses to shelter any such
ordinary income. However, an Ordinary Income Stockholder who is an individual
may use up to $3,000 of capital losses per year to shelter ordinary income.
For purposes of this subsection, an Ordinary Income Stockholder is an ITT
stockholder (a) that actually or constructively owns Paired Shares before the
Effective Time, (b) that receives cash (including cash in lieu of fractional
Paired Shares) in connection with the Merger and (c) (i) whose actual or
constructive ownership of ITT, through ownership of Paired Shares, after the
Merger and the deemed redemption (described below) is not meaningfully reduced
or (ii) with respect to whom the deemed redemption is not substantially
disproportionate (in the case of (i) and (ii), applying the attribution rules of
Section 318 of the Code). In connection with the determination under clause (c)
of the preceding sentence, an ITT stockholder will be treated as though he or
she exchanged all his or her ITT Common Stock for Paired Shares and Starwood
Lodging then immediately redeemed a portion of such Paired Shares (in a deemed
redemption) in exchange for the cash actually received by such ITT stockholder
in connection with the Merger (including
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cash received in lieu of fractional Paired Shares). The IRS has indicated in a
published ruling that, in the case of a small minority holder of a publicly held
corporation who exercises no control over corporate affairs, a reduction in the
holder's proportionate interest in the corporation in connection with a deemed
redemption from .0001118% to .0001081% would be treated as a meaningful
reduction. An ITT stockholder's deemed redemption will be "substantially
disproportionate" if the percentage of the outstanding voting stock of Starwood
Lodging (following the Merger and the deemed redemption) actually and
constructively owned by such ITT stockholder (treating the Paired Shares
acquired by Starwood Lodging in the deemed redemption as not outstanding) is
less than 80% of the percentage of the outstanding voting stock of Starwood
Lodging actually and constructively owned by such ITT stockholder following the
Merger but immediately before the deemed redemption (treating the Paired Shares
acquired by Starwood Lodging in the deemed redemption as outstanding).
FEDERAL INCOME TAX CONSEQUENCES TO ITT, THE TRUST, THE CORPORATION AND THE
SHAREHOLDERS AND STOCKHOLDERS OF STARWOOD LODGING.
Sidley & Austin is of the opinion that no gain or loss will be recognized
by ITT, the Trust, the Corporation or the shareholders and stockholders of
Starwood Lodging as a result of the Merger and the Trust and the Corporation
will have a tax basis in the ITT Common Stock equal to the amount paid in
exchange therefor. As part of the Merger, the Trust will be treated as acquiring
an amount of ITT Common Stock equal to the fair market value of the Trust Shares
issued in the Merger. In order to maintain its qualification as a REIT, the
Trust must dispose of the ITT Common Stock it acquires in the Merger prior to
the end of the first calendar quarter ending after the Effective Time. The Trust
intends to satisfy this requirement by selling the ITT Common Stock it acquires
in the Merger to the Corporation for a combination of cash and notes immediately
after the Effective Time. The notes issued by the Corporation will be secured by
mortgages on real estate owned by ITT. Such notes will therefore qualify as
"real estate assets" and, as a result, will not adversely affect the Trust's
ability to qualify as a REIT. See "-- Federal Income Taxation of the Trust --
Requirements for Qualification -- Asset Tests." Because the Trust will have a
tax basis in the ITT Common Stock equal to the fair market value of such stock,
the sale of the ITT Common Stock from the Trust to the Corporation is not
expected to result in material gain or loss being recognized by the Trust.
Sidley & Austin has advised Starwood Lodging, however, 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 Common Stock from the Trust
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. The IRS could
also assert that a deemed distribution of cash or other property occurred 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 amount of ITT
Common Stock 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 the Paired
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 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. See "-- Federal Income Taxation of Holders
of Paired Shares."
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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 of the
Code, which treats a REIT and a non-REIT, the paired shares of which were not
paired on or before June 30, 1983, as one entity for purposes of determining
whether either company qualifies as a REIT. Section 269B of the Code has not
applied to the Trust and the Corporation (since the Trust Shares and the
Corporation Shares were paired prior to that date), and the Ruling's conclusions
were not adversely affected thereby.
In 1994, the Trust requested and received a determination letter from the
IRS (the "IRS Letter"). The IRS Letter provided that the Trust's failure to send
the shareholder demand letters required by the REIT Provisions (defined below)
terminated its election to be taxed as a REIT beginning with the Trust's taxable
year ended December 31, 1991 and permitted the Trust to re-elect to be taxed as
a REIT commencing with its taxable year ended December 31, 1995. The IRS Letter
also directed the Trust to file amended federal income tax returns for its
taxable years ended December 31, 1991 and 1992 as a C corporation (and not as a
REIT) and to file its federal income tax returns for its taxable years ended
December 31, 1993 and 1994 as a C corporation. The Trust has filed such returns.
Because the Trust had net losses for federal income tax purposes and did not pay
any dividends during its taxable years ended December 31, 1991, 1992, 1993 and
1994, the IRS Letter did not result in the Trust owing any federal income tax.
The Trust has instituted REIT compliance controls that are intended to prevent
the reoccurrence of any such failure to comply with the reporting and
recordkeeping requirements for REITs. The Chairman of the Ways & Means Committee
of the U.S. House of Representatives has announced that although he has no 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.
GENERAL. The Trust has elected to be taxed as a REIT under Sections 856
through 860 of the Code and applicable Treasury Regulations (the "REIT
Requirements" or "REIT Provisions"), commencing with its taxable year ended
December 31, 1995. The Trust believes that, commencing with such taxable year,
it was organized and has operated in such a manner so as to qualify for taxation
as a REIT and the Trust intends to continue to operate in such a manner; however
no assurance can be given that the Trust has qualified as a REIT or will
continue to so qualify.
The REIT Provisions are highly technical and complex. The following sets
forth the material aspects of the REIT Provisions that govern the federal income
tax treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the REIT Provisions and administrative and judicial interpretations
thereof.
Sidley & Austin, counsel to Starwood Lodging, is of the opinion that,
commencing with the Trust's taxable year ended December 31, 1995, the Trust was
organized and has operated in conformity with the REIT Requirements and its
proposed method of operation will enable it to continue to meet the REIT
Requirements 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. The Trust's annual operating results will not be reviewed by
Sidley & Austin. Accordingly, no assurance can be given that the actual results
of the Trust's operation for any particular taxable year will satisfy such
requirements. Further, the anticipated federal income tax treatment described in
this Joint Proxy Statement/Prospectus may be changed, perhaps retroactively, by
legislative, administrative, or judicial action at any time. For a discussion of
the tax consequences of failure to qualify as a REIT, see "-- Failure to
Qualify" below.
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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.
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
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status terminated or was revoked or the IRS has waived the applicability of such
waiting period; (ix) that has the calendar year as its taxable year; and (x)
that meets certain other tests, described below, regarding the nature of its
income and assets. The REIT Provisions provide that conditions (i) to (iv),
inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (v) and
(vi) do not apply until after the first taxable year for which an election is
made by the REIT to be taxed as a REIT.
The Trust believes that it satisfies conditions (i) through (x) (described
above). The Trust believes that the dividends paid and to be paid by the Trust
and its predecessors will enable the Trust to satisfy condition (vii) above. In
addition, the Declaration of Trust and the Articles of Incorporation provide for
restrictions regarding the transfer and ownership of shares, which restrictions
are intended to assist the Trust in continuing to satisfy the share ownership
requirements described in conditions (v) and (vi) above. See "Description of
Starwood Securities -- Ownership Limits; Restrictions on Transfer; Repurchase
and Redemption of Shares." With respect to its taxable years 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 Consequences" 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 as part of the Westin Acquisition, certain of the assets of
Westin, including third party management, franchise and representation
agreements and certain trademarks and other intangible property are held by
corporations (the "Management Subsidiaries") of which the Trust or the Realty
Partnership will own all of the nonvoting preferred stock and common stock
comprising less than 10% of the outstanding voting stock of each Management
Subsidiary. The remainder of the voting stock of the Management Subsidiaries
will be owned by the Corporation. The Management Subsidiaries will not be
treated as Qualified REIT Subsidiaries.
In the case of a REIT that is a partner in a partnership, the REIT
Provisions provide that the REIT is deemed to own its proportionate share of the
assets of the partnership based on the REIT's capital interest in the
partnership and is deemed to be entitled to the income of the partnership
attributable to such proportionate share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of satisfying the gross income tests and the
asset tests described below. Similar treatment applies with respect to
lower-tier partnerships which the REIT indirectly owns through its interests in
higher-tier partnerships. Thus, the Trust's proportionate share of the assets,
liabilities and items of income of the Realty Partnership and the other
partnerships and limited liability companies in which the Trust owns a direct or
indirect interest (collectively, the "Realty Subsidiary Entities"), will be
treated as assets, liabilities and items of income of the Trust for purposes of
applying the gross income tests and the asset tests described below, provided
that the Realty Partnership and the Realty Subsidiary Entities are treated as
partnerships for federal income tax purposes. See "-- Federal Income Tax Aspects
of the Partnerships and the Subsidiary Entities" below. Sidley & Austin has
advised Starwood Lodging, 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 case, the
Trust would lose its REIT status.
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Paired Shares. Section 269B of the Code provides that if the shares of a
REIT and a non-REIT are paired, then the REIT and the non-REIT shall be treated
as one entity for purposes of determining whether either company qualifies as a
REIT. If Section 269B applied to the Trust and the Corporation, then the Trust
would not be able to satisfy the gross income tests (described below) and thus
would not be eligible to be taxed as a REIT. Section 269B does not apply,
however, if the shares of a REIT and a non-REIT were paired on or before June
30, 1983 and the REIT was taxable as a REIT on or before June 30, 1983. As a
result of this grandfathering rule, Section 269B has not applied to the Trust
and the Corporation. This grandfathering rule does not, by its terms, require
that the Trust be taxed as a REIT at all times after June 30, 1983. Sidley &
Austin is of the opinion that the termination of the Trust's REIT election for
the taxable years ended December 31, 1991 through 1994 did not, and the
consummation of the Merger will not, result in Section 269B becoming applicable
to the Trust. There are, however, no judicial or administrative authorities
interpreting this grandfathering rule. Therefore, Sidley & Austin's opinion is
based solely on the literal language of the statutory grandfathering rule.
Sidley & Austin has advised Starwood Lodging that, even though Section 269B
of the Code does not apply to the Trust and the Corporation, the IRS could
assert that the Trust and the Corporation should be treated as one entity under
general tax principles. In general, such an assertion 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, each Realty Subsidiary Entity and each partnership or
limited liability company owned in whole or in part by the Operating Partnership
(collectively, the "Operating Subsidiary Entities") have separate creditors and
are subject to different state law licensing and regulatory requirements. The
Trust and the Corporation have represented that they and the Realty Partnership,
the Operating Partnership, and the entities in which they own a direct or
indirect interest will each maintain separate books and records and all material
transactions among them have been and will be negotiated and structured with the
intention of achieving an arm's-length result. Sidley & Austin is of the opinion
that, based on the foregoing, the separate corporate identities of the Trust and
the Corporation will be respected.
Due to the paired structure, the Trust, the Corporation, the Realty
Partnership and certain of the entities in which they own a direct or indirect
interest are controlled by the same interests. As a result, the IRS could,
pursuant to Section 482 of the Code, seek to distribute, apportion or allocate
gross income, deductions, credits or allowances between or among them if it
determines that such distribution, apportionment or allocation is necessary in
order to prevent evasion of taxes or to clearly reflect income. The Trust and
the Corporation believe that all material transactions between them and among
them and the Realty Partnership, the Operating Partnership and the entities in
which they own a direct or indirect interest have been and will be negotiated
and structured with the intention of achieving an arm's-length result. As a
result, the potential application of Section 482 of the Code should not have a
material effect on the Trust or the Corporation. Application of Section 482 of
the Code depends on whether, as a factual matter, transactions between 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
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than 30% of the Trust's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received or deemed to be received by the Trust will qualify as "rents
from real property" for purposes of the gross income tests only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales (or items thereof). Second, the Code provides that rents received from
a tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or a direct or indirect owner of 10% or more of the
REIT directly or indirectly, owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, 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 interest 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 unrelated persons (the "Leases"). The Leases are net
leases which generally provide for payment of rent equal to the greater of a
fixed rent or a percentage rent. The percentage rent is determined by
calculating a fixed percentage of the gross room revenues and adding, for
certain hotels, fixed percentages of other types of gross revenues in excess of
certain levels.
In order for the rents paid under the Leases to constitute "rents from real
property," the Leases must be respected as true leases for federal income tax
purposes and not treated as service contracts, joint ventures or some other type
of arrangement. The determination of whether the Leases are true leases depends
upon an analysis of all of the surrounding facts and circumstances. In making
such a determination, courts have considered a variety of factors, including the
intent of the parties, the form of the agreement, the degree of control over the
property that is retained by the property owner and the extent to which the
property owner retains the risk of loss with respect to the property.
Sidley & Austin is of the opinion that the Leases will be treated as true
leases for federal income tax purposes. This opinion is based, in part, on the
following facts: (i) the lessors and the lessees intend for their relationship
to be that of lessor and lessee and each such relationship will be documented by
a lease agreement; (ii) the lessees will have the right to exclusive possession
and use and quiet enjoyment of the leased premises during the term of the
Leases; (iii) the lessees will bear the cost of, and be responsible for,
day-to-day maintenance and repair of the leased premises, other than the cost of
certain capital expenditures, and will dictate how the leased premises are
operated and maintained; (iv) the lessees will bear all of the costs and
expenses of operating the leased premises during the term of the Leases; (v) the
term of the Leases is less than the economic life of the leased premises and the
lessees do not have purchase options with respect to the leased premises; (vi)
the lessees are required to pay substantial fixed rent during the term of the
Leases; and (vii) each lessee stands to incur substantial losses or reap
substantial profits depending on how successfully it operates the leased
premises.
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Shareholders and stockholders should be aware, however, that there are not
controlling authorities involving leases with terms substantially the same as
the Leases. Therefore, the opinion of Sidley & Austin is based upon an analysis
of the facts and circumstances and upon rulings and judicial decisions involving
situations that are analogous. If any significant Lease is recharacterized as a
service contract or a partnership agreement, rather than as a true lease, the
Trust would not be able to satisfy either the 75% or 95% gross income tests, or,
in the case of the recharacterization of a Lease of a Subsidiary REIT, one or
more of the asset tests, and, as a result, would lose its REIT status.
In order for rent payments under the Leases to qualify as "rents from real
property," the rent must not be based on the income or profits of any person.
The percentage rent under the Leases will qualify as "rents from real property"
if it is based on percentages of receipts or sales and the percentages (i) are
fixed at the time the Leases are entered into; (ii) are not renegotiated during
the term of the Leases in a manner that has the effect of basing percentage rent
on income or profits; and (iii) conform with normal business practice. More
generally, percentage rent will not qualify as "rents from real property" if,
considering the Leases and all the surrounding circumstances, the arrangement
does not conform with normal business practice, but is in reality used as a
means of basing the percentage rent on income or profits. The Trust and the
Corporation believe that the Leases conform with normal business practice and
the percentage rent will be treated as "rents from real property" under this
requirement. The Trust has further represented that, with respect to hotel
properties that 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 net income or
profits of any person (except by reason of being based on a fixed percentage of
receipts or sales, as described above).
Another requirement for rent payments under a Lease to constitute "rents
from real property" is that the rent attributable to personal property under the
Lease must not be greater than 15% of the rent received under the Lease. For
this purpose, rent attributable to personal property is the amount that bears
the same ratio to the total rent for the taxable year as the average of the
adjusted basis of the personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate adjusted basis of both the
real property and personal property leased under, or in connection with, such
lease. If 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 asset tests, and, as a
result, would lose its REIT status. With respect to both the Leases and future
acquisitions, the Trust has represented that it will monitor the 15% test to
ensure continued qualification as a REIT.
A third requirement for qualification of rent under the Leases as "rents
from real property" is that neither the Trust nor any Subsidiary REIT may own,
directly or constructively, 10% or more of the Corporation, the Operating
Partnership, any Operating Subsidiary Entity or any other tenant under a Lease.
If the Trust or any Subsidiary REIT were to own directly or indirectly 10% or
more of such tenant, the rent paid by the tenant with respect to the leased
property would not qualify as income of the type that can be received by a REIT.
In order to prevent such a situation, which would likely result in the
disqualification of the Trust as a REIT, the Declaration of Trust and the
Articles of Incorporation contain restrictions on the amount of Trust Shares and
Corporation Shares that any one person can own. These restrictions generally
provide that any attempt by any one person to actually or constructively acquire
8.0% or more of the outstanding Paired Shares will be ineffective. See
"Description of the Starwood Securities -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares." Sidley & Austin has advised
Starwood Lodging, 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 Shares, it is possible for a person to own sufficient Paired
Shares to cause the termination of the Trust's REIT status.
Finally, rent under the Leases will not qualify as "rents from real
property" if either the Trust, the Realty Partnership, any Realty Subsidiary
Entity, any Subsidiary REIT or any Management Subsidiary renders or furnishes
Prohibited Services to the occupants of the properties (subject to a de minimis
rule for taxable years beginning after August 5, 1997). So long as the Leases
are treated as true leases, none of the Trust, the Realty Partnership, any
Realty Subsidiary Entity, any Subsidiary REIT or any Management Subsidiary will
be
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treated as rendering or furnishing Prohibited Services to the occupants of the
properties as a result of the Leases. The Trust has represented that neither it
nor any entity in which it directly or indirectly owns an interest or from which
it receives income will be providing Prohibited Services to the Corporation or
to any entity in which the Corporation directly or indirectly owns an interest,
or will be managing or operating any assets owned directly or indirectly by the
Trust. Sidley & Austin has advised Starwood Lodging 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.
Sidley & Austin is of the opinion 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 or a Subsidiary REIT
would not be able to satisfy either the 75% or 95% gross income test and, as a
result, the Trust 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. 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 by 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 Merger), 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 respect to such notes will be treated as
qualifying income for the 95% gross income test but will not be treated as
qualifying income for the 75% gross income tax. However, Starwood Lodging
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 Merger, the Trust will guarantee 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% or the 95% gross income tests.
However, Starwood Lodging 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
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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 its 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) will own all of the nonvoting stock
and less than 10% of the voting stock of each Management Subsidiary. By March
31, 1998 neither the Trust nor the Realty Partnership, however, will directly
own 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.
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
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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 will be permitted 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 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 is being 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 SHARES
FEDERAL INCOME TAXATION OF TAXABLE U.S. HOLDERS. As used herein, the term
"U.S. Shareholder" means a holder of Paired Shares who is: (i) a citizen or
resident of the United States; (ii) a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof; or (iii) an estate or trust the income of which
is subject to U.S. federal income taxation regardless of its source. As long as
the Trust qualifies as a REIT, distributions made to the Trust's U.S.
Shareholders up to the amount of the Trust's current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends-
received deduction for corporations. Distributions that are properly designated
by the Trust as capital gain dividends will be taxed as long-term capital gain
(to the extent they do not exceed the Trust's actual net capital gain for the
taxable year) without regard to the period for which the holder has held its
stock. However, corporate holders 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
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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.
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 Shares equal to the difference between the amount realized
on such disposition and the holder's adjusted basis in such Paired Shares. Such
gain or loss will generally constitute long-term capital gain or loss if the
holder held such Paired Shares for more than one year. However, any loss upon a
sale or exchange of Trust Shares by a holder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent of distributions from the Trust that are
treated by such holder as long-term capital gain.
For U.S. Shareholders who are individuals, the maximum capital gains tax
rate for sales of Paired Shares will be (i) 28%, if such shares have been held
for more than 12 but not more than 18 months, (ii) 20%, if such shares have been
held for more than 18 months, or (iii) 18%, if such shares have been held for
more than five years and the holding period for such shares begins after
December 31, 2000. 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 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-
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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.
For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans, exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Trust will constitute UBTI unless the organization is able to
deduct properly amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in the Trust. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall (subject to a de minimis exception) be treated as UBTI
as to any trust that (i) is described in Section 401 (a) of the Code, (ii) is
tax-exempt under Section 501(a) of the Code, and (iii) holds more than 10% (by
value) of the interests in the REIT. Due to the Ownership Limit, the Trust does
not expect to be a "pension held REIT" within the meaning of the Code.
FEDERAL TAXATION OF NON-U.S. HOLDERS OF PAIRED SHARES. The rules governing
United States federal income taxation of the ownership and disposition of stock
by persons that are, for purposes of such taxation, non-resident alien
individuals, foreign corporations, foreign partnerships, or foreign estates or
trusts (collectively, "Non-U.S. Shareholders") are complex, and no attempt is
made herein to provide more than a brief summary of such rules. Accordingly, the
discussion does not address all aspects of United States federal income tax and
does not address state, local or foreign tax consequences that may be relevant
to a Non-U.S. Shareholder in light of its particular circumstances. Non-U.S.
Shareholders should consult with their own tax advisors to determine the effect
of federal, state, local, and foreign income tax laws with regard to an
investment in Paired Common Shares, including any reporting requirements.
United States Treasury Regulations were issued on October 14, 1997 (the
"1997 Final Regulations") that will affect the United States federal income
taxation of distributions by the Trust or Corporation to Non-U.S. Shareholders.
The 1997 Final Regulations are generally effective for payments after December
31, 1998. The discussion below does not include a complete discussion of the
1997 Final Regulations, and prospective Non-U.S. Shareholders are urged to
consult their tax advisors concerning the tax consequences of their investment
in light of the 1997 Final Regulations.
In general, a Non-U.S. Shareholder will be subject to regular United States
income tax with respect to its investment in Paired Shares if such investment is
"effectively connected" with the Non-U.S. Shareholder's 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 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.
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Distributions in excess of current or accumulated earnings and profits of
the Trust or the Corporation, as the case may be, will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the Non-U.S. Shareholder's Trust Shares or Corporation Shares, as the case may
be, but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Trust
Shares or Corporation Shares, as the case may be, they will give rise to gain
from the sale or exchange of Non-U.S. Shareholder's Paired Shares if the
Non-U.S. Shareholder otherwise would be subject to tax on any gain from the sale
or other disposition of Paired Shares, as described below. Distributions to
Non-U.S. Shareholders that reduce the adjusted basis of Trust Shares or
Corporation Shares and distributions to Non-U.S. Shareholders that exceed the
adjusted basis of Trust Shares or Corporation Shares will ordinarily be subject
to a withholding tax on a gross basis at a 10% rate, regardless of whether such
distributions result in gain to the Non-U.S. Shareholder. The Trust or the
Corporation, as the case may be, 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 Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or other disposition of Paired Shares generally will not be subject to
United States federal income tax, if (i) in the case of Trust Shares, the Trust
is a "domestically controlled REIT" or (ii) (A) the Paired Shares are regularly
traded on an established securities market (e.g., the NYSE, where the Paired
Shares are currently traded) and (B) the selling Non-U.S. Shareholder held 5% or
less of the outstanding Paired Shares at all times during the specified period,
unless, in the case of a Non-U.S. Shareholder who is a non-resident alien
individual, such individual is present in the United States for 183 days or more
and certain other conditions apply. A domestically controlled REIT is defined
generally as a REIT in which at all times during a specified testing period less
than 50% in value of the stock was held directly or indirectly by foreign
persons. The Trust believes that it qualifies as a domestically controlled REIT.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under certain circumstances, U.S. Shareholders 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 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
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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 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 Shares. See "-- Federal Income Taxation of the Corporation"
above. In addition, if the Realty Partnership or any Realty Subsidiary Entity
were to be taxable as a corporation, the Trust would not qualify as a REIT.
Furthermore, any change in the status of a partnership or limited liability
company for tax purposes might be treated as a taxable event in which case the
Trust or the Corporation might incur a tax liability without any related cash
distributions.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Realty Partnership, the Operating Partnership and
certain of the Realty Subsidiary Entities and the Operating Subsidiary Entities
have been formed by way of contributions of Starwood Lodging's property and
certain property held by other parties (including affiliates of Starwood
Capital) and property has been contributed to certain of such entities.
Consequently, allocations with respect to such contributed property must be made
in a manner consistent with Section 704(c) of the Code.
The Treasury Regulations under Section 704(c) of the Code allow
partnerships to use any reasonable method of accounting for Book-Tax Differences
so that the contributing partner receives the tax benefits and burdens of any
built-in gain or loss associated with the contributed property. However, the
special allocation rules of Section 704(c) of the Code do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Realty Partnership or the Operating
Partnership or a lower-tier entity may cause the Trust or the Corporation, as
the case may be, to be allocated lower depreciation and other deductions, and
possibly an amount of taxable income in the event of a sale of such contributed
assets in excess of the economic or book income allocated to it as a result of
such sale. This may cause the Trust or the Corporation to recognize taxable
income in excess of cash proceeds, which, in the case of the Trust, might
adversely affect the Trust's ability to comply with the REIT distribution
requirements. See "-- Federal Income Taxation of the Trust -- Requirements For
Qualification -- Annual Distribution Requirements" above. The foregoing
principles also apply in determining the earnings and profits of the Trust and
the
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Corporation for purposes of determining the portion of distributions taxable as
dividend income. See "-- Federal Income Taxation of Holders of Paired Shares"
above. The application of these rules over time may result in a higher portion
of distributions being taxed as dividends than would have occurred had the Trust
and the Corporation contributed assets with an adjusted tax basis equal to their
fair market values.
PARTNERSHIP ANTI-ABUSE RULE
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is formed
or availed of in connection with a transaction a principal purpose of which is
to reduce substantially the present value of the partners' aggregate federal tax
liability in a manner that is inconsistent with the intent of the Partnership
Provisions, the IRS can recast the transaction for federal tax purposes to
achieve tax results that are consistent with the intent of the Partnership
Provisions. This analysis is to be made based on all facts and circumstances.
The Anti-Abuse Rule states that the intent of the Partnership Provisions
incorporates the following requirements: (i) the partnership must be bona fide
and each partnership transaction or series of related transactions must be
entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
Sidley & Austin is of the opinion that Starwood Lodging'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 Starwood Lodging for federal income tax purposes. This opinion is 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 asset tests. Therefore, the Anti-Abuse Rule should not have a
material adverse effect on the federal income tax consequences to any partner or
on the ability of the Trust to qualify as a REIT.
OTHER TAX CONSEQUENCES
Starwood Lodging and its shareholders and stockholders may be subject to
state, 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 Starwood Lodging and its shareholders and stockholders may not
conform to the federal income tax consequences discussed above. CONSEQUENTLY,
SHAREHOLDERS AND STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING
THE EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS ON THE MERGER AND ON THE
PURCHASE, OWNERSHIP AND SALE OF PAIRED SHARES.
AMENDMENTS TO THE DECLARATION OF TRUST OF THE TRUST
AND THE ARTICLES OF INCORPORATION OF THE CORPORATION
The Trust Board approved and declared advisable the Trust Amendment and
directed that the Trust Amendment be submitted to shareholders of the Trust at
the Trust Meeting. As described below, the Trust Amendment would (i) increase
the number of authorized shares of beneficial interest of the Trust, (ii) change
the name of the Trust to "Starwood Hotels & Resorts" and (iii) provide that in
certain
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circumstances when the Corporation redeems certain of its securities, the Trust
shall simultaneously redeem any of its securities that are paired with such
securities of the Corporation.
The Corporation Board approved and declared advisable the Corporation
Amendment and directed that the Corporation Amendment be submitted to
stockholders of the Corporation at the Corporation Meeting. As described below,
the Corporation Amendment would (i) increase the number of authorized shares of
stock of the Corporation and (ii) include a provision in the Corporation
Articles to allow the Corporation to secure and maintain in good standing
licenses, franchises and other regulatory approvals necessary to operate gaming
businesses.
AUTHORIZED SHARE AMENDMENTS
CURRENT PROVISIONS. The Trust Declaration currently authorizes the Trust
to issue 305 million shares of beneficial interests in the Trust, including (i)
200 million Trust Shares, (ii) 40 million Excess Trust Shares and (iii) 10
million Excess Trust Preferred Shares. The Trust Declaration grants to the
Trustees the power to create and authorize the issuance of shares of beneficial
interest in one or more additional classes or series ("Trust Preferred Shares")
having such voting rights, such rights to dividends and distributions and rights
in liquidation, such conversion, exchange and redemption rights, and such
designations, preferences and participations and other limitations or
restrictions as are not prohibited by the Trust Declaration or applicable law
and as are specified by the Trustees in their discretion.
The Corporation Articles currently provide that the authorized capital
stock of the Corporation consist of 305 million shares, consisting of (i) 200
million Corporation Shares, (ii) 40 million shares of Excess Common Stock, (iii)
10 million shares of Excess Preferred Stock and (iv) 55 million shares of
Preferred Stock.
As of January 2, 1998, after the closing of the acquisition of Westin,
51,345,930 Trust Shares were issued and outstanding and 33,863,570 Trust Shares
were reserved for issuance and 11,788,514 Trust Preferred Shares were issued and
outstanding. No Excess Trust Shares or Excess Trust Preferred Shares were issued
and outstanding or reserved for issuance. As of such date, 51,345,930
Corporation Shares were issued and outstanding and 33,863,570 Corporation Shares
were reserved for issuance and no shares of Excess Common Stock, Excess
Preferred Stock or Preferred Stock of the Corporation were issued or outstanding
or reserved for issuance.
It is currently anticipated that approximately 150 million Paired Shares
will be issued in connection with the Merger. Accordingly, assuming the
consummation of the Merger, the Trust will have an aggregate of approximately
235 million Trust Shares issued and outstanding or reserved for issuance and the
Corporation will have an aggregate of approximately 235 million Corporation
Shares issued and outstanding or reserved for issuance. Because these amounts
exceed the authorized Trust Shares and Corporation Shares, adoption of the Trust
Amendment and the Corporation Amendment is necessary in order to permit the
Trust and the Corporation to effect the Merger.
PROPOSED AMENDMENTS. The Trust Authorized Share Amendment provides that
the Trust may issue 1.35 billion shares of beneficial interests in the Trust,
consisting of (i) one billion Trust Shares, (ii) 200 million Excess Trust
Shares, (iii) 100 million Trust Preferred Shares and (iv) 50 million Excess
Trust Preferred Shares. The Trustees would continue to have the power to create
or authorize Trust Preferred Shares, as described above. If the shareholders of
the Trust approve the Trust Amendment, Section 6.1 of the Trust Declaration will
be amended to read in its entirety as follows:
"6.1. Shares. The units into which the beneficial interests in the
Trust will be divided shall be designated as Shares consisting of (a)
1,000,000,000 Trust Shares with a par value of $0.01 per share and having
equal dividend, distribution, liquidation and other rights but without
preference, pre-emptive, appraisal, conversion or exchange rights of any
kind, (b) 200,000,000 Excess Trust Shares with a par value of $0.01 per
share and having the rights provided in Article VI hereof, (c) 100 million
Trust Preferred Shares with a par value of $0.01 per share and having the
rights provided in Article VI hereof and (d) 50,000,000 Excess Preferred
Shares with a par value of $0.01 per share and having the rights provided
in Article VI hereof; provided, however, that the Trustees may, in their
discretion, create and
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authorize the issuance of Shares of one or more additional classes, or one
or more series within any such class, with or without par value, having
such voting rights, such rights to dividends, distributions and in
liquidation, such conversion, exchange and redemption rights, and such
designations, preferences, participation, and other limitations or
restrictions, as shall not be prohibited by this Declaration or the Real
Estate Investment Trust provisions of the Internal Revenue Code or the laws
of the State of Maryland and as shall be specified by the Board of Trustees
in their discretion in a resolution or resolutions duly adopted by the
Board of Trustees and filed and accepted for record with the State
Department of Assessments and Taxation of Maryland. As used herein, the
term "Shares" shall mean and include (i) the Trust Shares, Excess Trust
Shares, Trust Preferred Shares and Excess Preferred Shares, and (ii) from
and after the issuance of Shares of any other and additional classes of
Shares so created and authorized by the Trustees, such Shares. The
certificates evidencing the Shares shall be in such form and signed
(manually or by facsimile) on behalf of the Trust in such manner as the
Trustees may from time to time prescribe or as may be prescribed in the
Trustees' Regulations. The certificates shall be negotiable and title
thereto and to the Shares evidenced thereby shall be transferred by
assignment and delivery thereof to the same extent and in all respects as a
share certificate of a Maryland corporation. The Shares may be issued for
such consideration as the Trustees shall determine or by way of share
dividend or share split in the discretion of the Trustees. Shares
reacquired by the Trust shall no longer be deemed outstanding and shall
have no voting or other rights unless and until reissued. Shares reacquired
by the Trust may be cancelled and restored to the status of authorized and
unissued Shares by action of the Trustees. All Shares shall be fully paid
and non-assessable by or on behalf of the Trust upon receipt of full
consideration for which they have been issued or without additional
consideration if issued by way of share dividend or share split. The Board
of Trustees may authorize the issuance from time to time of shares of
beneficial interest of the Trust of any class or series, whether now or
hereafter authorized, or securities or rights convertible into shares of
beneficial interest of any class or series, whether now or hereafter
authorized, for such consideration (whether in cash, property, past or
future services, obligation for future payment or otherwise) as the Board
of Trustees may deem advisable (or without consideration in the case of a
share split, share dividend or contribution), subject to such restrictions
or limitations, if any, as may be set forth in this Declaration or the
Trustees' Regulations."
The Corporation Authorized Share Amendment provides that the authorized
stock of the Corporation consists of 1.35 billion shares, consisting of (i) one
billion Corporation Shares, (ii) 50 million shares of Excess Common Stock, (iii)
100 million shares of Excess Preferred Stock and (iv) 200 million shares of
Preferred Stock. If the stockholders of the Corporation approve the Corporation
Amendment, Article FIFTH of the Corporation Articles will be amended to read in
its entirety as follows:
"FIFTH: The total number of shares of stock which the Corporation has
authority to issue is one billion three hundred and fifty million
(1,350,000,000) shares, consisting of (a) one billion (1,000,000,000)
shares of common stock with a par value of $0.01 per share, (b) two hundred
million (200,000,000) shares of preferred stock with a par value of $0.01
per share, (c) fifty million (50,000,000) shares of excess common stock
with a par value of $0.01 per share, and (d) one hundred million
(100,000,000) shares of excess preferred stock with a par value of $0.01
per share. The preferred stock may be issued in such series and with such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications, and
terms and conditions of redemption, if any, as may be fixed by the Board of
Directors. The excess common stock and the excess preferred stock shall
have the rights provided in the NINTH Article hereof. The aggregate par
value of all shares of stock which the Corporation has authority to issue
is thirteen million five hundred thousand Dollars ($13,500,000). The Board
of Directors may authorize the issuance from time to time of shares of
stock of the Corporation of any class or series, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of
any class or series, whether now or hereafter authorized, for such
consideration (whether in cash, property, past or future services,
obligation for future payment or otherwise) as the Board of Directors may
deem advisable (or without consideration in the case of a stock split or
stock dividend), subject to such restrictions or limitations, if any, as
may be set forth in the charter or the Bylaws."
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<PAGE> 131
PURPOSE AND EFFECT OF PROPOSED AMENDMENTS TO INCREASE AUTHORIZED
SHARES. The purpose of the proposed increases in the number of authorized
shares of the Trust and the Corporation is to provide for sufficient authorized
shares to consummate the Merger and to ensure that additional Trust Shares and
Corporation Shares will be available, if and when needed, for issuance from time
to time for any proper purpose approved by the respective Starwood Boards,
including issuances to raise capital or effect acquisitions, and for other
corporate purposes. Although there are no present arrangements, agreements or
understandings for the issuance of additional Trust Shares or Corporation Shares
(other than the shares previously reserved for issuance as described above, and
the shares to be issued pursuant to the Merger and in connection with
acquisitions in the ordinary course of business), the Trust Board and the
Corporation Board each believe that the availability of the additional
authorized shares for issuance upon approval of the respective Starwood Board
without the necessity for, or the delay inherent in, a meeting of the
shareholders of the Trust and the stockholders of the Corporation will be
beneficial to the Trust and its shareholders and the Corporation and its
stockholders by providing the Trust and the Corporation with the flexibility
required to promptly consider and respond to future business opportunities and
needs as they arise.
If the proposed amendments are approved by the shareholders of the Trust
and the stockholders of the Corporation, the respective Starwood Boards do not
presently intend to seek further shareholder or stockholder approval with
respect to any particular issuance of shares, unless required by applicable law,
by regulatory authorities, or by the policies, rules and regulations of the NYSE
or such other stock exchange on which the securities of the Trust or the
Corporation may then be listed.
Shareholders of the Trust and stockholders of the Corporation do not have
any preemptive or similar rights to subscribe for or purchase any additional
shares that may be issued in the future and, therefore, future issuances,
depending upon the circumstances, may have a dilutive effect on the earnings per
share, book value per share, voting power and other interests of the existing
stockholders and shareholders.
The proposed increase in the authorized number of shares could have an
antitakeover effect, although that is not its purpose. For example, if the Trust
and the Corporation were the subject of a hostile takeover attempt, they could
try to impede the takeover by issuing Trust Shares or Corporation Shares,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost of the takeover. The availability of this defensive strategy
could delay, defer or prevent a change in control, thereby limiting the
opportunity for the shareholders and stockholders to realize a higher price for
their shares than might otherwise be available in the public markets. The Trust
Board and the Corporation Board are not aware of any attempt, or contemplated
attempt, to acquire control of the Trust or the Corporation, and this proposal
is not being presented for the purpose of creating an antitakeover device.
GAMING PROVISIONS
PROPOSED AMENDMENT TO CORPORATION ARTICLES. The Corporation Gaming
Provision Amendment would enable the Corporation to secure and maintain in good
standing all licenses, franchises and other regulatory approvals issued by
Gaming Authorities (as hereinafter defined) which are necessary for the lawful
operation of gaming and related businesses. The New Jersey Act requires a
publicly traded holding company of a gaming licensee to have certain language in
its corporate charter. The corporate charter must contain language to the effect
that securities of such a corporation are held subject to the condition that if
a holder is found to be disqualified by the New Jersey Commission, such holder
shall dispose of its interest in the corporation, as reflected in new Article
NINETEENTH, the full text of which is set forth as Annex D to this Joint Proxy
Statement/Prospectus. The following discussion of Article NINETEENTH does not
purport to be complete and is qualified in its entirety by reference to Article
NINETEENTH of Annex D attached hereto.
Article NINETEENTH, in general, provides that securities of the Corporation
shall be subject to redemption by the Corporation, pursuant to Section 78.196 of
the Nevada Revised Statutes or any other applicable provision of law, to the
extent necessary to prevent the loss or to secure the reinstatement of any
gaming license held by the Corporation or any of its subsidiaries.
Article NINETEENTH also provides that securities of the Corporation shall
be held subject to the condition that if a holder thereof is found by a Gaming
Authority to be disqualified or unsuitable pursuant to
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<PAGE> 132
any law or regulation governing the conduct of gaming and related businesses (a
"Disqualified Holder"), such holder shall dispose of all of the Corporation's
securities held by such holder within the 120 day period or such other period of
time imposed by an order of a Gaming Authority commencing with the date (the
"Notice Date") upon which the Corporation shall have received notice from a
Gaming Authority of such holder's disqualification.
If any Disqualified Holder fails to dispose of the Corporation's securities
within the 120-day period or such other period of time imposed by an order of a
Gaming Authority, the Corporation would also have the right to redeem such
securities (and the Trust would simultaneously redeem any securities of the
Trust that are paired with such securities of the Corporation pursuant to the
Pairing Agreement) at the lesser of (1) the lowest closing sale price of such
securities on any trading day during such 120-day or other period or (2) such
Disqualified Holder's original purchase price.
Article NINETEENTH also provides that commencing on the Notice Date, it
shall be unlawful for a Disqualified Holder to receive payments of dividends or
interest upon any securities of the Corporation held by such Disqualified
Holder, exercise, directly or indirectly, any right conferred by the
Corporation's securities upon the holders thereof, or receive any remuneration
in any form, for services rendered or otherwise from the subsidiary of the
Corporation that holds a gaming license.
Pursuant to Article NINETEENTH, the Corporation shall be entitled to
injunctive relief to enforce the provisions of such Article and a Disqualified
Holder must indemnify the Corporation and its subsidiaries for any and all
direct or indirect costs (including attorneys' fees) incurred by the Corporation
as a result of such holder's continuing ownership of or failure to divest of
securities of the Corporation.
For purposes of this section, the term "Gaming Authorities" includes all
governmental authorities within or without the United States which issue or
grant any license, franchise or regulatory approval necessary or appropriate for
the lawful operation of gaming and related businesses. With respect to the State
of Nevada, the term "Gaming Authorities" shall include, without limitation, the
Nevada Commission, the Nevada Board or their respective successors; and with
respect to New Jersey, the term "Gaming Authorities" shall include, without
limitation, the New Jersey Commission, the Division of Gaming Enforcement or
their respective successors.
PROPOSED AMENDMENT TO DECLARATION OF TRUST. The Trust Redemption Amendment
provides that in the event the Corporation redeems any securities of the
Corporation pursuant to Article NINETEENTH of the Corporation Articles, the
Trust shall simultaneously redeem any shares of beneficial interest of the Trust
that are paired with such securities of the Corporation pursuant to the Pairing
Agreement. If the shareholders of the Trust approve the Trust Redemption
Amendment, a new Section 6.16 would be added to the Trust Declaration reading in
its entirety as follows:
"6.16 Redemption. In the event that the Corporation shall redeem any
shares of its capital stock pursuant to Article NINETEENTH of the Articles
of Incorporation of the Corporation and such shares are subject to the
limitation on transfer provided for in the Pairing Agreement, the Trust
shall simultaneously redeem, upon the terms of such Article NINETEENTH, any
Shares that are paired with such shares of the Corporation's capital stock
pursuant to the Pairing Agreement."
AMENDMENT TO CHANGE NAME OF TRUST
In connection with the Westin Acquisition, the shareholders of the Trust
approved an amendment to the Trust Declaration to change the name of the Trust
to Starwood Hotels & Resorts Trust. The Trust Name Change Proposal would change
the name of the Trust to "Starwood Hotels & Resorts." If approved by the
shareholders of the Trust, Section 1.1 of the Declaration of Trust would be
amended to read in its entirety as follows:
"1.1 Name. The name of the Trust shall be "Starwood Hotels & Resorts."
As far as practicable and except as otherwise provided in this Declaration,
the Trustees shall conduct the Trust's activities, execute all documents,
and sue or be sued in the name of Starwood Hotels & Resorts, or in their
names as Trustees of Starwood Hotels & Resorts."
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<PAGE> 133
VOTES REQUIRED FOR APPROVAL
Approval of each of the Trust Authorized Share Amendment, the Trust
Redemption Amendment and the Trust Name Change Proposal requires the affirmative
vote of the holders of a majority of the votes entitled to be cast by the
holders of outstanding Trust Shares entitled to vote on the matter at the Trust
Meeting. Approval of each of the Corporation Authorized Share Amendment and the
Corporation Gaming Provision Amendment requires the affirmative vote of the
holders of a majority of the outstanding Corporation Shares entitled to vote on
the matter at the Corporation Meeting. Consequently, shares which are voted to
abstain from voting on the approval of the Trust Amendment or the Corporation
Amendment and shares which are not voted with respect to such approval
(including broker non-votes) will have the effect of votes against such
approval.
THE TRUST BOARD RECOMMENDS THAT SHAREHOLDERS OF THE TRUST VOTE FOR APPROVAL
OF EACH OF THE TRUST AUTHORIZED SHARE AMENDMENT, THE TRUST REDEMPTION AMENDMENT
AND THE TRUST NAME CHANGE PROPOSAL. THE CORPORATION BOARD RECOMMENDS THAT
STOCKHOLDERS OF THE CORPORATION VOTE FOR APPROVAL OF EACH OF THE CORPORATION
AUTHORIZED SHARE AMENDMENT AND THE CORPORATION GAMING PROVISION AMENDMENT.
APPROVAL OF EACH OF THE TRUST AUTHORIZED SHARE AMENDMENT, THE TRUST
REDEMPTION AMENDMENT, THE CORPORATION AUTHORIZED SHARE AMENDMENT AND THE
CORPORATION GAMING PROVISION AMENDMENT IS NECESSARY IN ORDER TO CONSUMMATE THE
MERGER. IF ANY OF SUCH PROPOSED AMENDMENTS IS NOT APPROVED BY THE SHAREHOLDERS
OF THE TRUST AND THE STOCKHOLDERS OF THE CORPORATION, AS THE CASE MAY BE, THE
TRUST AND THE CORPORATION DO NOT EXPECT TO CONSUMMATE THE MERGER.
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<PAGE> 134
OWNERSHIP OF PAIRED SHARES
The following table sets forth information as of January 20, 1998,
regarding the beneficial ownership of Paired Shares by (i) each person known by
the Trust and the Corporation to be the beneficial owner of more than five
percent of the Paired Shares, (ii) each director and executive officer of the
Corporation and (iii) each Trustee and executive officer of the Trust. Each
beneficial owner has sole voting and investment power with respect to all Paired
Shares beneficially owned, except as otherwise set forth in the notes to the
table.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT OF CLASS(1)
- ------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
FMR Corp........................................................... 5,103,683(2) 9.9%(2)
Starwood Capital Group, L.L.C., its affiliated entities and Barry
S. Sternlicht.................................................... 4,464,863(3) 8.0%(3)
The Prudential Insurance Company of America, its affiliated
entities and Roger S. Pratt...................................... 4,464,863(4) 8.0%(4)
Goldman Sachs & Co., The Goldman Sachs Group, L.P., their
affiliated entities, Stuart M. Rothenberg and Barry S. Volpert... 2,954,863(5) 5.5%
Ziff Investment Management, L.L.C., Ziff Investor Partnership L.P.
II, their affiliated entities and Daniel H. Stern................ 2,307,829(6) 4.3%
Gary M. Mendell.................................................... 735,612(7) 1.4%
Juergen Bartels.................................................... 429,478(8) (9)
Eric A. Danziger................................................... 162,722(10) (9)
Madison F. Grose................................................... 142,284(11) (9)
Steven R. Goldman.................................................. 129,615(12) (9)
Ronald C. Brown.................................................... 94,999(13) (9)
Jonathan D. Eilian................................................. 83,000(14) (9)
Theodore W. Darnall................................................ 70,283(15) (9)
Earle F. Jones..................................................... 32,178(16) (9)
Daniel W. Yih...................................................... 30,611(17) (9)
Stephen R. Quazzo.................................................. 29,627(18) (9)
Bruce W. Duncan.................................................... 27,999(19) (9)
Graeme W. Henderson................................................ 25,072(20) (9)
Jean-Marc Chapus................................................... 24,680(21) (9)
Bruce M. Ford...................................................... 24,332(22) (9)
Michael A. Leven................................................... 23,180(23) (9)
Alan M. Schnaid.................................................... 5,500(24) (9)
George J. Mitchell................................................. 2,910(25) (9)
Trustees, Directors and Officers as a Group........................ 16,266,501(26) 26.0%(26)
</TABLE>
- -------------------------
(1) Based on the number of Paired Shares outstanding on January 20, 1998.
(2) The business address of FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109. Based on information contained in Schedule 13F-E dated
February 11, 1997, and additional information provided to Starwood Hotels &
Resorts, FMR Corp. holds 5,103,683 Paired Shares on behalf of various
distinct entities. Based on additional information provided to Starwood
Lodging, no one of such entities, directly or by attribution, holds in
excess of 8.0% of the outstanding Paired Shares.
(3) The business address for Starwood Capital Group, L.L.C., and Mr. Sternlicht
is Three Pickwick Plaza, Suite 250, Greenwich, Connecticut 06830. Based on
information in Amendment No. 2 to Schedule 13D dated December 31, 1996,
filed by Starwood Capital Group, L.L.C., Barry S. Sternlicht, BSS Capital
Partners, L.P., Sternlicht Holdings II, Inc., Harveywood Hotel Investors,
L.P., Starwood Hotel Investors II-L.P., Starwood Opportunity Fund II, L.P.
and Firebird Consolidated Partners, L.P. (collectively, the "Starwood
Partners"), and additional information provided to Starwood Lodging, Mr.
Sternlicht beneficially owns, directly or through entities controlled by
him, 338,182 Paired Shares, some of which are subject to Restricted Stock
Awards, and has either sole or shared power to vote and dispose of such
Paired Shares. Mr. Sternlicht also beneficially owns 794,001 Paired Shares
subject to presently exercisable options. Mr. Sternlicht holds, directly or
through trusts created by him for the
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<PAGE> 135
benefit of members of his family, units in the Realty Partnership and the
Operating Partnership which are, subject to the 8.0% Paired Share ownership
limit, exchangeable for an aggregate of 508,120 Paired Shares. Starwood
Partners hold units in the Realty Partnership and the Operating Partnership
which are, subject to the 8.0% Paired Share ownership limit, exchangeable
for an aggregate of 3,102,492 Paired Shares. Such Amendment No. 2 to
Schedule 13D reports that because of the 8.0% ownership limit, the Starwood
Partners cannot beneficially own more than 8.0% of the outstanding Paired
Shares. The amount beneficially owned and the percent of class calculated
assumes that Starwood Capital Group, L.L.C., its affiliated entities and
Barry Sternlicht exchange units for Paired Shares to the maximum extent
permitted within the ownership limit provision; provided, however, that
prior to receipt of any required Gaming Approval, Starwood Capital's
ownership of Paired Shares may not exceed 4.9% of the outstanding Paired
Shares.
(4) The business address for The Prudential Insurance Company of America
("Prudential") is 751 Broad Street, Newark, New Jersey 17102. Based on
information in Schedule 13D dated February 14, 1997, filed by Prudential
and additional information provided to Starwood Lodging, Prudential has
sole voting and dispositive power over 2,775,680 Paired Shares beneficially
owned by Prudential on behalf of Prudential Property Investment Separate
Account II ("PRISA II") and sole voting and dispositive power over 4,500
Paired Shares beneficially owned by Prudential on behalf of Prudential
Diversified Investment Strategies. Prudential also has sole voting and
dispositive power over units in the Realty Partnership and the Operating
Partnership beneficially owned by Prudential on behalf of PRISA II which
are, subject to the 8.0% Paired Share ownership limit, exchangeable for an
aggregate of 1,754,037 Paired Shares. By virtue of his investment control
over PRISA II, Roger Pratt has an indirect pecuniary interest in these
units and Paired Shares. The amount beneficially owned and the percent of
class calculated assumes that Prudential, its affiliated entities and Roger
Pratt exchange units for Paired Shares to the maximum extent permitted
within the ownership limit provision. Mr. Pratt beneficially owns 4,500
Paired Shares subject to presently exercisable options. The business
address for Mr. Pratt is 8 Campus Drive, 4th Floor, Parsippany, New Jersey
07054.
(5) The business address for Goldman Sachs & Co., The Goldman Sachs Group,
L.P., their affiliated entities, Stuart M. Rothenberg and Barry S. Volpert
is 85 Broad Street, New York, New York 10004. Based on information in
Schedule 13D, dated January 2, 1998, filed by WHWE L.L.C. ("WHWE"),
Whitehall Street Real Estate Limited Partnership V ("Whitehall"), WH
Advisors, L.P. V ("WH Advisors"), GS Capital Partners, L.P. ("GS Capital"),
GS Advisors, L.P. ("GS Advisors"), Goldman, Sachs & Co. ("GS&Co") and The
Goldman Sachs Group, L.P. ("GS Group," and, together with WHWE, Whitehall,
WH Advisors, GS Capital, GS Advisors and GS&Co, "Goldman" ), and assuming
the full exchange of all of Goldman's Class A Exchangeable Preferred Shares
of the Trust, Class B Exchangeable Preferred Shares of the Trust (which are
not exchangeable until January 2, 1999) and units in the Realty Partnership
and the Operating Partnership, WHWE beneficially owns 2,320,215 Paired
Shares, GS Capital beneficially owns 1,862,226 Paired Shares, and GS Group
and GS&Co may be deemed to own, in addition to the Paired Shares
beneficially owned by WHWE and GS Capital, 200,455 Paired Shares
beneficially owned by certain investment limited partnerships affiliated
with GS&Co and GS Group and 576,380 Paired Shares held in client accounts
with respect to which GS&Co or employees of GS&Co have voting or investment
discretion, or both. Each of Stuart Rothenberg and Barry Volpert is a
Managing Director of GS&Co and an officer of the general partners of GS
Group; in such capacities, Mr. Rothenberg and Mr. Volpert may be deemed to
beneficially own the Paired Shares beneficially owned by GS&Co and GS
Group. Mr. Rothenberg, a Trustee of the Trust, beneficially owns 2,219
Paired Shares subject to presently exercisable options and Mr. Volpert, a
Director of the Corporation, beneficially owns 2,219 Paired Shares subject
to presently exercisable options.
(6) The business address for Ziff Investment Management, L.L.C., Ziff Investor
Partnership L.P. II, their affiliated entities and Daniel H. Stern is 153
East 53rd Street, 43rd Floor, New York, New York 10022. Based on
information in Schedule 13D, dated January 10, 1997, filed by Ziff
Investment Management, L.L.C. ("ZIM"), and Ziff Investors Partnership, L.P.
II ("ZIPII"), and additional information provided to Starwood Lodging,
25,087 Paired Shares are held by SIV Holdings, L.L.C. ("SIV"), a
127
<PAGE> 136
Delaware limited liability company owned by ZIPII and ZIM. SIV has sole
voting and dispositive power with respect to these Paired Shares. ZIPII
holds units in the Realty Partnership and the Operating Partnership which
are exchangeable for an aggregate of 2,259,732 Paired Shares. Such Schedule
13D reports that DHS Holdings L.L.C. ("DHS"), the investment general
partner of ZIPII, may be deemed to control ZIPII, and that Daniel H. Stern,
a director of the Corporation, is the majority owner of DHS. Mr. Stern
beneficially owns 680 Paired Shares and 22,500 Paired Shares subject to
presently exercisable Paired Options.
(7) Includes 100,000 Paired Shares subject to presently exercisable options;
also includes 36,078 units in the Realty Partnership and the Operating
Partnership held by Mr. Mendell directly and 505,778 units in the Realty
Partnership and the Operating Partnership held by a trust of which Mr.
Mendell is settlor and over which he exercises some investment control, and
93,756 units of SLC Operating Limited Partnership, all of which are
exchangeable for Paired Shares.
(8) Includes 2,219 Paired Shares subject to presently exercisable options and
427,259 shares of Class A Exchangeable Preferred Shares of the Trust which
are exchangeable for Paired Shares.
(9) Less than 1%.
(10) Includes 100,222 Paired Shares subject to a Restricted Stock Award and
62,500 Paired Shares subject to presently exercisable Paired Options.
(11) Includes 15,000 Paired Shares subject to a Restricted Stock Award, 80,000
Paired Shares subject to presently exercisable options and units in the
Realty Partnership and the Operating Partnership which are exchangeable for
43,004 Paired Shares.
(12) Includes 37,500 Paired Shares subject to a Restricted Stock Award, 66,499
Paired Shares subject to presently exercisable options and units in the
Realty Partnership and the Operating Partnership which are exchangeable for
22,616 Paired Shares.
(13) Includes 22,500 Paired Shares subject to a Restricted Stock Award and
64,846 Paired Shares subject to presently exercisable options.
(14) Includes 80,000 Paired Shares subject to presently exercisable options.
(15) Includes 45,283 Paired Shares subject to a Restricted Stock Award and
24,999 Paired Shares subject to presently exercisable options.
(16) Includes 13,500 Paired Shares subject to presently exercisable options.
(17) Includes 22,500 Paired Shares subject to presently exercisable options and
5,000 Paired Shares held by a partnership of which Mr. Yih is a general
partner.
(18) Includes 22,500 Paired Shares subject to presently exercisable options,
5,680 Paired Shares held by a trust of which Mr. Quazzo is settlor and over
which he exercises shared investment control and 397 Paired Shares owned by
Mr. Quazzo's wife.
(19) Includes 22,500 Paired Shares subject to presently exercisable options.
(20) Includes 22,500 Paired Shares subject to presently exercisable options.
(21) Includes 22,500 Paired Shares subject to presently exercisable options.
(22) Includes 22,500 Paired Shares subject to presently exercisable options and
85 Paired Shares owned by Mr. Ford's wife.
(23) Includes 22,500 Paired Shares subject to presently exercisable options.
(24) Includes 5,500 Paired Shares subject to presently exercisable options.
(25) Includes 2,910 Paired Shares subject to presently exercisable options.
(26) Includes 1,485,912 Paired Shares Paired Shares that may be acquired upon
the exercise of presently exercisable options, 2,606,443 Paired Shares
issuable upon the conversion of the Class A Exchangeable Preferred Shares
of the Trust and 8,520,474 Paired Shares issuable upon exchange of units of
the Realty Partnership and the Operating Partnership, subject to the 8.0%
Paired Share ownership limit (see Notes (3) and (4) above).
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<PAGE> 137
OWNERSHIP OF ITT COMMON STOCK
CERTAIN BENEFICIAL OWNERS
The following table shows the beneficial ownership of persons known to ITT
to be the beneficial owners of more than five percent of the ITT Common Stock as
of the most recent available information.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- --------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Bankers Trust New York Corporation............................. 7,728,083 shares(1) 8.9%
280 Park Avenue
New York, New York 10017
FMR Corp....................................................... 13,166,423 shares(2) 11.32%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(1) A February 14, 1997 Schedule 13G filed with the Commission reflects that
Bankers Trust New York Corporation, through its wholly owned subsidiaries
Bankers Trust Company (as Trustee for various trusts and employee benefit
plans, and as investment advisor) and BT Securities Corporation, and its
indirectly wholly owned subsidiary Bankers Trust International PLC,
beneficially owns 7,728,083 shares of ITT Common Stock. Of these shares,
Bankers Trust Company is deemed to have (i) sole power to vote or to direct
the vote with respect to 7,725,383 shares of ITT Common Stock, (ii) shared
power to vote or to direct the vote with respect to 2,700 shares of ITT
Common Stock, (iii) sole power to dispose or to direct the disposition of
1,990,982 shares of ITT Common Stock and (iv) shared power to dispose or to
direct the disposition of 16,505 shares of ITT Common Stock.
(2) A February 14, 1997 Schedule 13G provided to ITT reflects that FMR Corp.
("FMR") beneficially owns 13,166,423 shares of ITT Common Stock. Of such
reported shares, Fidelity Management & Research Company ("Fidelity"), a
wholly owned subsidiary of FMR and an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, is the beneficial owner
of 12,437,559 shares as a result of acting as investment adviser to several
investment companies registered under Section 8 of the Investment Company
Act of 1940. Edward C. Johnson 3d, the Chairman of FMR, FMR, through its
control of Fidelity, and the Fidelity Funds each has sole power to dispose
of the 12,437,559 shares of ITT Common Stock owned by the Fidelity Funds.
Neither FMR nor Edward C. Johnson 3d, Chairman of FMR, has the sole power to
vote or direct the voting of the shares owned directly by the Fidelity
Funds, which power resides with the Funds' Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines established by
the Funds' Boards of Trustees. Fidelity Management Trust Company ("FMTC"), a
wholly owned subsidiary of FMR, and a bank as defined in Section 3(a)(6) of
the Exchange Act, is the beneficial owner of 725,464 shares of ITT Common
Stock or 0.62% of the ITT Common Stock outstanding as a result of its
serving as investment manager of institutional accounts. Edward C. Johnson
3d and FMR, through its control of FMTC, has sole dispositive power over
725,464 shares and sole power to vote or to direct the voting of 513,264
shares, and no power to vote or to direct the voting of 212,000 shares of
ITT Common Stock owned by certain institutional accounts. Members of the
Edward C. Johnson 3d family and trusts for their benefit are the predominant
owners of Class B shares of common stock of FMR, representing approximately
49% of the voting power of FMR. Mr. Johnson 3d owns 12% and Abigail Johnson
owns 24.5% of the aggregate outstanding voting stock of FMR. Mr. Johnson 3d
is Chairman of FMR and Abigail P. Johnson is a Director of FMR. The Johnson
family group and all other Class B stockholders have entered into a
stockholders' voting agreement under which all Class B shares will be voted
in accordance with the majority vote of Class B shares. Accordingly, through
their ownership of voting common stock and the execution of the
stockholders' voting agreement, members of the Johnson family may be deemed,
under the Investment Company Act of 1940, to form a controlling group with
respect to FMR. The number of shares of ITT Common Stock reported includes
3,400 shares owned directly by Edward C. Johnson 3d or in trusts for the
benefit of Edward C. Johnson 3d or any Edward C. Johnson 3d family member
for which Edward C. Johnson 3d serves as trustee. Edward C. Johnson has sole
voting and dispositive power over 400 shares and shared voting and
dispositive power over 3,000 shares.
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<PAGE> 138
DIRECTORS AND OFFICERS
The following table shows as of December 31, 1997 the beneficial ownership
of shares of ITT Common Stock by each director, by each of the five highest
compensated executive officers, and by the directors and executive officers as a
group.
<TABLE>
<CAPTION>
AMOUNT OF NATURE PERCENT
OF BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ----------------------------------------------------------------- ---------------- -------
<S> <C> <C>
Bette B. Anderson................................................ 3,444 shares(2) *
Rand V. Araskog.................................................. 2,060,898 shares 1.6%
Nolan Archibald.................................................. 2,444 shares *
Robert A. Bowman................................................. 758,346 shares *
Robert A. Burnett................................................ 3,614 shares *
Paul G. Kirk, Jr. ............................................... 2,454 shares *
Edward C. Meyer.................................................. 3,944 shares *
Benjamin F. Payton............................................... 1,936 shares *
Vin Weber........................................................ 1,477 shares *
Margita E. White................................................. 3,444 shares *
Kendrick R. Wilson III........................................... 4,377 shares *
Peter G. Boynton................................................. 149,755 shares *
Ann N. Reese..................................................... 334,368 shares *
Daniel P. Weadock................................................ 479,361 shares *
All directors and executive officers as a group(22).............. 5,508,430 shares 4.4%
</TABLE>
- ---------------
* Less than one percent.
(1) All shares are owned directly except as hereinafter otherwise indicated.
Pursuant to regulations of the Commission, shares (i) receivable by
directors and executive officers upon exercise of employee stock options
exercisable within 60 days after December 31, 1997, and (ii) allocated to
the accounts of certain directors and executive officers under the ITT
401(k) Retirement Savings Plan at November 30, 1997, are deemed to be
beneficially owned by such directors and executive officers at said date. Of
the number of shares shown above, (i) the following represent shares that
may be acquired upon exercise of employee stock options for the accounts of:
Mr. Araskog, 1,509,117 common shares; Mr. Bowman, 729,953 common shares; Mr.
Boynton, 143,018 common shares; Ms. Reese, 319,844 common shares; Mr.
Weadock, 405,486 common shares; and all present directors and executive
officers as a group, 4,757,579 common shares; and (ii) the following amounts
were allocated under the ITT 401(k) Retirement Savings Plan to the accounts
of: Mr. Araskog, 20,255 common shares; Mr. Bowman, 2,465 common shares; Mr.
Boynton, 137 common shares; Ms. Reese, 1,348 common shares; Mr. Weadock,
52,796 common shares; and all present directors and executive officers as a
group, 114,659 common shares.
(2) An additional 83 shares of ITT Common Stock are owned by Mrs. Anderson's
husband. Mrs. Anderson disclaims beneficial ownership in such shares.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF ITT AND STOCKHOLDERS AND SHAREHOLDERS OF
STARWOOD LODGING
GENERAL
The Corporation and the Trust are organized under the laws of the State of
Maryland and ITT is incorporated under the laws of the State of Nevada. If the
Merger is consummated, the holders of ITT Common Stock, whose rights as
stockholders are currently governed by the NGCL, the ITT Articles and the ITT
By-laws, will, at the Effective Time, become holders of Paired Shares and their
rights as such will be governed by the MGCL and the Maryland REIT Law, the
Corporation Articles and the Trust Declaration and the Corporation By-laws and
the Trustees' Regulations. The material differences between the rights of
holders of ITT Common Stock and the rights of holders of Paired Shares,
resulting from the differences in their governing documents and the application
of the NGCL or the MGCL and the Maryland REIT Law thereto, are summarized below.
The Maryland REIT Law does not address many issues that are addressed in the
MGCL, e.g., calling of special meetings of shareholders, shareholder quorum and
voting requirements, fixing of record dates, standards for dividends and other
distributions, trustee conflicts of interest and amendment of bylaws. Many of
these matters are addressed in the Trust Declaration and Trustees' Regulations.
The following summary does not purport to be a complete statement of the
rights of holders of Paired Shares under applicable Maryland law, the
Corporation Articles and the Trust Declaration and the Corporation By-laws and
the Trustees' Regulations or a comprehensive comparison with the rights of the
holders of ITT Common Stock under applicable Nevada law, the ITT Articles and
the ITT By-laws, or a complete description of the specific provisions referred
to herein. This summary contains a list of the material differences but is not
meant to be relied upon as an exhaustive list or a detailed description of the
provisions discussed and is qualified in its entirety by reference to the MGCL,
the Maryland REIT Law and the governing corporate instruments of Starwood
Lodging and to the NGCL and the governing corporate instruments of ITT, to all
of which the holders of ITT Common Stock are referred. Copies of such governing
corporate instruments of Starwood Lodging and ITT are available, without charge,
to any person, including any beneficial owner to whom this Joint Proxy
Statement/Prospectus is delivered, by following the instructions listed under
"Incorporation of Certain Documents by Reference."
SPECIAL MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS
STARWOOD LODGING. Under the MGCL, a special meeting of stockholders may be
called by the president, the board of directors or any other person specified in
the corporation's charter or by-laws and must be called upon the written request
of stockholders entitled to cast at least 25% of all the votes entitled to be
cast at the meeting unless the charter or bylaws provide for a greater (but not
more than a majority) or lesser percentage. Under the Corporation By-laws, a
special meeting may be called by the Corporation Board, the President or any two
or more Directors of the Corporation or by the Secretary upon the written
request of the holders of at least a majority of the shares of stock outstanding
and entitled to vote at the meeting. Under the Trustees' Regulations, a special
meeting may be called by the President or by the Trust Board or by any two or
more Trustees or by one or more shareholders holding not less than a majority of
the outstanding Trust Shares.
ITT. Under the NGCL, special stockholder meetings of a corporation may be
called by its board of directors and by any person or persons authorized to do
so by its articles of incorporation or by-laws. Under the ITT By-laws and the
ITT Articles, a special meeting of stockholders may only be called by the
Chairman of the ITT Board or by a vote of a majority of the ITT Board.
STOCKHOLDER ACTION BY WRITTEN CONSENT
STARWOOD LODGING. Under the MGCL, any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting only if (i) a
unanimous written consent setting forth the action and signed by each
stockholder entitled to vote on such matters and (ii) a written waiver of any
right to dissent signed by each stockholder entitled to notice of the meeting
but not entitled to vote at it, are filed with the records of stockholders
meetings. The Maryland REIT Law does not contain any similar provisions. The
Trust Declaration provides that action by shareholders may be taken without a
meeting on written consent signed by
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the holders of a majority of all outstanding shares entitled to vote on the
matter, or such larger proportion thereof as would be required for a vote of
shareholders at a meeting.
ITT. Under the NGCL, unless otherwise provided in the articles of
incorporation, any action which may be taken at an annual or special meeting of
stockholders may be taken without a meeting if written consent thereto is signed
by stockholders holding at least a majority of the voting power. The ITT
Articles provide that stockholders may not act by written consent.
STOCKHOLDER NOMINATIONS AND PROPOSALS FOR BUSINESS
STARWOOD LODGING. The Corporation By-laws and the Trustees' Regulations
establish procedures that must be followed for stockholders or shareholders to
nominate individuals to the Corporation Board, or to the Trust Board,
respectively, or to propose business at an annual meeting of stockholders of the
Corporation or shareholders of the Trust.
In order to nominate individuals to the Corporation Board or to the Trust
Board, a stockholder or shareholder must provide timely notice of such
nomination in writing to the Secretary of the Corporation or the Trust, as
applicable. Such notice in each case must set forth (i) the name and address of
the stockholder or shareholder who intends to make the nomination(s) and of the
person or persons to be nominated; (ii) the class and number of Corporation
Shares or Trust Shares, as applicable, that are held of record, beneficially
owned and represented by proxy by such stockholder or shareholder as of the
record date for the meeting (if such date then shall have been made publicly
available) and as of the date of such notice; (iii) a representation that such
stockholder or shareholder intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (iv) a
description of any contract, arrangement or understanding between such
stockholder or shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder or shareholder; (v) such other information
regarding each nominee proposed by such stockholder or shareholder as would be
required to be disclosed in a proxy statement used in a solicitation of proxies
for the election of directors which solicitation was subject to the rules and
regulations of the Commission under Section 14 of the Exchange Act; and (vi) the
consent of each nominee to serve as a Director of the Corporation or Trustee of
the Trust, as applicable, if so elected.
To be timely, a stockholder or shareholder's notice of a nominee for
Director of the Corporation or Trustee of the Trust must be delivered personally
to the Secretary of the Corporation or the Trust, respectively, or have been
mailed to such Secretary and received, at the principal executive offices of the
Corporation or the Trust, as applicable, not less than 50 days nor more than 75
days prior to the meeting; provided, however, that in the event that less than
60 days' notice or prior public disclosure of the date of meeting is given or
made to stockholders or shareholders, to be timely, notice by the stockholder or
shareholder must be so delivered or received not later than the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever occurs first.
In order to properly propose that an item of business come before the
annual meeting of stockholders of the Corporation or shareholders of the Trust,
a stockholder or shareholder must provide timely notice in writing to the
Secretary of the Corporation or the Trust, respectively, which notice must
include (i) a description of each item of business the stockholder or
shareholder proposes to bring before the meeting and the wording of the
proposal, if any, to be submitted for a vote of the stockholders or shareholders
with respect thereto, (ii) the name and address of the stockholder or
shareholder, (iii) the class and number of Corporation Shares or Trust Shares,
as applicable, held of record, owned beneficially and represented by proxy by
such stockholder or shareholder as of the record date for the meeting (if such
date shall then have been publicly disclosed) and as of the date of such notice
and (iv) all other information that would be required to be included in a proxy
statement filed with the Commission if, with respect to any such item of
business, such stockholder or shareholder were a participant in a solicitation
subject to Section 14 of the Exchange Act.
ITT. The ITT By-laws establish procedures that must be followed for
stockholders to nominate individuals to the ITT Board or to propose business at
the annual meeting of stockholders. The notice of any nomination for election as
a director must set forth the name and address of the person or stockholder who
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intends to make the nomination and of the persons to be nominated; a
representation that the stockholder is a holder of record of stock of ITT
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Commission had each nominee been
nominated, or intended to be nominated, by the ITT Board; and the consent of
each nominee to serve as a director if so elected.
To be timely, notice of business to be brought before an annual meeting of
ITT or nominations of candidates for election as ITT directors at an annual
meeting of ITT must be received by the Secretary of ITT not later than 90 days
in advance of the anniversary date for the immediately preceding annual meeting
of ITT (or not more than 10 days after the first public disclosure of the date
of such annual meeting, whichever is earlier). Similarly, notice of nominations
to be brought before a special meeting must be delivered to the Secretary of ITT
no later than the close of business on the seventh day following the day on
which notice of the date of the special meeting of stockholders is given.
CERTAIN EXTRAORDINARY TRANSACTIONS
STARWOOD LODGING. Under the MGCL, the sale, lease, exchange or transfer of
all or substantially all the assets of a corporation not in the ordinary course
of business conducted by it, as well as any merger, consolidation, share
exchange or voluntary dissolution, requires approval by holders of two-thirds of
the shares of the corporation entitled to vote on such matters, unless the
charter provides for a greater or lesser (but not less than a majority)
percentage. Similarly, the Maryland REIT Law requires approval of two-thirds of
all the votes entitled to be cast on the matter to approve a merger, unless the
declaration of trust provides for a lesser (but not less than a majority)
percentage. The Corporation Articles and the Trust Declaration each require the
affirmative vote of a majority of all votes entitled to be cast on such matters
to approve a merger or the sale of more than 50% of the assets of the Trust or
of substantially all the assets of the Corporation.
ITT. The NGCL generally requires approval of any merger, consolidation or
sale of all the assets of a corporation at a meeting of stockholders by vote of
the holders of a majority of all outstanding shares entitled to vote thereon.
The ITT Articles do not contain any provisions regarding such stockholder
approval.
LIMITATION ON OWNERSHIP OF SHARES OF STOCK AND BENEFICIAL INTEREST
STARWOOD LODGING. Except for the business combination and control share
acquisition provisions of the MGCL (see "-- Business Combinations Involving
Interested Stockholders" and "-- Control Share Acquisitions"), the MGCL does not
restrict the ability of a person or entity to acquire or to offer to acquire any
amount of the outstanding shares of the stock of the Corporation. The
Corporation Articles and the Trust Declaration each provide that as long as the
Trust maintains its REIT status (i) no person shall beneficially own Corporation
Shares or Trust Shares in excess of 8%, by value, vote or number of the
Corporation Shares or Trust Shares, respectively, (ii) any transfer resulting in
beneficial ownership of greater than such 8% value shall be void, ab initio, as
to the Corporation Shares or Trust Shares, as applicable, in excess of such 8%
value, (iii) any transfer resulting in beneficial ownership of Corporation
Shares or Trust Shares by fewer than 100 persons (determined without reference
to any rules of attribution) shall be void, ab initio, and (iv) any transfer
resulting in Corporation Shares or Trust Shares being "closely held" within the
meaning of Section 856(h) of the Code shall be void, ab initio, as to the number
of Corporation Shares or Trust Shares that shall cause the Trust to be "closely
held." The Corporation Board and the Trust Board, upon receipt of a ruling from
the Internal Revenue Service or an opinion of tax counsel, satisfactory to them
in their sole and absolute discretion, in each case to the effect that the
Trust's status as a REIT will not be jeopardized, may exempt a person from the
8% ownership limit if the Corporation Board or Trust Board, as applicable,
obtains such representations and undertakings from such person as are reasonably
necessary to ascertain that such person's beneficial ownership of such shares of
capital stock will not then jeopardize the Trust's status as a REIT. See
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"Description of Starwood Securities -- Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption of Shares" for a description of such
provisions.
ITT. The ITT Articles provide that (i) all securities of ITT are subject
to redemption by ITT to the extent necessary to prevent the loss or to secure
the reinstatement of any casino gaming license held by ITT or any of its
subsidiaries in any jurisdiction within or without the United States of America,
(ii) all securities of ITT are held subject to the condition that if a holder
thereof is found by a gaming authority in any such jurisdiction to be
disqualified or unsuitable pursuant to any gaming law, such holder will be
required to dispose of all ITT securities held by such holder, and (iii) it will
be unlawful for any such disqualified person to (a) receive payments of interest
or dividends on any of ITT securities, (b) exercise, directly or indirectly, any
rights conferred by any of ITT securities or (c) receive any remuneration in any
form, for services rendered or otherwise, from the subsidiary that holds the
gaming license in such jurisdiction.
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
STARWOOD LODGING. Under the MGCL, certain business combinations, including
a merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities, between a
Maryland corporation or a real estate investment trust formed under the Maryland
REIT Law (a "Maryland REIT") and any person who beneficially owns 10% or more of
the voting power of the corporation's shares or shares of beneficial interest of
the Maryland REIT or an affiliate of the corporation or Maryland REIT who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation or shares of beneficial interest of the Maryland
REIT (an "Interested Stockholder") or an affiliate of such an Interested
Stockholder are prohibited for five years after the most recent date on which
the Interested Stockholder becomes an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of the
corporation or the board of trustees of a Maryland REIT and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation or Maryland REIT and (ii)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the corporation or Maryland REIT other than shares held by the
Interested Stockholder(s) with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
or Maryland REIT's common shareholders receive a minimum price (as defined in
the MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation or board
of trustees of the Maryland REIT prior to the time that the Interested
Stockholder becomes an Interested Stockholder. Each of the Trust and the
Corporation has exempted from the business combination provisions of the MGCL
all business combinations involving any person. As a result, any Interested
Stockholder may be able to enter into business combination with the Trust and
the Corporation that may not be in the best interest of the Trust shareholders
or the Corporation stockholders without compliance by the Corporation or the
Trust with the super majority vote requirements of the MGCL.
ITT. The NGCL restricts the ability of a resident domestic corporation to
engage in any combination with an interested stockholder for three years after
the interested stockholder's date of acquiring the shares that cause such
stockholder to become an interested stockholder unless the combination or the
purchase of shares by the interested stockholder on the interested stockholder's
date of acquiring the shares that cause such stockholder to become an interested
stockholder is approved by the board of directors of the resident domestic
corporation before that date. If the combination was not previously approved,
the interested stockholder may effect a combination after the three-year period
only if such stockholder receives approval from a majority of the disinterested
shares or the offer meets certain fair price criteria. For purposes of the
foregoing provisions, "resident domestic corporation" means a Nevada public
corporation that has 200 or more stockholders and "interested stockholder" means
any person, other than the resident domestic corporation or its subsidiaries,
who is (a) the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the outstanding voting shares of the resident domestic
corporation or (b) an affiliate or associate of the resident domestic
corporation and at any time within three years immediately before the date in
question was
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the beneficial owner, directly or indirectly, of 10% or more of the voting power
of the outstanding shares of the resident domestic corporation. The above
provisions do not apply to corporations that so elect in a charter amendment
approved by a majority of the disinterested shares. Such a charter amendment,
however, would not become effective for 18 months after its passage and would
apply only to stock acquisitions occurring after its effective date. The ITT
Articles do not exempt ITT from the restrictions imposed by such provisions of
the NGCL.
CONTROL SHARE ACQUISITIONS
STARWOOD LODGING. The MGCL provides that "control shares" of a Maryland
corporation or Maryland REIT acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock or shares of
beneficial interest owned by the acquiror or by officers or directors or
trustees who are employees of the corporation or the Maryland REIT. "Control
shares" are voting shares of stock or voting shares of beneficial interest
which, if aggregated with all other such shares of stock or shares of beneficial
interest previously acquired by the acquiror, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors or trustees within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third; (ii)
one-third or more but less than a majority; or (iii) a majority of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors or the Maryland REIT's board of trustees to call a special meeting
of shareholders or stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation or Maryland REIT may itself present the question at any shareholders
or stockholders meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as required by the statute, then, subject to certain conditions
and limitations, the corporation or Maryland REIT may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders or stockholders at
which the voting rights of such shares are considered and not approved.
Moreover, unless the charter or by-laws provide otherwise, if voting rights for
control shares are approved at a shareholders or stockholders meeting and the
acquiror becomes entitled to exercise or direct the exercise of a majority or
more of all voting power, all other shareholders or stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation or Maryland REIT is
a party to the transaction, or to acquisitions approved or exempted by the
charter or bylaws of the corporation or the declaration of trust or bylaws of
the Maryland REIT. The Trustees' Regulations of the Trust and the By-laws of the
Corporation have exempted from the MGCL all control share acquisitions involving
any person. There can be no assurance that such provisions will not be amended
or eliminated at any time in the future.
ITT. Under the NGCL, an "acquiring person" who acquires a "controlling
interest" in an "issuing corporation" may not exercise voting rights on any
"control shares" unless such voting rights are conferred by a majority vote of
the disinterested shareholders of the issuing corporation at a special meeting
of such shareholders held upon the request and at the expense of the acquiring
person. In the event that the control shares are accorded full voting rights and
the acquiring person acquires control shares with a majority or more of all the
voting power, any shareholder, other than the acquiring person, who does not
vote in favor of
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authorizing voting rights for the control shares is entitled to demand payment
for the fair value of his or her shares, and the corporation must comply with
the demand. For purposes of the above provisions, "acquiring person" means
(subject to certain exceptions) any person who, individually or in association
with others, acquires or offers to acquire, directly or indirectly, a
controlling interest in an issuing corporation. "Controlling interest" means the
ownership of outstanding voting shares of an issuing corporation sufficient to
enable the acquiring person, individually or in association with others,
directly or indirectly, to exercise (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, (iii) a majority or
more of the voting power of the issuing corporation in the election of
directors, and voting rights must be conferred by a majority of the
disinterested shareholders as each threshold is reached and/or exceeded.
"Control Shares" means those outstanding voting shares of an issuing corporation
which an acquiring person acquires or offers to acquire in an acquisition or
within 90 days immediately preceding the date when the acquiring person became
an acquiring person. "Issuing corporation" means a corporation which is
organized in Nevada, has 200 or more shareholders, at least 100 of whom are
shareholders of record and residents of Nevada, and does business in Nevada
directly or through an affiliated corporation. The above provisions do not apply
if the articles of incorporation or by-laws of the corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person provide that such provisions do not apply. The ITT Articles and the ITT
By-laws do not exclude ITT from the restrictions imposed by such provisions.
REMOVAL OF DIRECTORS OR TRUSTEES
STARWOOD LODGING. The MGCL provides that, unless the charter provides
otherwise, the stockholders of a corporation may remove any director, with or
without cause, by the affirmative vote of a majority of the votes entitled to be
cast for the election of directors. The Corporation Articles provide that a
director may be removed only for cause and only by the affirmative vote of
two-thirds of all the votes entitled to be cast for the election of directors.
The Maryland REIT Law provides that unless the declaration of trust provides
otherwise, the shareholders of a Maryland REIT may remove any trustee, with or
without cause, by the affirmative vote of a majority of all the votes entitled
to be cast for the election of trustees. The Trust Declaration provides that a
trustee may be removed with or without cause by the vote or written consent of
the holders of two-thirds of the outstanding Trust Shares entitled to vote
thereon, or with cause by all remaining Trustees.
ITT. Under the NGCL, directors may be removed from office by a two-thirds
stockholder vote, or by the vote of such larger percentage of shares as may be
provided in the articles of incorporation. A director elected by a voting group,
unless otherwise provided in the articles of incorporation, may only be removed
by a vote of two-thirds of the members of the group or by the vote of such
larger percentage of the group as may be provided in the articles of
incorporation for the removal of directors. The ITT Articles do not contain any
provisions regarding removal of directors.
STANDARDS OF CONDUCT FOR DIRECTORS AND TRUSTEES
STARWOOD LODGING. The MGCL requires a director of a Maryland corporation
to perform his duties as a director in good faith, in a manner he reasonably
believes to be in the best interests of the corporation and with the care that
an ordinarily prudent person in a like position would use under similar
circumstances. The Maryland REIT Law does not contain any similar provision
concerning the standard of conduct for trustees. However, the Trust Declaration
provides that the MGCL standard of conduct for directors and court decisions on
the subject shall be fully applicable to the Trust and its Trustees.
ITT. Under the NGCL, directors generally have full control over the
affairs of the corporation, and they must exercise their powers in good faith
and with a view to the best interests of the corporation. The NGCL allows
directors and officers, in discharging their duties to the corporation and
exercising their respective powers to further the interests of the corporation,
to consider a variety of nonshareholder interests, including, without
limitation, the interests of the corporation's employees, suppliers, creditors
and customers. They can also consider the economy of the state and the nation,
the interests of the community and of society, and the long and short-term
interests of the corporation and its shareholders, including the possibility
that these interests may be best served by the continued independence of the
corporation. Directors may resist a change or potential change in control if the
directors, by a majority vote of a quorum, determine that the change or
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potential change is opposed to or not in the best interest of the corporation.
In so determining, the board of directors may consider the interests described
above or have reasonable grounds to believe that, within a reasonable time, the
debt created as a result of the change in control would cause the assets of the
corporation or any successor to be less than the liabilities or would render the
corporation or any successor insolvent or lead to bankruptcy proceedings.
LIMITATION OF LIABILITY OF DIRECTORS, TRUSTEES AND OFFICERS
STARWOOD LODGING. The MGCL permits a Maryland corporation to include in
its charter a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Corporation
Articles contain such a provision which eliminates such liability to the maximum
extent permitted by the MGCL.
The Maryland REIT Law permits a Maryland REIT to include in its declaration
of trust a provision limiting the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Trust Declaration contains such a
provision which eliminates such liability to the fullest extent permitted by
Maryland law for acts or omissions after June 6, 1988.
The Trust Declaration provides that no Trustee, officer or agent of the
Trust shall be liable or held to any personal liability whatsoever for an
obligation or contract of the Trust. In addition, the Trust Declaration provides
that the provisions of the MGCL which set forth the standard of care required of
directors of corporations organized under the laws of the State of Maryland, and
all other statutory or decisional law which sets forth the standard of care
required of officers, employees and agents for corporations organized under the
laws of the State of Maryland, shall be fully applicable to the Trust, and to
the Trustees, officers, employees and agents of the Trust, as if the Trust were
a corporation organized under the laws of the State of Maryland and its
Trustees, officers, employees and agents were, respectively, directors,
officers, employees and agents of such corporation.
ITT. The NGCL allows a corporation, through its articles of incorporation,
to limit or eliminate the personal liability of directors to the corporation and
its stockholders for damages for breach of fiduciary duty. However, this
provision of the NGCL excludes any limitation on liability for (i) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (ii) the payment of distributions in violation of the NGCL. The ITT
Articles provide that, to the fullest extent permitted by applicable law, no
director or officer shall be personally liable to ITT or its stockholders for
damages for breach of fiduciary duty as a director or officer, except as limited
by the foregoing provisions of the NGCL.
INDEMNIFICATION OF DIRECTORS, TRUSTEES AND OFFICERS
STARWOOD LODGING. The Corporation Articles and the Trust Declaration
provide that the Corporation and the Trust, respectively, shall indemnify, to
the fullest extent permitted by law, all persons who may be indemnified pursuant
to the MGCL and Maryland REIT Law, respectively. The MGCL requires a corporation
(unless its charter provides otherwise, which the Corporation Articles do not)
to indemnify a director 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 Maryland REIT Law permits a Maryland
REIT to indemnify and advance expenses to its trustees and officers to the same
extent permitted by the MGCL for directors and officers of Maryland
corporations. The MGCL permits a corporation to indemnify its present and former
directors 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 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 or
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officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse judgment
in a suit by or in the right of the corporation 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 to advance reasonable expenses to a director or
officer upon the receipt by the corporation of (a) a written affirmation by the
director 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 if it shall ultimately be determined that the standard of conduct
was not met.
Starwood Lodging has entered into indemnification agreements with its
directors, trustees and executive officers providing for the maintenance of
directors, trustees and officers liability insurance, subject to certain
conditions, and the indemnification of and advancement of expenses to such
directors, trustees and executive officers.
ITT. The ITT By-laws provide that ITT shall indemnify, to the fullest
extent permitted by law, all persons who may be indemnified pursuant to the
NGCL. The NGCL generally provides that directors and officers as well as other
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation in a derivative action) if they acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action, suit or proceeding, if
they had no reasonable cause to believe their conduct was unlawful. Expenses
incurred by an officer or director (or other employees or agents as deemed
appropriate by the board of directors) in defending civil or criminal
proceedings may be paid by the corporation in advance of the final disposition
of such proceeding upon a receipt of an undertaking by or on behalf of such
person to repay such amount if it is ultimately determined that such person is
not entitled to be indemnified by the corporation. To indemnify a party, the
corporation must determine that the party met the applicable standards of
conduct.
AMENDMENTS TO GOVERNING DOCUMENTS
STARWOOD LODGING. Under the MGCL and Maryland REIT Law, unless otherwise
provided in the charter or declaration of trust, a proposed amendment to the
charter or declaration of trust requires the affirmative vote of two-thirds of
all votes entitled to be cast on the matter. The Corporation Articles and the
Trust Declaration each requires only the affirmative vote of a majority of votes
entitled to be cast on the matter in order to approve an amendment to the
Corporation Articles or the Trust Declaration, respectively. The Trust
Declaration may also be amended, without the vote or consent of the holders of
Trust Shares, by the Trustees in order to ensure that the provisions of the
Trust Declaration are in compliance with the REIT Requirements and the Maryland
REIT Law.
Under the MGCL, the power to change the bylaws may be left with the
stockholders, vested exclusively in the directors or shared by both groups. The
Corporation By-laws provide that the Corporation By-laws may be amended by the
Corporation Board or the Corporation stockholders. The Trustees' Regulations
provide that the Trustees' Regulations may be amended only by the vote or
written consent of the Trust Board. The shareholders of the Trust have no power
to amend the Trustees' Regulations.
ITT. The NGCL permits a corporation to amend its articles or articles of
incorporation in any respect provided the amendment contains only provisions
that would be lawful in an original certificate or articles of incorporation
filed at the time of amendment. To amend articles of incorporation, the board
must adopt a resolution presenting the proposed amendment. In addition, a
majority of the shares entitled to vote, as well as a majority of shares by
class of each class entitled to vote, must approve the amendment to make it
effective. When the substantial rights of a class of shares will be affected by
an amendment, the holders of those shares are entitled to vote as a class even
if the shares are nonvoting shares. When only one or more series in a class of
shares, and not the entire class, will be adversely affected by an amendment,
only the affected series may vote
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as a class. The ITT Articles provide that amendments thereto shall be made in
accordance with the provision of the NGCL.
The NGCL provides that, subject to the by-laws, if any, adopted by the
stockholders, the directors may make the by-laws of the corporation. The ITT
Articles and the ITT By-laws provide that ITT By-laws may be amended by a
majority vote of the entire ITT Board or by the affirmative vote of the holders
of at least a majority of the outstanding ITT Common Stock.
RIGHTS PLAN
STARWOOD LODGING. Neither the Corporation nor the Trust has a stockholders
or shareholders rights plan or similar rights plan.
ITT. On November 1, 1995, ITT Board declared a dividend distribution of
one Right for each outstanding share of ITT Common Stock to stockholders of ITT.
Each Right represents a right to buy one one-thousandth of a share of ITT
preferred stock. The Rights have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire control
of ITT in a manner which causes the Rights to become exercisable, unless the
offer is conditioned upon the Rights being redeemed or the Rights Agreement
being amended. ITT has executed an amendment to the Rights Agreement exempting
the Merger and the related acquisition of ITT Common Stock from the dilutive
effects of the Rights Agreement and the Rights.
APPRAISAL AND DISSENTERS' RIGHTS
STARWOOD LODGING. Under the MGCL, stockholders of a corporation are
entitled to appraisal rights in certain mergers, consolidations or share
exchanges involving such corporation or upon the disposition of all or
substantially all of its assets, as well as when such corporation amends its
charter in a way which alters the contractual rights of any outstanding shares
as expressly set forth in the charter and substantially adversely affects such
stockholders' rights if the right to do so is not reserved in the charter.
However, except with respect to certain transactions involving an Interested
Stockholder, stockholders generally have no appraisal rights with respect to
their shares if (i) the shares are listed on a national securities exchange or
are designated as a national market system security on a interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD"), or (ii)
the shares are those of the successor in the merger, unless (a) the merger
alters the contractual rights of the shares as expressly set forth in the
charter or declaration of trust, and the charter or declaration of trust do not
reserve the right to do so, or (b) the shares are to be changed or converted in
whole or in part in the merger into something other than either shares in the
successor or cash, scrip or other rights or interests arising out of provisions
for the treatment of fractional shares in the successor. The Maryland REIT Law
provides for appraisal rights for shareholders of a Maryland REIT only in the
case of a merger and only to the extent available to an objecting stockholder
under the MGCL. The Corporation Articles and the Trust Declaration have no
provisions regarding appraisal or dissenters' rights and Paired Share holders
will not have appraisal rights in connection with the Merger because Starwood
Lodging is not a constituent corporation in the Merger.
ITT. The NGCL provides the stockholders have the right, in some
circumstances, to dissent from certain corporate reorganizations and to instead
demand payment of the fair cash value of their shares. Unless a corporation's
articles of incorporation provides otherwise, dissenters do not have rights of
appraisal with respect to (i) a merger or consolidation by a corporation, the
shares of which are neither listed on a national securities exchange, designated
as a national market system security on an interdealer quotation system by the
NASD nor held by more than 2,000 stockholders, if the stockholders receive cash,
shares in the surviving corporation, shares of another corporation that are
publicly listed or held by more than 2,000 stockholders, cash in lieu of
fractional shares or any combination of the above or (ii) stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger. The ITT Articles have no
provisions regarding appraisal or dissenters' rights and ITT's stockholders will
not have appraisal or dissenters' rights in connection with the Merger.
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DIVIDENDS AND DISTRIBUTIONS
STARWOOD LODGING. The MGCL allows the payment of dividends and other
distributions (e.g., redemption of stock), after authorization by the board of
directors, unless, after giving effect to the distribution, (a) the corporation
would not be able to pay its debts as they become due in the usual course of
business or (b) the corporation's total assets would be less than the sum of its
total liabilities plus, unless the charter provides otherwise, the amount that
would be needed upon dissolution to satisfy the preferential rights of those
stockholders whose preferential rights upon dissolution are superior to those
receiving the distribution.
The Maryland REIT Law does not contain any provisions governing the payment
of distributions or dividends. The Trust Declaration provides that the Trust
Board may from time to time declare and pay to shareholders such dividends and
distributions in cash or other form, out of current or accumulated income,
capital, capital gains, principal surplus, proceeds from the increase or
refinancing of Trust obligations, or from the Trust estate or from any other
source as the Trust Board in its discretion determines. Shareholders of the
Trust have no rights to any dividends or distributions unless and until declared
by the Trust Board.
ITT. The NGCL allows a board of directors to authorize the corporation to
make distributions to shareholders, unless otherwise provided in the articles of
incorporation. However, no distribution may be made if it would cause (i) the
corporation to be unable to pay its debts as they become due in the usual course
of business or (ii) except as otherwise specifically allowed by the articles of
incorporation, the corporation's total assets to be less than the sum of its
total liabilities plus the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution.
STOCKHOLDER AND SHAREHOLDER INSPECTION RIGHTS
STARWOOD LODGING. Under the MGCL and the Maryland REIT Law, persons who
together have been stockholders or shareholders for more than six months and own
at least five percent of the outstanding stock or shares of beneficial interest
of any class of a Maryland corporation or Maryland REIT, respectively, may
inspect and copy the corporation's or the Maryland REIT's books of account and
stock or share ledger, request a written statement of the corporation's or
Maryland REIT's affairs and request a list of the corporation's stockholders or
the Maryland REIT's shareholders. In addition, any stockholder of a Maryland
corporation or shareholder of a Maryland REIT may (a) inspect and copy the
bylaws, minutes of the proceedings of stockholders or shareholders and annual
statements of affairs and (b) request the corporation or the Maryland REIT to
provide a sworn statement showing all stock or shares, as well as any other
securities, issued and all consideration received by the corporation or the
Maryland REIT during the preceding twelve months.
ITT. The NGCL entitles any person who has been a shareholder of record of a
corporation for at least six months immediately preceding the demand, or any
person holding or representing at least 5% of its outstanding shares, upon at
least five days' written demand, to inspect, in person or by an agent, during
usual business hours, the stock ledger of the corporation and to make extracts
therefrom. However, pursuant to the NGCL, only persons who are shareholders of
record who own or represent at least 15% of a corporation's issued and
outstanding shares, or persons who have been authorized in writing by such
shareholders, have the right, upon at least five days' written demand, to
inspect, in person or by an agent, during normal business hours, the books of
account and financial records of the corporation, to make extracts therefrom and
to conduct an audit of such records. The provisions of this section of the NGCL
with respect to inspection of books of account and financial records of the
corporation, and rights to conduct audits in connection therewith, do not apply
to any corporation that is listed and traded on any recognized stock exchange
nor do they apply to any corporation that furnishes to its shareholders a
detailed, annual financial statement. ITT is listed and traded on the NYSE, and
is therefore not subject to such provisions.
CLASSIFIED BOARD
STARWOOD LODGING. The Trust and the Corporation have a board classified
into three classes, in which each director or trustee serves for a term of three
years. The classification of the Trust Board and the Corporation Board may
provide each Board with more negotiating leverage by delaying or making more
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difficult unsolicited acquisitions because it would take at least two board
elections in order to replace a majority of the incumbent board.
ITT. ITT does not have a classified board of directors.
DESCRIPTION OF STARWOOD SECURITIES
GENERAL
The Trust Declaration authorizes the Trust to issue 305 million shares of
beneficial interests in the Trust, including (i) 200 million Trust Shares, (ii)
40 million excess trust shares, with a par value of $0.01 per share ("Excess
Common Trust Shares"), and (iii) 10 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 305 million, the Trust Declaration grants the
Trust Board the power to create and authorize the issuance of shares of
beneficial interest of one or more additional classes, including preferred
shares ("Trust Preferred Shares") in one or more classes or series, with or
without par value, having such voting rights, such rights to dividends and
distribution and rights in liquidation, such conversion, exchange and redemption
rights and such designations, preferences and participations and other
limitations and restrictions as are not prohibited by the Trust Declaration or
applicable law and as are specified by the Trust Board in its discretion. As of
December 31, 1997, no Excess Trust Shares were outstanding. In connection with
the Westin Acquisition, on January 2, 1998, the Trust issued an aggregate of
6,285,783 and 5,502,731 shares, respectively, of two new classes of Trust
Preferred Shares, the Class A EPS and the Class B EPS. See "-- Trust Preferred
Shares" and "Amendments to the Declaration of Trust of the Trust and the
Articles of Incorporation of the Corporation -- Authorized Share Amendments."
The Corporation Articles authorize the Corporation to issue 305 million
shares, consisting of (i) 55 million shares of preferred stock, with a par value
of $0.01 per share ("Corporation Preferred Shares"), (ii) 200 million
Corporation Shares, (iii) 40 million shares of excess common stock, with a par
value of $0.01 per share ("Excess Corporation Common Stock"), and (iv) 10
million shares of excess preferred stock, with a par value of $0.01 per share
("Excess Corporation Preferred Stock" and, together with the Excess Corporation
Common Stock, the "Excess Corporation Stock"). The Corporation Preferred Shares
are issuable in one or more additional classes, or one or more series within any
such class, with such rights, preferences, privileges and restrictions as the
Corporation Board may determine, including voting rights, redemption provisions,
dividend rates, liquidation preferences and conversion rights. As of January 5,
1998, no such class or series of Corporation Preferred Shares had been
established and no Excess Corporation Stock was outstanding.
As of the Trust Record Date, 63,270,637 Trust Shares were issued and
outstanding and 21,292,005 Trust Shares were reserved for issuance. Each
outstanding Trust Share entitles the holder thereof to one vote on all matters
presented to the shareholders of the Trust for a vote. As of the Corporation
Record Date, 63,270,637 Corporation Shares were issued and outstanding and
21,292,005 Corporation Shares were reserved for issuance. Each outstanding
Corporation Share entitles the holder thereof to one vote on all matters
presented to the stockholders of the Corporation for a vote.
PREEMPTIVE RIGHTS
Holders of Trust Shares and Corporation Shares do not have preemptive
rights with respect to the issuance of additional shares. Accordingly, any
issuance of authorized but unissued shares could have the effect of diluting the
earnings per share and book value per share of currently outstanding shares.
PREFERRED SHARES
The authorized Trust Preferred Shares are available for issuance from time
to time in the discretion of the Trust Board without shareholder approval. The
Trust Board has the authority to issue Trust Preferred Shares in series, with
such powers, designations, preferences and relative, participating, optional or
other special rights as the Trust Board may deem appropriate. Such authority
includes, but is not limited to, the power to prescribe, for each such series of
Trust Preferred Shares, the number of shares in that series, the dividend rate,
the voting rights, conversion privileges, redemption and liquidation rights, if
any, and any other rights, preferences and limitation of the particular series.
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The authorized Corporation Preferred Shares are available for issuance from
time to time in the discretion of the Corporation Board without stockholder
approval. The Corporation Board has the authority to issue authorized
Corporation Preferred Shares in series, subject to the provisions in the
Corporation Articles regarding restrictions on transfer of stock, with such
powers, designations, preferences and relative, participating, optional or other
special rights as the Corporation Board may deem appropriate. Such authority
includes, but is not limited to, the power to prescribe, for each such series of
Corporation Preferred Shares, the number of shares in that series, the dividend
rate, the voting rights, conversion privileges, redemption and liquidation
rights, if any, and any other rights, preferences and limitation of the
particular series.
The Trust may authorize and issue Trust Preferred Shares without the
issuance by the Corporation of corresponding shares, and the Corporation may
authorize and issue Corporation Preferred Shares without the issuance by the
Trust of corresponding shares. Furthermore, the Pairing Agreement does not limit
the power of the Starwood Boards to independently determine the rights,
preferences and restrictions of such shares. However, if either the Trust or the
Corporation were to issue Preferred Shares for which the other entity did not
issue corresponding (i.e., paired) shares in such an amount that greater than
50% of such entity's beneficial equity interests were represented by such
unpaired Preferred Shares, then the Trust and the Corporation could lose their
status as "grandfathered" from the application of Section 269B of the Code and
jeopardize the Trust's ability to qualify as a REIT. Neither the Trust nor the
Corporation intends to issue unpaired Preferred Shares in excess of such
limitation.
PAIRED SHARES
Subject to the preferential rights of any other shares or series of shares
of beneficial interest of the Trust (including the Class A EPS and Class B EPS)
or shares of capital stock of the Corporation, and to the provisions of the
Trust Declaration regarding Excess Trust Shares and the Corporation Articles
regarding Excess Corporation Stock, holders of Paired Shares will be entitled to
receive dividends if, as and when authorized and declared by the Trust Board or
the Corporation Board, as the case may be, out of assets legally available
therefor and to share ratably in the assets of the Trust or the Corporation
legally available for distribution to its shareholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Trust or the Corporation.
The Paired Shares currently outstanding are listed for trading on the NYSE.
The Trust and the Corporation will apply to the NYSE to list the additional
Paired Shares to be issued pursuant to the Merger Agreement, and the Trust and
the Corporation anticipate that such shares will be so listed.
Subject to the provisions of the Trust Declaration regarding Excess Trust
Shares and the Corporation Articles regarding Excess Corporation Stock, each
outstanding Paired Share entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of trustees or
directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest of the
Trust (including the Class A EPS and Class B EPS) or shares of stock of the
Corporation, the holders of such Paired Shares will possess the exclusive voting
power. There is no cumulative voting in the election of trustees or directors,
which means that the holders of a majority of the outstanding voting shares can
elect all of the trustees or directors then standing before election and the
holders of the remaining shares of beneficial interest, if any, will not be able
to elect any trustees or directors.
Holders of Paired Shares have no conversion, sinking fund or redemption
rights or preemptive rights to subscribe for any securities of the Trust of the
Corporation, as the case may be.
Subject to the provisions of the Trust Declaration regarding Excess Shares
and the Corporation Articles regarding Excess Corporation Stock, Paired Shares
will have equal dividend, distribution, liquidation and other rights, and will
have no preference, exchange, or except as expressly required by the Maryland
REIT Law and the MGCL, appraisal rights.
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THE PAIRING AGREEMENT
The Trust and the Corporation have entered into the Pairing Agreement
pursuant to which all outstanding Trust Shares and Corporation Shares are
"paired" on a one-for-one basis. The following is a summary of certain
provisions of the Pairing Agreement. This summary does not purport to be
complete and is qualified in its entirety by reference to the text of the
Pairing Agreement, a copy of which is incorporated by reference as an exhibit to
the Registration Statement.
TRANSFER OF PAIRED SHARES. Under the Pairing Agreement, Trust Shares are
transferable only together with an equal number of Corporation Shares, and
Corporation Shares are transferable only together with an equal number of Trust
Shares. Certificates evidencing Trust Shares and Corporation Shares are required
by the Pairing Agreement to include a reference to this transfer restriction.
The Trust Declaration and the Corporation Articles contain similar restrictions
on the transfer of Trust Shares and Corporation Shares, as well as other
restrictions on the transfer and ownership of Trust Shares and Corporation
Shares. The Pairing Agreement also provides that any Excess Trust Shares and any
Excess Corporation Stock which may be issued will be paired in the same manner
as the Trust Shares and Corporation Shares are paired.
ISSUANCE OF SHARES. Under the Pairing Agreement, the Trust may not issue
Trust Shares and the Corporation may not issue Corporation Shares unless
provision is made for the acquisition by the same person of the same number of
shares of the other entity. The Trust and the Corporation must agree on the
manner and basis of allocating the consideration to be received upon such
issuance, or on the payment by one entity to the other of cash or other
consideration in lieu of a portion of the consideration to be received upon
issuance of such Paired Shares.
SHARE DIVIDENDS, RECLASSIFICATIONS AND OTHER SIMILAR EVENTS. Neither the
Trust nor the Corporation may declare or pay any dividend or other distribution
payable in Trust Shares or Corporation Shares, issue any rights or warrants to
purchase Trust Shares or Corporation Shares, or subdivide, combine or otherwise
reclassify such shares, unless the other entity concurrently takes the same
action.
AMENDMENT AND TERMINATION. The Pairing Agreement may be amended by the
Trust Board and the Corporation Board, provided that an amendment permitting the
separate issuance and transfer of Trust Shares and Corporation Shares must be
approved by a majority of each of the outstanding Trust Shares and the
outstanding Corporation Shares. The Pairing Agreement may be terminated only
with the affirmative vote of the holders of a majority of each of the
outstanding Trust Shares and the outstanding Corporation Shares. Upon such
termination, the Trust Shares and the Corporation Shares could be delisted by
the NYSE if the Trust and the Corporation, respectively, did not as separate
entities then meet the listing requirements of such Exchange.
PREFERRED SHARES. The Trust may authorize and issue other classes or
series of shares of beneficial interest in addition to the Trust Shares without
the issuance by the Corporation of corresponding shares, and the Corporation may
authorize and issue shares of Corporation Preferred Stock without the issuance
by the Trust of corresponding shares. Furthermore, the Pairing Agreement does
not limit the power of the Starwood Boards to independently determine the
rights, preferences and restrictions of such shares.
TRUST PREFERRED SHARES
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 the 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
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below in any dividend (other than a dividend or distribution constituting a
Class A Adjustment Event) paid on the Trust Shares, when and if declared by the
Trustees out of assets of the Trust available for payment (a "Class A
Participation Dividend").
Upon the payment of any dividend on the Corporation Shares (other than a
dividend or distribution that constitutes a Class A Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares, a Class A
Preferred Dividend in a corresponding amount will automatically accrue with
respect to the Class A EPS based on the number of Class A Underlying Corporation
Shares (as defined below) for which each share of Class A EPS is then
exchangeable upon exercise of the Class A Exchange Right described below. Each
Class A Preferred Dividend will be cumulative from the date on which it accrues.
No dividend (a "Common Dividend") may be declared on the Trust Shares
unless the Trust Board concurrently declares a Class A Participation Dividend
entitling each share of Class A EPS to receive a dividend equal to the amount of
the Common Dividend declared on each Trust Share multiplied by the number of
Class A Underlying Trust Shares into which each share of Class A EPS is then
convertible upon exercise of the Class A Exchange Right.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Trust, the holders of Class A
EPS will be entitled (i) to receive out of the assets of the Trust legally
available for liquidating distributions to holders of shares of beneficial
interests in the Trust, prior to any distribution or payment to holders of Trust
Shares or any other class or series of shares of beneficial interest in the
Trust ranking junior to the Class A EPS, a liquidating distribution in an amount
equal to the Class A Liquidation Preference described below and (ii) to
participate on the basis described below in any liquidating distribution to
holders of Trust Shares (the "Class A Liquidation Participation Right"). For
such purposes, the consolidation or merger of the Trust with or into any other
corporation, trust or entity, or the sale, lease or conveyance of all or
substantially all of the property or business of the Trust, shall not be deemed
to constitute a liquidation, dissolution or winding up of the Trust.
The "Class A Liquidation Preference" of a share of Class A EPS as of any
date shall mean the sum of (x) the fair market value as of such date of the
number of Class A Underlying Corporation Shares for which each Class A EPS is
exchangeable as of such date upon exercise of the Class A Exchange Right plus
(y) the amount of any accrued but unpaid Class A Preferred Dividends in respect
of each share of Class A EPS as of such date.
In addition to being entitled to receive the Class A Liquidation Preference
upon any liquidation, dissolution or winding up of the Trust, the holders of
Class A EPS will be entitled to participate, pursuant to the Class A Liquidation
Participation Right, ratably with the holders of Trust Shares in any liquidating
distributions to such holders. For such purpose, each share of Class A EPS shall
be deemed to represent a number of Trust Shares equal to the number of Class A
Underlying Trust Shares (as defined below) for which each share of Class A EPS
is then exchangeable upon exercise of the Class A Exchange Right.
EXCHANGE RIGHTS. Shares of Class A EPS 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 of Shares") or the REIT Requirements, the
Trust may either (x) deliver to such holder the maximum number of Paired Shares
that may be delivered without causing such a violation (the "Delivered Shares",
with the number of Requested Shares in excess of the Delivered Shares being
referred to herein as the "Excess Shares"), together with either the Cash
Equivalent of the Excess Shares or an Exchange Promissory Note (as defined
below) in a principal amount equal to such Cash Equivalent of the Excess Shares
or (y) deliver to such holder the Cash Equivalent of the Requested Shares. If
the delivery of the full number of Requested Shares would violate either the
Ownership Limit or the REIT Requirements
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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.
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
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than a dividend or distribution constituting a Class A Adjustment Event) paid on
the Trust Shares, when and if declared by the Trustees out of assets of the
Trust available for payment (a "Class B Participation Dividend").
Upon the payment of any dividend on the Corporation Shares (other than a
dividend or distribution that constitutes a Class A Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares, a Class B
Preferred Dividend will automatically accrue with respect to the Class B EPS
based on the number of Class B Underlying Corporation Shares (as defined below)
for which each share of Class B EPS is then indirectly exchangeable. Each Class
B Preferred Dividend will be cumulative from the date on which it accrues.
No Common Dividend may be declared on the Trust Shares unless the Trust
Board concurrently declares a Class B Participation Dividend entitling each
share of Class B EPS to receive a dividend equal to the amount of the Common
Dividend declared on each Trust Share multiplied by the number of Class B
Underlying Trust Shares (as defined below) for which each share of Class B EPS
is then indirectly exchangeable.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Trust, the holders of Class B
EPS will be entitled (i) to receive out of the assets of the Trust legally
available for liquidating distributions to holders of shares of beneficial
interest in the Trust, prior to any distribution or payment to holders of Trust
Shares or any other class or series of shares of beneficial interest in the
Trust ranking junior to the Class B EPS, a liquidating distribution in an amount
equal to the Class B Liquidation Preference described below and (ii) to
participate on the basis described below in any liquidating distribution to
holders of Trust Shares (the "Class B Liquidation Participation Right").
The "Class B Liquidation Preference" of a share of Class B EPS as of any
date shall mean the sum of (x) $38.50 plus (y) the amount of any accrued but
unpaid Class B Preferred Dividends in respect of each share of Class B EPS as of
such date.
In addition to being entitled to receive the Class B Liquidation Preference
upon any liquidation, dissolution or winding up of the Trust, the holders of
Class B EPS will be entitled to participate, pursuant to the Class B Liquidation
Participation Right, ratably with the holders of Trust Shares in any liquidating
distributions to such holders. For such purpose, each share of Class B EPS shall
be deemed to represent a number of Trust Shares equal to the number of Class B
Underlying Trust Shares for which each share of Class B EPS is then indirectly
exchangeable.
EXCHANGE AND REDEMPTION RIGHTS. Exchange and Redemption of Class B EPS at
the Option of the Holders. Each share of Class B EPS 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").
At any time and from time to time beginning on the Cross-Over Date, a
holder of Class B EPS may require that the Trust either (x) redeem such shares
of Class B EPS for a cash redemption price equal to the Class B EPS Liquidation
Preference as of the date notice of such exchange is made or (y) convert each
such share of Class B EPS into a number of shares of Class A EPS (the
"Redemption Number of Shares") equal to the quotient obtained by dividing (i)
the Class B Liquidation Preference as of the date notice of such exchange is
made by (ii) the Underlying Paired Share Value (as defined below) of one share
of Class A EPS (the "Class B Redemption Right"). Prior to the first anniversary
of the Cross-Over Date, an exchanging holder may elect whether to receive the
cash redemption price specified above or the Redemption Number of Shares,
whereas with respect to an exchange notice given on or after the first
anniversary of the Cross-Over Date, the Trust will have the right to elect
whether to deliver the cash redemption price or the Redemption Number of Shares.
Redemption or Exchange at the Option of the Trust. At any time and from
time to time after the Cross-Over Date, the Trust, at its option, will have the
right (the "Trust Redemption Right") to (i) redeem the Class B EPS, in whole or
in part, for cash at a redemption price equal to the Class B Liquidation
Preference as
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of the date of such Trust Redemption Notice or (ii) exchange the Class B EPS, in
whole or in part, for a number of shares of Class A EPS equal to the Redemption
Number of Shares; provided, however, that prior to the first anniversary of the
Cross-Over Date, the Trust must redeem such shares of Class B EPS for the cash
redemption price rather than exchanging such shares for shares of Class A EPS.
The following definitions apply for the purposes hereof:
"Cross-Over Date" means the fifth anniversary of the Westin Merger, subject
to extension as described below under the caption "Special Default Rights".
"Underlying Paired Share Value" as of a given date means the product of (A)
the average closing price of the Paired Shares on the NYSE during the five
trading days preceding such date multiplied by (B) the number of Paired Shares
for which each share of Class A EPS is then exchangeable upon exercise of the
Class A Exchange Right.
On or prior to the Cross-Over Date, the exchange ratio of shares of Class B
EPS for shares of Class A EPS shall be subject to adjustment from time to time
based on the occurrence of stock dividends, stock splits, reverse stock splits
and other similar events in respect of the Class A EPS ("Class B Adjustment
Events"). The Paired Shares for which each share of Class A EPS is indirectly
exchangeable at any given time (assuming both (i) the exercise of the Class B
Exchange Right and (ii) the concurrent exercise of the Class A Exchange Right in
respect of the shares of Class A EPS issuable upon exercise of such Class B
Exchange Right) are referred to as the "Class B Underlying Paired Shares", with
the Corporation Shares component of such Class B Underlying Paired Shares being
referred to as the "Class B Underlying Corporation Shares" and the Trust Shares
component of such Class B Underlying Paired Shares being referred to as the
"Class B Underlying Trust Shares". In addition, in the event of the occurrence
of any capital reorganization or reclassification of the Class A EPS, or
consolidation or merger of the Trust with another corporation, trust or other
entity, or the sale, transfer or lease of all or substantially all of the assets
of the Trust to another person, is effected in such a way that holders of Class
A EPS will be entitled to receive stock, securities or other assets with respect
to or in exchange for Class A EPS, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or lease, the Class B
Exchange Right and the Trust Redemption Right shall be modified so that, upon
exercise thereof, the Class B EPS will be exchanged for the kind and amount of
stock, securities or other assets which the holders of such Class B EPS would
have owned or been entitled to receive immediately after the transaction if such
holders had exchanged their Class B EPS into the shares of Class A EPS
immediately prior to the effective date of such transaction, subject to further
adjustment upon the occurrence of the events described above.
If there are any accrued but undeclared Class B Preferred Dividends in
respect of the shares of Class B EPS subject to an exchange request, the number
of shares of Class A EPS issuable pursuant to such exchange shall be increased
by a number of shares equal to (i) the amount of such accrued but undeclared
dividends divided by (ii) the product of (A) the average closing price of the
Paired Shares on the NYSE during the five trading days preceding the date of
delivery of such Class A Exchange Notice multiplied by (B) the number of Paired
Shares for which each share of Class A EPS is then exchangeable upon exercise of
the Class A Exchange Right.
SPECIAL DEFAULT RIGHTS. In the event that the Trust defaults in its
obligations with respect to any valid exercise of the Class B Exchange Right,
the Class B Redemption Right or the Trust Redemption Right and such default is
not cured within 30 days (an "Uncured Default"), then: (i) the holders of the
Class B EPS will have the right to designate two additional Trustees for the
Trust (such persons to be designated by the holders of a majority of the
outstanding shares of Class B EPS), (ii) the dividend rate on the Class B EPS
will be increased as described below, (iii) the holders of Class B EPS will have
registration rights similar to those set forth in the Registration Rights
Agreement entered into pursuant to the Transaction Agreement and (iv) the
Cross-Over Date will be extended by a number of days equal to the number of days
during which such Uncured Default remains uncured. Upon the occurrence and
during the continuation of any Uncured Default, cumulative dividends ("Default
Rate Dividends") shall accrue on the $38.50 stated value of the Class B EPS at a
rate per annum equal to LIBOR plus 4% and will be payable quarterly; provided
that if at any time when there are accrued but unpaid Default Rate Dividends, a
Class B Preferred Dividend or Class B
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Participation Dividend would have become payable pursuant to the normal dividend
rights of the Class B EPS described above that would exceed the amount of such
accrued but unpaid Default Rate Dividends, the holders of the Class B EPS shall
be entitled to receive such Class B Preferred Dividend or Class B Participation
Dividend in lieu of such Default Rate Dividends, and the accrued amount of such
Default Rate Dividends shall be reset to zero.
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 cast 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
The Trust Declaration and the Corporation Articles provide that, subject to
certain exceptions specified in the Trust Declaration and the Corporation
Articles, no one person or group of related persons may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 8.0% of the
shares of beneficial interest or stock of the Trust or the Corporation,
respectively, whether measured by vote, value or number of shares (other than
for shareholders who owned in excess of 8.0% as of January 31, 1995 (the date
the reorganization of Starwood Lodging (the "Reorganization") closed), who may
not so own or be deemed to own more than the lesser of 9.9% or the percentage of
Paired Shares they held on such date) of the outstanding Paired Shares or
Preferred Shares which may be issued, or any combination thereof. The Trust
Board and the Corporation Board may waive the Ownership Limit if evidence
satisfactory to the Trust Board and the Corporation Board and the tax counsel to
the Trust and the Corporation is presented that such ownership will not
jeopardize the Trust's status as a Maryland REIT. As a condition of such waiver,
each of the Trust Board and the Corporation Board may require opinions of
counsel satisfactory to it and/or an undertaking from the applicant with respect
to preserving the Maryland REIT status of the Trust. If shares which would cause
the Trust to be beneficially owned by fewer than 100 persons are issued or
transferred to any person, such issuance or transfer shall be null and void and
the intended transferee will acquire no rights to the stock. Any acquisition of
shares of the Trust or stock of the Corporation and continued holding or
ownership of Shares of the Trust or stock of the Corporation constitutes, under
the Trust Declaration and the Corporation Articles, a continuous representation
of compliance with the Ownership Limit.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of Paired Shares or Preferred Shares in
violation of the Ownership Limit, such transfer with respect to that number of
shares that would be owned by the transferee in excess of the Ownership Limit
would be deemed void ab initio and such Paired Shares or Preferred Shares would
automatically be exchanged for Excess Shares or Excess Preferred Stock,
respectively (collectively, "Excess Stock"), authorized by the Trust Declaration
and the Corporation Articles, according to rules set forth in the Trust
Declaration and the Corporation Articles, to the extent necessary to ensure that
the purported transfer or other event does not result in ownership of Paired
Shares or Preferred Shares or Excess Stock in violation of the Ownership Limit.
Any purported transferee or other purported holder of Excess Stock is required
to give written notice immediately to the Trust and the Corporation of a
purported transfer or other event that would result in the issuance of Excess
Stock.
Any Excess Trust Shares and Excess Corporation Stock which may be issued
will be "paired" in the same manner that the Trust Shares and the Corporation
Shares are currently paired. Excess Stock is not Treasury stock but rather
continues as issued and outstanding capital stock of the Trust and the
Corporation. While outstanding, Excess Stock will be held in trust. The trustees
of such trusts shall be appointed by the Trust and the Corporation and shall be
independent of the Trust, the Corporation and the holder of Excess Stock. The
beneficiary of such trust shall be one or more charitable organizations selected
by the trustee. If, after the purported transfer or other event resulting in an
exchange of Paired Shares or Preferred Shares for
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Excess Stock and prior to the discovery by the Trust and the Corporation of such
exchange, dividends or distributions are paid with respect to the Paired Shares
or Preferred Shares that were exchanged for Excess Stock, then such dividends or
distributions are to be repaid to the trustee upon demand for payment to the
charitable beneficiary. The trustee shall vote the Excess Stock, which shall
have the same voting rights as the Paired Shares. Any vote cast by the purported
transferee or purported record transferee will, at the election of the trustee,
be void ab initio. While Excess Stock is held in trust, an interest in that
trust may be transferred by the trustee only to a person whose ownership of
Paired Shares or Preferred Shares will not violate the Ownership Limit, at which
time the Excess Stock will be automatically exchanged for the same number of
Paired Shares or Preferred Shares of the same type and class as the Paired
Shares or Preferred Shares for which the Excess Stock was originally exchanged.
The Trust Declaration and the Corporation Articles contain provisions that are
designed to ensure that the purported transferee or other purported holder of
the Excess Stock may not receive in return for such a transfer an amount that
reflects any appreciation in the Paired Shares or Preferred Shares for which
such Excess Stock was exchanged during the period that such Excess Stock was
outstanding. Any amount received by a purported transferee or other purported
holder in excess of the amount permitted to be received must be turned over to
the charitable beneficiary of the trust. If the foregoing restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee or holder of any Excess Stock may be
deemed, at the option of the Trust and the Corporation, to have acted as an
agent on behalf of the Trust and the corporation in acquiring or holding such
Excess Stock and to hold such Excess Stock on behalf of the Trust and the
Corporation.
The Trust Declaration and the Corporation Articles further provide that the
Trust and the Corporation may purchase, for a period of 90 days during the time
the Excess Stock is held in trust, all or any portion of the Excess Stock from
the original transferee-shareholder at the lesser of the price paid for the
Paired Shares or Preferred Shares by the purported transferee (or if no notice
of such purchase price is given, at a price to be determined by the Trust Board
and the Corporation Board, in their sole discretion, but no lower than the
lowest market price of such stock (based on the market price of the Paired
Shares or Preferred Shares) at any time during the period in which the Excess
Stock is held in trust) and the closing market price for the Paired Shares or
Preferred Shares on the date the Trust and the Corporation exercise their option
to purchase. The 90-day period begins on the date of the violative transfer if
the original transferee-shareholder gives notice to the Trust and the
Corporation of the transfer or (if no notice is given) the date the Trust Board
and the Corporation Board determine that a violative transfer has been made.
The Ownership Limit will not be removed automatically even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limit would require an amendment to the Trust Declaration and the Corporation
Articles. Amendments to the Trust Declaration and to the Corporation Articles
generally require the affirmative vote of holders owning a majority of the
outstanding Trust Shares and Corporation Shares respectively, except that
changes to the Ownership Limit require two-thirds approval. In addition to
preserving the Trust's status as a REIT, the Ownership Limit may have the effect
of delaying, deferring, or preventing a change in control of the Trust and the
Corporation without the approval of the Trust Board and the Corporation Board.
All persons who own, directly or by virtue of the attribution provisions of
the Code, 5% or more (or such other percentage as may be required by the Code or
regulations promulgated thereunder) of the outstanding Paired Shares, Preferred
Shares or Excess Stock must file an affidavit with the Trust and the Corporation
containing the information specified in the Trust Declaration and the
Corporation Articles before January 30 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Trust and the
Corporation in writing such information with respect to the direct, indirect and
constructive ownership of shares as the Trust Board or the Corporation Board
deems necessary to comply with the provisions of the Trust Declaration and the
Corporation Articles or the Code applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
All certificates representing Paired Shares and Preferred Shares will bear
a legend referring to the restrictions described above.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lazard Freres, of which Mr. Kendrick R. Wilson III is a Managing Director,
performed various investment banking services for ITT and its subsidiaries in
1996. Lazard Freres is serving as ITT's co-financial advisor in connection with
the Hilton Offer. Mr. Wilson receives a percentage of Lazard Freres' income,
including a percentage of any income under ITT's retention of Lazard Freres.
A By-law of ITT provides for mandatory indemnification of ITT directors and
officers (including payment of legal fees) to the fullest extent permitted by
applicable law. The By-law also provides that ITT may maintain insurance to
indemnify its directors and officers against liabilities whether or not ITT
would be permitted to indemnify them. This type of insurance, as well as
policies under which ITT may be reimbursed for amounts paid in indemnification
of its directors and officers, are in force. The premiums thereon, which
aggregate $1,164,755 for a twelve-month period, are paid by ITT. As authorized
by such By-law, ITT has entered into indemnification agreements with its
directors pursuant to which ITT agrees to indemnify them against all expenses,
liabilities or losses incurred by the directors in their capacity as such: (i)
to the fullest extent permitted by applicable law; (ii) as provided in the
By-laws of ITT as in effect on the date of such agreement; and (iii) in the
event ITT does not maintain the aforementioned insurance or comparable coverage,
to the full extent provided in the applicable policies as in effect on January
1, 1997 (ITT's obligations described in (ii) and (iii) being subject to certain
exceptions). Contractual rights under such indemnification agreements are
believed to provide the directors more protection than the indemnification By-
law which is subject to change.
LEGAL MATTERS
The validity of the Paired Shares to be issued in connection with the
Merger will be passed upon by Ballard Spahr Andrews & Ingersoll, Maryland
counsel to Starwood Lodging.
Sidley & Austin, counsel for Starwood Lodging, will pass on certain Federal
income tax consequences of the Merger for Starwood Lodging and the stockholders
and shareholders of Starwood Lodging and Cravath, Swaine & Moore, counsel for
ITT, will pass on certain Federal income tax consequences of the Merger for the
ITT stockholders. Lawyers of Sidley & Austin participating in this transaction
on behalf of such firm own or hold options to purchase an aggregate of
approximately 22,500 Paired Shares.
EXPERTS
The separate and combined consolidated financial statements and financial
statement schedules of Starwood Lodging Trust and Starwood Lodging Corporation
as of December 31, 1996 and 1995 and for each of the two years in the period
ended December 31, 1996 appearing in Starwood Lodging's Joint Annual Report on
Form 10-K for the year ended December 31, 1996, the combined financial
statements of Flatley Hotels as of December 31, 1996, and for the year then
ended, appearing in Starwood Lodging's Joint Current Report on Form 8-K, dated
September 10, 1997, and the consolidated financial statements of Westport
Holdings, L.L.C. as of January 2, 1997, and for the year then ended, appearing
in Starwood Lodging's Joint Current Report on Form 8-K dated February 10, 1997,
incorporated by reference in this Prospectus, have been audited by Coopers &
Lybrand, L.L.P., independent accountants, as stated in their reports also
incorporated by reference herein. Such financial statements and financial
statement schedules have been incorporated by reference herein in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The separate and combined financial statements and financial statement
schedules of Starwood Lodging Trust and Starwood Lodging Corporation for the
year ended December 31, 1994, incorporated by reference in this Prospectus, have
been audited by Deloitte & Touche LLP, independent accountants, as stated in
their report also incorporated by reference herein. Such financial statements
and financial statement schedules have been incorporated by reference herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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The combined financial statements of Pru-HEI Hotel Group appearing in
Starwood Lodging'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 incorporated by reference in
the Company's Joint Current Report on Form 8-K dated September 9, 1997 (as
amended by the 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 reports 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 as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
appearing in the ITT Form 10-K for the year ended December 31, 1996, have been
audited by Arthur Andersen LLP, independent accountants, as set forth in their
report thereon set forth therein and incorporated herein by reference. Such
financial statements have been incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETINGS
STARWOOD LODGING
Stockholder proposals to be considered for inclusion in the proxy
soliciting material for the 1998 Annual Meeting of Shareholders of the Trust or
the 1998 Annual Meeting of Stockholders of the Corporation must be received by
the Corporation not later than August 7, 1998.
Pursuant to Section 4A of Article I and Section 13 of Article III of the
Trust Regulations and Section 7 of Article II and Section 1A of Article III of
the Corporation By-laws, a shareholder of the Trust or a stockholder of the
Corporation who intends at an annual meeting of shareholders or stockholders to
nominate one or more individuals for election at such meeting as a Trustee or
Director, or to present to a meeting of shareholders or stockholders one or more
other items of business, must notify the Trust or the Corporation of the same
not more than 75 days nor less than 50 days before the date of the meeting (or,
if less than 60 days' advance notice or prior public disclosure of the meeting
date is provided, within 10 days after such notice is mailed or such prior
public disclosure of the meeting date is provided, whichever occurs first). A
copy of the Trust Regulations or the Corporation Bylaws, as the case may be,
which documents set forth the information that must be included in any such
notice, will be furnished without charge to any owner of Paired Shares upon
written or oral request made to Shareholder Relations, Starwood Hotels & Resorts
Trust, 2231 E. Camelback Road, Suite 410, Phoenix, Arizona 85016, telephone
number: (602) 852-3900, or Shareholder Relations, Starwood Hotels & Resorts
Worldwide, Inc., 2231 E. Camelback Road, Suite 400, Phoenix, Arizona 85016,
telephone number: (602) 852-3900.
ITT
Proposals submitted by stockholders for inclusion in ITT's proxy statement
for its 1998 annual meeting must have been received by ITT no later than the
close of business on January 1, 1998. Proposals should have been addressed to
Secretary, ITT Corporation, 1330 Avenue of the Americas, New York, New York
10019-5490 and must comply with all of the requirements of Rule 14a-8 under the
Exchange Act as well as the requirements set forth in ITT's By-laws. A copy of
ITT's By-laws may be obtained from the Secretary of ITT upon request.
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GLOSSARY OF TERMS
The following terms used in this Prospectus have the meanings set forth
below:
6 Month Case: Has the meaning set forth in "The Merger -- Opinion of
Financial Advisor to ITT -- Comparative Analysis of Discounted Value of
Consideration from Date Received of Competing Offers.
1997 Final Regulations: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of Holders of Paired Shares -- Federal
Taxation of Non-U.S. Holders of Paired Shares."
Accrediting Commissions: The accrediting commissions that accredit the
technical institutes operated by ITT Educational Services.
Additional Payment: Has the meaning set forth in "Summary -- The Merger --
Merger Consideration."
Affected Employees: Has the meaning set forth in "The Merger Agreement --
Certain Employee Matters."
Amended Hilton Transaction: Has the meaning set forth in "The Merger --
Background of the Merger."
Anti-Abuse Rule: Has the meaning set forth in "Federal Income Tax
Consequences -- Partnership Anti-Abuse Rule."
Antitrust Division: The Antitrust Division of the Department of Justice.
Atlanta: W&S Atlanta Corp.
Available Cash: Has the meaning set forth in "Summary -- The Merger --
Elections by ITT Stockholders."
Available Shares: Has the meaning set forth in "Summary -- The Merger --
Elections by ITT Stockholders."
Bartels: Juergen Bartels.
Bear Stearns: Bear Stearns & Co. Inc.
Bear Stearns Opinion: Written opinion to the Starwood Lodging Boards, dated
November 12, 1997, that the Merger Consideration was fair, from a financial
point of view, to Starwood Lodging.
Book-Tax Difference: Has the meaning set forth in "Federal Income Tax
Consequences -- Tax Allocations with Respect to Contributed Properties."
Built-in Gain Asset: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of the Trust -- General."
Cablevision: Cablevision Systems Corporation.
Caesars: Caesars World, Inc.
Cash Election: Has the meaning set forth in "Summary -- The Merger --
Elections by ITT Stockholders."
Cash Equivalent: Has the meaning set forth in "Description of Starwood
Securities -- Trust Preferred Shares -- Exchange Rights."
CCLGLB: Clark County Liquor and Gaming Licensing Board.
Certificates: Certificates or Certificate representing the shares of ITT
Common Stock (and associated Rights).
Ciga: Ciga, S.p.A.
Circus Circus: Circus Circus Enterprises, Inc.
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Class A Adjustment Events: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Exchange Rights."
Class A EPS: Has the meaning set forth in "Summary -- The Starwood Recent
Developments -- Transaction Agreement."
Class A Exchange Right: Has the meaning set forth in "Description of
Starwood Securities -- The Pairing Agreement -- Exchange Rights."
Class A Liquidation Participation Right: Has the meaning set forth in
"Description of Starwood Securities -- Trust Preferred Shares -- Liquidation
Rights."
Class A Participation Dividend: Has the meaning set forth in "Description
of Starwood Securities -- Trust Preferred Shares -- Dividend Rights."
Class A Preferred Dividend: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Dividend Rights."
Class B Adjustment Events: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares Exchange and Redemption Rights."
Class B EPS: Has the meaning set forth in "Summary -- The Starwood Lodging
Meetings -- Vote Required for Approval of the Starwood Proposals Recent
Developments -- Transaction Agreement."
Class B Exchange Right: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Exchange and Redemption
Rights."
Class B Liquidation Participation Right: Has the meaning set forth in
"Description of Starwood Securities -- Trust Preferred Shares -- Liquidation
Rights."
Class B Participation Dividend: Has the meaning set forth in "Description
of Starwood Securities -- Trust Preferred Shares -- Dividend Rights."
Class B Preferred Dividend: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Dividend Rights."
Class B Redemption Right: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Exchange and Redemption
Rights."
Closing Date: The date on which the Effective Time will occur.
Code: Internal Revenue Code of 1986, as amended.
Commission: Securities and Exchange Commission.
Communications Act: The Communications Act of 1934, as amended.
Comprehensive Plan: Has meaning as set forth in "The Merger -- Background
of the Merger."
Corporation: Starwood Hotels & Resorts Worldwide, Inc. (formerly Starwood
Lodging Corporation), a Maryland corporation.
Corporation Amendment: Has the meaning set forth on the cover page of this
Joint Proxy Statement/Prospectus.
Corporation Articles: Charter of the Corporation.
Corporation Authorized Share Amendment: Has the meaning set forth in
"Summary -- The Starwood Lodging Meetings -- Purposes of the Starwood Lodging
Meetings."
Corporation Board: Corporation's Board of Directors.
Corporation Gaming Provision Amendment: Has the meaning set forth in
"Summary -- The Starwood Lodging Meetings -- Purposes of the Starwood Lodging
Meetings."
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Corporation Meeting: Has the meaning set forth on the cover page of this
Joint Proxy Statement/Prospectus.
Corporation Preferred Shares: Has the meaning set forth in "Description of
Starwood Securities -- General."
Corporation Record Date: Has the meaning set forth in "Summary -- The
Starwood Lodging Meetings -- Record Dates."
Corporation Shares: Common stock, par value $.01 per share, of the
Corporation.
CVP Shares: Contingent Value Preferred Stock of Hilton.
D&O Insurance: Has the meaning set forth in "The Merger Agreement --
Indemnification; Directors and Officers Insurance."
Default Rate Dividends: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Special Default Rights."
Delivered Shares: Has the meaning set forth in "Description of Starwood
Securities -- Trust Preferred Shares -- Exchange Rights."
Denver: W&S Denver Corp.
DHS: DHS Holdings, L.L.C.
Disqualified Holder: A holder of securities of the Corporation that is
found by a Gaming Authority to be disqualified or unsuitable pursuant to any law
or regulation governing the conduct of gaming and related business.
Doubletree: Doubletree Corporation.
Dow Jones: Dow Jones & Company, Inc.
EBIT: Earnings before interest and taxes.
EBITDA: Earnings before interest, taxes, depreciation, and amortization.
ED: The U.S. Department of Education.
Educational Regulations: The ED, Accrediting Commissions, and the laws,
regulations and/or standards of most of the states pertaining to changes in
ownership and/or control of the educational institutions they regulate.
Effective Time: The time at which the Articles of Merger are duly filed
with the Secretary of State of the State of Nevada or at such later time agreed
to by the parties specified in the Articles of Merger.
Election: ITT stockholder's election via Form of Election.
Election Date: February 11, 1998.
Excess Common Trust Shares: Has the meaning set forth in "Description of
Starwood Securities -- General."
Excess Corporation Common Stock: Has the meaning set forth in "Description
of Starwood Securities -- General."
Excess Corporation Preferred Stock: Has the meaning set forth in
"Description of Starwood Securities -- General."
Excess Corporation Stock: Excess Corporation Common Stock together with
Excess Corporation Preferred Stock.
Excess Preferred Trust Shares: Has the meaning set forth in "Description of
Starwood Securities -- General."
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Excess Shares: Has the meaning set forth in "Description of Starwood
Securities -- Trust Preferred Shares -- Exchange Rights."
Excess Stock: Has the meaning set forth in "Description of Starwood
Securities -- Ownership Limits; Restrictions on Transfer; Repurchase and
Redemption of Shares."
Excess Trust Shares: Excess Common Trust Shares together with Excess
Preferred Trust Shares.
Exchange Act: Securities and Exchange Act of 1934, as amended.
Exchange Agent: ChaseMellon Shareholder Services, L.L.C.
Exchange Ratio: Has the meaning set forth in "Summary -- The Merger --
Merger Consideration."
Exchangeable Preferred Shares: Class A EPS and Class B EPS.
Excise Tax: Has the meaning set forth in "Summary -- The Merger --
Interests of Certain Persons in the Merger."
Expenses: Has the meaning set forth in "The Merger Agreement -- Certain
Fees and Expenses."
FCC: Federal Communications Commission.
FCC Approval: Has the meaning set forth in "The Merger -- Regulatory
Approvals -- Federal Communications Commission Approval."
FFO: Funds from operations.
Fidelity: Fidelity Management & Research Company.
Financing Fees: Has the meaning set forth in "The Merger Agreement --
Certain Fees and Expenses."
FMR: FMR Corp.
FMTC: Fidelity Management Trust Company.
Four Seasons: Four Seasons Hotels.
Form of Election: Form of Election and Transmittal Letter.
Former Employees: Has the meaning set forth in "The Merger Agreement --
Certain Employee Matters."
Franchise Agreement: Has the meaning set forth in "Risk Factors -- Hotel
Industry Risks."
FTC: The Federal Trade Commission.
Gaming Authorities: Has the meaning set forth in "Amendments to the
Declaration of Trust of the Trust and the Articles of Incorporation of the
Corporation -- Gaming Provisions -- Proposed Amendment to Corporation Articles."
Gleacher NatWest: Gleacher NatWest Inc.
Gleacher NatWest Opinion: Has the meaning set forth in "The
Merger -- Opinion of Financial Advisor to the ITT Special Committee."
Gleacher Selected Hotel Transactions: Has the meaning set forth in "The
Merger -- Opinion of Financial Advisor to the ITT Special Committee --
Comparable Transactions Analysis."
Goldman Sachs: Goldman Sachs & Co.
Gross Income Tests: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of the Trust -- Income Tests."
Gross-up Payment: Has the meaning set forth in "Summary -- The Merger --
Interests of Certain Persons in the Merger."
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Harrah's: Harrah's Entertainment, Inc.
HFS: HFS Incorporated.
Hilton: Hilton Hotels Corporation.
Hilton Common Stock: Hilton common stock, par value $2.50 per share.
Hilton Offer: Has the meaning set forth in "The Merger -- Background of the
Merger."
Hilton Schedule 14D-1: Schedule 14D-1 and amendments thereto filed by
Hilton and HLT with the Commission with respect to the Hilton Offer.
Hilton Transaction: Proposed Squeeze Out Merger and Hilton Offer.
HLT: HLT Corporation, a wholly owned subsidiary of Hilton.
Host Marriot: Host Marriot Corporation.
HSR Act: Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Interested Stockholder: Has the meaning set forth in "Comparison of Rights
of Stockholders of ITT and Stockholders and Shareholders of Starwood Lodging --
Business Combinations Involving Interested Stockholders."
IRS: The Internal Revenue Service.
IRS Letter: A determination letter received by the Trust from the IRS in
1994 as defined in "Federal Income Tax Consequences -- Federal Income Taxation
of the Trust."
ITT: ITT Corporation, a Nevada corporation.
ITT Articles: Restated Articles of Incorporation of ITT.
ITT Board: Board of Directors of ITT.
ITT Common Stock: Outstanding shares of Common Stock, no par value, of ITT.
ITT Destinations: ITT Destinations, Inc., a subsidiary of ITT.
ITT Educational: ITT Educational Services, Inc., a subsidiary of ITT.
ITT Form 10/K: Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, amended by the Form 10-K/A dated April 30, 1997 and by the
Form 10-K/A dated January 9, 1998.
ITT Information Services: ITT Informational Services, Inc.
ITT Meeting: Has the meaning set forth on the cover page of this Joint
Proxy Statement/Prospectus.
ITT Projections: Has the meaning set forth under ITT Projections.
ITT Proposal: Proposal to approve and adopt the Merger Agreement.
ITT Record Date: Has the meaning set forth in "The Meetings -- Voting
Rights -- The Corporation.
ITT Special Committee: Has the meaning set forth in "The Merger --
Background of the Merger."
ITT Stock Option: Has the meaning set forth in "The Merger Agreement -- ITT
Stock Options."
ITT World Directories: ITT World Directories, Inc., a subsidiary of ITT.
La Quinta: La Quinta Inns, Inc.
Lauderdale: W&S Lauderdale Corp.
Lazard Freres: Lazard Freres & Co., LLC.
Lazard Freres Opinion: Has the meaning set forth in "The Merger -- Opinion
of Financial Advisor to ITT."
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Leases: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of the Trust -- Requirements for
Qualifications."
LSAR: Limited Stock Appreciation Rights.
LTM: Last twelve months.
Management Subsidiaries: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of the Trust -- Requirements for
Qualification."
Market Price: Has the meaning set forth in "Summary -- The Merger -- Merger
Consideration."
Marriott International: Marriott International, Inc.
Maryland REIT: Has the meaning set forth in "Comparison of Rights of
Stockholders of ITT and Stockholders and Shareholders of Starwood Lodging --
Business Combinations Involving Interested Stockholders."
Maryland REIT Law: Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland, as amended.
Members: Bartels, WHWE, Woodstar, and Nomura.
Merger: The merger of Merger Sub with and into ITT.
Merger Agreement: Amended and Restated Agreement and Plan of Merger dated
as of November 12, 1997, among the Corporation, the Trust, Merger Sub, and ITT.
Merger Consideration: Has the meaning set forth in "The Merger -- General."
Merger Sub: Chess Acquisition Corp., a Nevada corporation and a subsidiary
of the Corporation.
MGCL: Maryland General Corporation Law, as amended.
MGM Grand: MGM Grand, Inc.
Mirage: Mirage Resorts, Incorporated.
Mississippi Act: The Mississippi Gaming Control Act, as amended.
Mississippi Commission: The Mississippi Gaming Control Commission.
MSG: Madison Square Garden, L.P.
NASD: The National Association of Securities Dealers, Inc.
Nevada Act: The Nevada Gaming Control Act, as amended, the regulations of
the Nevada Gaming Commission, and the Nevada State Gaming Control Board.
Nevada Board: The Nevada State Gaming Control Board.
Nevada Commission: The Nevada Gaming Commission.
Nevada Gaming Authorities: The Nevada Commission, the Nevada Board, the
CCLGLB, and the Douglas County Commission.
New Jersey Act: The New Jersey Casino Control Act, as amended.
New Jersey Commission: The New Jersey Casino Control Commission.
NGCL: Nevada General Corporation Law, as amended.
Nomura: Nomura Asset Capital Corporation.
Non-Electing Shares: Has the meaning set forth under "The Merger
Agreement -- Proration."
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Nonparticipating Shares: Has the meaning set forth in "Summary -- The
Merger -- Merger Consideration."
Non-U.S. Shareholders: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of Holders of Paired Shares -- Federal
Taxation of Non-U.S. Holders of Paired Shares."
Notice Date: The date upon which the Corporation shall have received notice
of a Disqualified Holder.
Nova Scotia Act: Has the meaning set forth in "The Merger -- Regulatory
Approvals -- Nova Scotia Gaming Regulations."
November 12 Lazard Freres Opinion: Has the meaning set forth in "The
Merger -- Opinion of Financial Advisor to ITT."
NS Subsidiary: A Nova Scotia subsidiary through which ITT operates casinos
in Halifax and Sydney, Nova Scotia.
NYSE: New York Stock Exchange, Inc.
Ontario Act: Has the meaning set forth in "The Merger -- Regulatory
Approvals -- Ontario Gaming Regulations."
Operating Partnership: SLC Operating Limited Partnership.
Operating Subsidiary Entities: Has the meaning set forth under "Federal
Income Tax Consequences -- Federal Income Taxation of the Trust -- Requirements
for Qualification."
Ordinary Income Shareholders: Has the meaning set forth under "Risk
Factors -- Tax Risks -- ITT Stockholders May Recognize Ordinary Income Instead
of Capital Gains in Connection with the Merger," and "Federal Income Tax
Consequences -- Federal Income Tax Consequences of the Merger -- Federal Income
Tax Consequences to ITT Shareholders."
Original Merger: Has the meaning set forth in "The Merger -- Background of
the Merger."
Original Merger Agreement: Agreement and Plan of Merger, dated October 19,
1997, among the Corporation, Merger Sub, the Trust and ITT.
Ownership Limit: Has the meaning set forth in "Risk Factors -- Limits on
Change of Control and Ownership Limitation -- Ownership Limitation."
P/E: 1997 and 1998 price to earnings ratios.
Paired Options: Has the meaning set forth under "The Merger -- Starwood
Lodging Affiliates.".
Paired Share: Has the meaning set forth on the cover page of this Joint
Proxy Statement/Prospectus.
Paired Shares: Combined units consisting of Corporation Shares and Trust
Shares.
Pairing Agreement: Has the meaning set forth on the cover of this Joint
Proxy Statement/Prospectus.
Parent Holding: Parent Holding Corp.
Partnership Provisions: Has the meaning set forth in "Federal Income Tax
Consequences -- Partnership Anti-Abuse Rule."
Patriot American: Patriot American Hospitality, Inc.
PRISA II: Prudential Property Investment Separate Account II.
Prohibited Services: Services that would give rise to unrelated business
taxable income if provided by a tax-exempt organization.
Promedia: ITT Promedia CVA
Promus: Promus Hotel Corporation.
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Proposed Squeeze Out Merger: Has the meaning set forth in "The Merger --
General."
Proxy Statement: The Definitive Proxy Statement on Schedule 14A filed by
ITT with the Commission on October 9, 1997.
Prudential: Prudential Insurance Company of America.
Realty Partnership: SLT Realty Limited Partnership.
Realty Subsidiary Entities: The partnerships and limited liability
companies in which the Trust owns a direct or indirect interest.
Recognition Period: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Tax Consequences of the Trust."
Red Lion: Red Lion Hotels Inc.
Redemption Number of Shares: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Exchange and Redemption
Rights."
Registered Sale Option: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Exchange Rights."
Registration Statement: Has the meaning set forth in "Available
Information."
REIT: A real estate investment trust, as defined in the Code.
REIT Provisions: Sections 856 through 860 of the Code and applicable
Treasury Regulations.
REIT Requirements: Sections 856 through 860 of the Code and applicable
Treasury Regulations.
Related Party Tenant: A tenant owned 10% or more by the REIT, or by a
direct or indirect owner of 10% or more of the REIT.
Renaissance: Renaissance Hotel Group N.V.
Reorganization: Has the meaning set forth in "Description of Starwood
Securities -- Ownership Limits; Restrictions on Transfer; Repurchase and
Redemption of Shares."
Requested Shares: Has the meaning set forth in "Description of Starwood
Securities -- Trust Preferred Shares -- Exchange Rights."
Restricted Stock Awards: Has the meaning set forth in "Summary -- The
Merger -- Stock Options."
Right: Associated preferred share purchase right issued pursuant to the
Rights Agreement.
Rights Agreement: Agreement between ITT and The Bank of New York, as Rights
Agent, dated November 1, 1995.
Ruling: The IRS Private Letter Ruling to the Trust in which the IRS held
that the pairing of Trust Shares with Corporation Shares and the operation of
the Corporation would not preclude the Trust from qualifying as a REIT.
SAR: Stock appreciation right.
Seattle: W&S Seattle Corp.
Securities Act: Securities Act of 1933, as amended.
Selected Comparable Companies: Host Marriot, Parent Holding, La Quinta,
Four Seasons, Marriott International, Mirage, Circus Circus, Harrah's, and MGM
Grand.
Selected Gaming Companies: Circus Circus, Harrah's, MGM Grand, and Mirage.
Selected Gaming Transactions: Has the meaning set forth in "The Merger --
Opinion of Financial Advisor to ITT -- Selected Precedent Transactions
Analysis."
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Selected Hotel Companies: Host Marriott, La Quinta, Parent Holding, Four
Seasons and Marriott International.
Selected Hotel Transactions: Has the meaning set forth in "The Merger --
Opinion of Financial Advisor to ITT -- Selected Precedent Transactions
Analysis."
Selected Paired-Shared REITs: Meditrust Corporation, Patriot American,
First Union Real Estate Equity and Mortgage Investments.
Shares Issuance Proposal: Proposal to approve the issuance of Trust Shares
and Corporation Shares.
Sheraton: ITT Sheraton Corporation, a subsidiary of ITT.
SIV: SIV Holdings, L.L.C.
Special Meetings: ITT Meetings together with Starwood Lodging Meetings.
St. John: St. John Hotel Company, Inc.
Starwood Capital: Starwood Capital Group, L.L.C.
Starwood Companies: Merger Sub together with Starwood Lodging.
Starwood Entities: Trust, Operating Partnership, Realty Partnership and the
Corporation.
Starwood Lodging: The Corporation and the Trust.
Starwood Lodging Boards: Corporation Board and Trust Board.
Starwood Lodging Form 10-K: Joint Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as amended by Form 10-K/A dated April 25, 1997.
Starwood Lodging Meetings: The collective reference to the Corporation
Meeting and Trust Meeting.
Starwood Partners: Starwood Capital Group, L.L.C., Barry S. Sternlicht, BSS
Capital Partners, L.P., Sternlicht Holdings II, Inc., Harveywood Hotel
Investors, L.P., Starwood Hotel Investors II-L.P., Starwood Opportunity Fund II,
L.P. and Firebird Consolidated Partners, L.P.
States: The state educational regulatory authorities.
Stock Election: Has the meaning set forth in "Summary -- The Merger
- -- Elections by ITT Stockholders."
Stock Plans: Has the meaning set forth in "The Merger Agreement -- ITT
Stock Options."
Subsidiary REITs: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Tax of the Trust -- Requirements for
Qualification."
Substitute Options: Has the meaning set forth in "The Merger Agreement --
ITT Stock Options."
Surviving Corporation: Has the meaning set forth in "The Merger Agreement
- -- General."
Synergy Projection: Has the meaning set forth in "The Merger -- Synergy
Projection.
Tax-Exempt Shareholder: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Taxation of Tax-Exempt Holders of Paired Shares."
TIN: Taxpayer identification number.
Transaction Agreement: A Transaction Agreement entered into on September 8,
1997, among the Starwood Entities, the Members, Westin and W&S Hotel L.L.C.
pursuant to which the Starwood Entities would acquire Westin.
Trust: Starwood Hotels & Resorts Trust (formerly Starwood Lodging Trust), a
Maryland real estate investment trust.
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Trust Amendment: Has the meaning set forth on the cover page of this Joint
Proxy Statement Prospectus.
Trust Authorized Share Amendment: Has the meaning set forth in
"Summary -- The Starwood Lodging Meetings -- Purposes of the Starwood Lodging
Meetings."
Trust Board: The Board of Trustees of the Trust.
Trust Common Shares: Common Shares of beneficial interest in the Trust, par
value $.01 per share.
Trust Declaration: Amended and Restated Declaration of Trust of the Trust.
Trust Meeting: Trust's Special Meeting of Shareholders and any and all
adjournments or postponements thereof.
Trust Name Change Proposal: Has the meaning set forth in "Summary -- The
Starwood Lodging Meetings -- Purposes of the Starwood Lodging Meetings."
Trust Preferred Shares: Has the meaning set forth in "Description of
Starwood Securities -- General."
Trust Record Date: Has the meaning set forth in "Summary -- The Starwood
Lodging Meetings -- Record Dates."
Trust Redemption Amendment: Has the meaning set forth in "Summary -- The
Starwood Lodging Meetings -- Purposes of the Starwood Lodging Meetings."
Trust Redemption Right: Has the meaning set forth in "Description of
Starwood Securities -- Trust Preferred Shares -- Exchange and Redemption
Rights."
Trust Shares: Shares of beneficial interest, par value $.01 per share, of
Trust.
UBTI: Unrelated business taxable income.
Uncured Default: Has the meaning set forth in "Description of Starwood
Securities -- Trust Preferred Shares -- Special Default Rights."
U.S. Shareholder: Has the meaning set forth in "Federal Income Tax
Consequences -- Federal Income Taxation of Holders of Paired Shares -- Federal
Income Taxation of Taxable U.S. Holders."
Westin: Atlanta, Westin Worldwide, Lauderdale, Seattle, St. John, and
Denver.
Westin Acquisition: The acquisition of Westin by the Starwood Entities.
Westin Merger: Merger of Westin Worldwide into the Trust.
Westin Worldwide: Westin Hotels & Resorts Worldwide, Inc. (prior to its
merger into the Trust).
WHWE: WHWE L.L.C.
Woodstar: Woodstar Investor Partnership.
Wyndham: Wyndham Hotel Corporation.
ZIM: Ziff Investment Management, L.L.C.
ZIPII: Ziff Investors Partnership, L.P. II.
The name "Starwood Hotels & Resorts Trust" is the designation of Starwood
Hotels & Resorts Trust and its Trustees (as Trustees but not personally) under a
Declaration of Trust dated August 25, 1969, as amended and restated, and all
persons dealing with Starwood Hotels & Resorts Trust must look solely to
Starwood Hotels & Resorts Trust's property for the enforcement of any claims
against Starwood Hotels & Resorts Trust, as the Trustees, officers, agents and
security holders of Starwood Hotels & Resorts Trust assume no personal
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obligations of Starwood Hotels & Resorts Trust, and their respective properties
shall not be subject to claims of any person relating to such obligation.
By Order of the Board of Trustees
STARWOOD HOTELS & RESORTS TRUST
January 14, 1998
Sherwin L. Samuels
Secretary
By Order of the Board of Directors
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
January 14, 1998
Nir E. Margalit
Secretary
By Order of the Board of Directors
ITT CORPORATION
January 14, 1998
Richard S. Ward
Executive Vice President, General
Counsel and Corporate Secretary
No person is authorized to give any information or to make any
representations with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained herein. Any information or
representations with respect to such matters not contained herein must not be
relied upon as having been authorized by the Trust, the Corporation or ITT. This
Joint Proxy Statement/Prospectus does not constitute the solicitation of a proxy
in any jurisdiction to or from any person to whom it is unlawful to make such
solicitation in such jurisdiction. The delivery of this Joint Proxy
Statement/Prospectus shall not, under any circumstances, create any implication
that there has been no change in the affairs of the Trust, the Corporation or
ITT since the date hereof or that the information in this Joint Proxy
Statement/Prospectus is correct as of any time subsequent to the date hereof.
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ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
STARWOOD LODGING CORPORATION,
CHESS ACQUISITION CORP.,
STARWOOD LODGING TRUST
AND
ITT CORPORATION
DATED AS OF NOVEMBER 12, 1997
<PAGE> 172
TABLE OF CONTENTS
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ARTICLE I
THE MERGER
Section 1.1 The Merger............................................................... 1
Section 1.2 Effective Time........................................................... 1
Section 1.3 Effects of the Merger.................................................... 2
Section 1.4 Charter and By-laws; Directors........................................... 2
Section 1.5 Conversion of Securities................................................. 2
Section 1.6 Election of Stock or Cash................................................ 3
Section 1.7 Proration................................................................ 4
Section 1.8 Parent Companies to Make Cash and Certificates Available; Transfer Taxes;
Withholding.............................................................. 5
Section 1.9 Dividends................................................................ 6
Section 1.10 No Fractional Securities................................................. 7
Section 1.11 Return of Exchange Fund.................................................. 7
Section 1.12 Adjustment of Exchange Ratio............................................. 7
Section 1.13 No Further Ownership Rights in Company Common Stock...................... 7
Section 1.14 Closing of Company Transfer Books........................................ 7
Section 1.15 Lost Certificates........................................................ 8
Section 1.16 Further Assurances....................................................... 8
Section 1.17 Closing.................................................................. 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PARENT COMPANIES AND SUB
Section 2.1 Organization, Standing and Power......................................... 8
Section 2.2 Capital Structure........................................................ 9
Section 2.3 Authority................................................................ 10
Section 2.4 Consents and Approvals; No Violation..................................... 10
Section 2.5 SEC Documents and Other Reports.......................................... 12
Section 2.6 Registration Statement and Joint Proxy Statement......................... 12
Section 2.7 Absence of Certain Changes or Events..................................... 12
Section 2.8 Permits and Compliance................................................... 12
Section 2.9 Tax Matters.............................................................. 13
Section 2.10 Actions and Proceedings.................................................. 14
Section 2.11 Compliance with Worker Safety and Environmental Laws..................... 14
Section 2.12 Liabilities.............................................................. 15
Section 2.13 Intellectual Property.................................................... 15
Section 2.14 Opinion of Financial Advisor............................................. 15
Section 2.15 Required Vote of Parent and Trust Stockholders........................... 15
Section 2.16 REIT Status.............................................................. 15
Section 2.17 Brokers.................................................................. 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power......................................... 16
Section 3.2 Capital Structure........................................................ 16
Section 3.3 Authority................................................................ 17
Section 3.4 Consents and Approvals; No Violation..................................... 17
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Section 3.5 SEC Documents and Other Reports.......................................... 18
Section 3.6 Registration Statement and Joint Proxy Statement......................... 18
Section 3.7 Absence of Certain Changes or Events..................................... 18
Section 3.8 Permits and Compliance................................................... 18
Section 3.9 Tax Matters.............................................................. 19
Section 3.10 Actions and Proceedings.................................................. 20
Section 3.11 Certain Agreements....................................................... 20
Section 3.12 ERISA.................................................................... 20
Section 3.13 Compliance with Worker Safety and Environmental Laws..................... 22
Section 3.14 Liabilities.............................................................. 22
Section 3.15 Intellectual Property.................................................... 22
Section 3.16 Rights Agreement......................................................... 22
Section 3.17 Parachute Payments to Disqualified Individuals........................... 23
Section 3.18 Opinion of Financial Advisor............................................. 23
Section 3.19 State Takeover Statutes.................................................. 23
Section 3.20 Required Vote of Company Stockholders.................................... 23
Section 3.21 Brokers.................................................................. 23
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger.................... 23
Section 4.2 Conduct of Business by the Parent Companies Pending the Merger........... 25
Section 4.3 No Solicitation.......................................................... 26
Section 4.4 Third Party Standstill Agreements........................................ 27
Section 4.5 Pre-Merger Transactions.................................................. 27
Section 4.6 Post-Merger Transactions................................................. 28
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholders Meetings.................................................... 28
Section 5.2 Filings; Other Actions................................................... 28
Section 5.3 Comfort Letters.......................................................... 29
Section 5.4 Access to Information.................................................... 29
Section 5.5 Compliance with the Securities Act....................................... 30
Section 5.6 Stock Exchange Listings.................................................. 30
Section 5.7 Fees and Expenses........................................................ 30
Section 5.8 Company Stock Options.................................................... 31
Section 5.9 Reasonable Efforts....................................................... 31
Section 5.10 Public Announcements..................................................... 32
Section 5.11 Transfer and Gains Tax................................................... 32
Section 5.12 State Takeover Laws...................................................... 32
Section 5.13 Indemnification; Directors and Officers Insurance........................ 32
Section 5.14 Notification of Certain Matters.......................................... 33
Section 5.15 Employees................................................................ 33
Section 5.16 Rights Agreement......................................................... 34
Section 5.17 Regulatory Matters....................................................... 34
Section 5.18 New Jersey Trust......................................................... 34
</TABLE>
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<TABLE>
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<S> <C> <C>
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger............... 35
Section 6.2 Conditions to Obligation of the Company to Effect the Merger............. 36
Section 6.3 Conditions to Obligations of Parent, Sub and Trust to Effect the
Merger................................................................... 36
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination.............................................................. 38
Section 7.2 Effect of Termination.................................................... 38
Section 7.3 Amendment................................................................ 39
Section 7.4 Waiver................................................................... 39
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties........................... 39
Section 8.2 Notices.................................................................. 39
Section 8.3 Interpretation........................................................... 40
Section 8.4 Counterparts............................................................. 40
Section 8.5 Entire Agreement; No Third-Party Beneficiaries........................... 40
Section 8.6 Governing Law............................................................ 40
Section 8.7 Assignment............................................................... 40
Section 8.8 Severability............................................................. 40
Section 8.9 Enforcement of this Agreement............................................ 41
Section 8.10 Trust.................................................................... 41
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of November 12,
1997 (this "Agreement"), among Starwood Lodging Corporation, a Maryland
corporation ("Parent"), Chess Acquisition Corp., a Nevada corporation and a
controlled subsidiary of Parent ("Sub"), Starwood Lodging Trust, a Maryland real
estate investment trust ("Trust" and, together with Parent, the "Parent
Companies") and ITT Corporation, a Nevada corporation (the "Company") (Sub and
the Company being hereinafter collectively referred to as the "Constituent
Corporations").
WITNESSETH:
WHEREAS Parent, Sub, Trust and the Company are parties to that certain
Agreement and Plan of Merger dated as of October 19, 1997 (the "Original Merger
Agreement");
WHEREAS Parent, Sub, Trust and the Company wish to amend the Original
Merger Agreement to increase the consideration to be received by stockholders of
ITT in the Merger (as defined below) and to make certain other changes to the
Original Merger Agreement;
WHEREAS the respective Boards of Directors of Parent, Sub, Trust and the
Company have approved the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Common Stock, no par value, of the
Company ("Company Common Stock"), not owned by Parent, the Company or their
respective wholly owned subsidiaries will be converted into shares of common
stock, par value $.01 per share, of Parent ("Parent Common Stock"), and trust
shares, par value $.01 per share, of Trust ("Trust Shares" and, when paired with
shares of Parent Common Stock pursuant to the Pairing Agreement dated as of June
28, 1980, as amended from time to time, between Parent and Trust, "Paired
Shares"), and cash;
WHEREAS the respective Boards of Directors or Trustees, as the case may be,
of each of the Parent Companies and the Company have determined that the Merger
is in furtherance of and consistent with their respective long-term business
strategies and is in the best interest of their respective stockholders or
shareholders, as the case may be; and
WHEREAS the parties to this Agreement intend that the Merger shall be
treated as a taxable acquisition of all the outstanding shares of Company Common
Stock by Parent and the Trust, respectively, in proportion to the relative
percentages of Sub capital stock they own immediately prior to the consummation
of the Merger.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
The Original Merger Agreement is hereby amended and restated to read in its
entirety as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Nevada General Corporation Law (the "NGCL"),
Sub shall be merged with and into the Company at the Effective Time (as defined
in Section 1.2). Following the Merger, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the NGCL.
Section 1.2 Effective Time. The Merger shall become effective when Articles
of Merger (the "Articles of Merger"), executed in accordance with the relevant
provisions of the NGCL, are filed with the Secretary of State of the State of
Nevada; provided, however, that, upon mutual consent of the Constituent
Corporations, the Articles of Merger may provide for a later date of
effectiveness of the Merger not more than 30 days after the date the Articles of
Merger are filed. When used in this Agreement, the term "Effective Time" shall
mean the date and time at which the Articles of Merger are accepted for record
or such later time established by the
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Articles of Merger. The filing of the Articles of Merger shall be made on the
date of the Closing (as defined in Section 1.17).
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 92A.250 of the NGCL.
Section 1.4 Charter and By-laws; Directors. (a) At the Effective Time, the
Articles of Incorporation of Sub, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law; provided, however, that the Articles of Incorporation of Sub
shall include provisions substantially identical to ARTICLE SEVENTH and ARTICLE
NINTH of the Restated Articles of Incorporation, as amended, of the Company
existing as of the date of this Agreement; and provided further that at the
Effective Time Article I of the Articles of Incorporation of Sub shall be
amended to read in its entirety as follows: "The name of the corporation is ITT
Corporation." At the Effective Time, the By-laws of Sub, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or in the
Articles of Incorporation; provided, however, that the By-laws of Sub shall
include provisions substantially identical to Section 4 of the Amended and
Restated By-laws of the Company existing on the date of this Agreement.
(b) The directors of Sub at the Effective Time shall be the directors
of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and
qualified, as the case may be.
Section 1.5 Conversion of Securities. As of the Effective Time, by virtue
of the Merger and without any action on the part of Sub, the Company or the
holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, no par value,
of Sub shall be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving
Corporation.
(b) All shares of Company Common Stock that are held in the treasury
of the Company and shares of Company Common Stock owned by Parent, Trust or
Sub (together, in each case, with the associated Right (as defined in
Section 3.2)) shall be cancelled and no cash, capital stock of Parent or
Trust or other consideration shall be delivered in exchange therefor. All
shares of Company Common Stock that are held by any wholly owned Subsidiary
(as defined in Section 2.1) of the Company, Parent, Sub or the Trust
(together, in each case, with the associated Right) shall be converted into
validly issued, fully paid and nonassessable shares of common stock, no par
value, of the Surviving Corporation.
(c) Each share of Company Common Stock (including restricted shares of
Company Common Stock issued under Company Plans (as defined in Section
3.12(d)) issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled or converted into shares of the
Surviving Corporation in accordance with Section 1.5(b)), together with the
associated Right, which share under the terms of Section 1.7 is to be
converted into cash, shall be converted into the right to receive $85.00 in
cash, without interest (except to the extent specified in Section 1.5(f)).
(d) Except as otherwise provided in Section 1.7 and subject to
Sections 1.10 and 1.12, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to
be cancelled or converted into shares of the Surviving Corporation in
accordance with Section 1.5(b) or converted into the right to receive cash
pursuant to Sections 1.5(c) and 1.7), together with the associated Right,
shall be converted into the right to receive the Exchange Ratio (as defined
below) of validly issued, fully paid and nonassessable Paired Shares. The
"Exchange Ratio" shall be a number equal to the quotient, rounded to the
nearest thousandth, or if there shall not be a nearest thousandth, the next
higher thousandth, of (x) $85.00 divided by (y) the Market Price (as
defined below) of Paired Shares on the fifth New York Stock Exchange, Inc.
("NYSE") trading day prior to the date of the Company Stockholder Meeting
(as defined in Section 5.1); provided, however, that in no event shall the
Exchange Ratio be (A) greater than an amount equal to $85.00 divided by
$53.263 or (B) less than an amount equal to $85.00 divided by $61.263. The
"Market Price" of a Paired Share on
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any date means the average of the Average Prices (as defined below) for the
20 NYSE trading days (the "Averaging Period") randomly selected by a
neutral independent accounting firm appointed by mutual agreement of the
Trust and the Company from the 30 consecutive NYSE trading days immediately
preceding such date. The "Average Price" for any date means the average of
the daily high and low prices per Paired Share as reported on the NYSE
Composite Transactions reporting system (as published in The Wall Street
Journal or, if not published therein, in another authoritative source
mutually selected by the Company and Parent).
(e) All such shares of Company Common Stock (other than shares to be
cancelled in accordance with Section 1.5(b)), and the associated Rights,
when so converted as provided in Section 1.5(c) or (d), shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist and each holder of a Certificate (as defined in Section
1.6(c)) theretofore representing any such shares (and the associated
Rights) shall cease to have any rights with respect thereto, except the
right to receive, upon the surrender of such Certificate in accordance with
Section 1.8, (A) any dividends and other distributions in accordance with
Section 1.9, (B) certificates representing the Paired Shares into which
such shares (and the associated Rights) are converted pursuant to Section
1.5(d), (C) cash into which such shares are converted pursuant to Section
1.5(c) and cash payable pursuant to Section 1.5(f) and (D) any cash,
without interest, in lieu of fractional Paired Shares to be issued or paid
in consideration therefor upon the surrender of such certificate in
accordance with Sections 1.8 and 1.10.
(f) If (but only if) the Closing occurs after January 31, 1998, then
each holder of Company Common Stock issued and outstanding immediately
prior to the Effective Time that is entitled under Section 1.5(c) and (d)
to receive either cash or Paired Shares shall in addition be entitled to
receive cash in an amount per share of Company Common Stock equal to (i)
$85.00 times (ii) 7% per annum accrued from and including January 31, 1998,
to but excluding the date of Closing (without compounding).
Section 1.6 Election of Stock or Cash. Each holder of shares of Company
Common Stock (other than holders of shares to be cancelled as set forth in
Section 1.5(b)) shall have the right to submit a request specifying the number
of shares of Company Common Stock which such holder desires to have converted
into the right to receive Paired Shares in the Merger and the number which such
holder desires to have converted into the right to receive cash in accordance
with the following procedures:
(a) Each holder of shares of Company Common Stock may specify in a
request made in accordance with the provisions of this Section 1.6 (an
"Election") (i) the number of such shares which such holder desires to have
converted into the right to receive cash in the Merger (a "Cash Election")
and (ii) the number of such shares which such holder desires to have
converted into Paired Shares in the Merger (a "Stock Election").
(b) The Parent Companies shall authorize such person or persons as
shall be acceptable to the Parent Companies and the Company to receive
Elections and to act as Exchange Agent hereunder (the "Exchange Agent").
(c) The Parent Companies and the Company shall prepare, for use by
stockholders of the Company in surrendering certificates (the
"Certificates") representing shares of Company Common Stock, a form (the
"Form of Election") pursuant to which each holder of Company Common Stock
may make Elections. The Form of Election shall be mailed to stockholders of
record of the Company as of the record date for the Company Stockholder
Meeting and shall accompany the Joint Proxy Statement (as defined in
Section 2.6).
(d) The Company shall use all reasonable efforts to make the Form of
Election available to all persons who become stockholders of record of the
Company during the period between such record date and the business day
prior to the date of the Company Stockholder Meeting.
(e) An Election shall have been properly made only if the Exchange
Agent shall have received, by 5:00 p.m., New York City time, on the
business day (such time on such day being referred to herein as the
"Election Date") preceding the date of the Company Stockholder Meeting, a
Form of Election
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properly completed and signed and accompanied by the Certificate or
Certificates representing the shares of Company Common Stock (and
associated Rights) to which such Form of Election relates (or by an
appropriate guarantee of delivery of such Certificate or Certificates as
set forth in such Form of Election from a member of any registered national
securities exchange or of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or
correspondent in the United States, provided such Certificate or
Certificates are in fact delivered by the time set forth in such guarantee
of delivery).
(f) Any holder of record of shares of Company Common Stock may at any
time prior to the Election Date change such holder's Election by written
notice received by the Exchange Agent at or prior to the Election Date
accompanied by a properly completed Form of Election. The Parent Companies
and the Company shall have the right in their sole discretion and by mutual
agreement to permit changes in Elections after the Election Date.
(g) Any holder of record of shares of Company Common Stock may at any
time prior to the Election Date revoke such holder's Election by written
notice received by the Exchange Agent at or prior to the Election Date or
by withdrawal prior to the Election Date of such holder's Certificates
previously deposited with the Exchange Agent. Any revocation of an Election
may be withdrawn by notice of such withdrawal delivered at or prior to the
Election Date. Any stockholder of the Company who shall have deposited
Certificates with the Exchange Agent shall have the right to withdraw such
Certificates by written notice received by the Exchange Agent and thereby
revoke such holder's Election as of the Election Date at any time after the
expiration of the period of 60 days following the Election Date if the
Merger shall not have been consummated prior thereto. The Parent Companies
shall obtain from the Exchange Agent an agreement to return all Forms of
Election and accompanying Certificates to the stockholders submitting the
same in the event this Agreement shall be terminated in accordance with its
terms.
(h) The Parent Companies and the Company by mutual agreement shall
have the right to make rules, not inconsistent with the terms of this
Agreement, governing the validity of Forms of Election, the manner and
extent to which Elections are to be taken into account in making the
determinations prescribed by Section 1.7, the issuance and delivery of
certificates for Paired Shares into which shares of Company Common Stock
are converted in the Merger and the payment for shares of Company Common
Stock converted into the right to receive cash in the Merger.
Section 1.7 Proration. The determination of whether shares of Company
Common Stock (other than shares to be cancelled or converted into shares of the
Surviving Corporation as set forth in Section 1.5(b)), and the associated
Rights, shall be converted in the Merger into the Exchange Ratio of Paired
Shares or the right to receive $85.00 in cash shall be made as set forth in this
Section 1.7.
(a) As is more fully set forth below, the aggregate number of shares
of Company Common Stock to be converted in the Merger into the right to
receive cash shall not (i) exceed 30% or (ii) be less than 18%, in either
case of all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time.
(b) If Cash Elections are received for a number of shares of Company
Common Stock which is more than 30% of the total number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time, each Non-Electing Share (as defined in Section 1.7(f)) and
each share of Company Common Stock for which a Stock Election has been
received (in each case, together with the associated Right) shall be
converted in the Merger into the Exchange Ratio of Paired Shares and the
shares of Company Common Stock for which Cash Elections have been received
(and the associated Rights) shall be converted in the Merger into right to
receive cash and the Exchange Ratio of Paired Shares in the following
manner: the largest whole number of shares of Company Common Stock (and the
associated Rights) covered by each Cash Election which is not in excess of
the number of shares of Company Common Stock covered by such Cash Election
multiplied by a fraction the numerator of which shall be a number equal to
30% of the number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time and the denominator shall be the
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aggregate number of shares of Company Common Stock covered by all Cash
Elections, shall be converted into the right to receive $85.00 per share in
cash, without interest (except to the extent specified in Section 1.5(f)).
The balance of the shares of Company Common Stock covered by Cash Elections
(together with the associated Rights) shall be converted into the right to
receive the Exchange Ratio of Paired Shares.
(c) If Stock Elections are received for a number of shares of Company
Common Stock which is more than 82% of the total number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time, each Non-Electing Share and each share of Company Common
Stock for which a Cash Election has been received (in each case, together
with the associated Right) shall be converted in the Merger into the right
to receive $85.00 in cash, without interest (except to the extent specified
in Section 1.5(f)), and the shares of Company Common Stock for which Stock
Elections have been received shall be converted in the Merger into the
Exchange Ratio of Paired Shares and the right to receive cash in the
following manner: the largest whole number of shares of Company Common
Stock (and associated Rights) covered by each Stock Election which is not
in excess of the number of shares of Company Common Stock covered by such
Stock Election multiplied by a fraction the numerator of which shall be a
number equal to 82% of the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time and the denominator
of which shall be the aggregate number of shares of Company Common Stock
covered by all Stock Elections, shall be converted into the right to
receive the Exchange Ratio of Paired Shares. The balance of the shares of
Company Common Stock covered by Stock Elections (together with the
associated Rights) shall be converted into the right to receive $85.00 per
share in cash, without interest (except to the extent specified in Section
1.5(f)).
(d) If Cash Elections are received for a number of shares of Company
Common Stock which is greater than or equal to 18%, but less than or equal
to 30%, the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time, each share of Company
Common Stock covered by a Cash Election shall be converted in the Merger
into the right to receive $85.00 in cash, without interest (except to the
extent specified in Section 1.5(f)), and each share of Company Common Stock
covered by a Stock Election shall be converted in the Merger into the
Exchange Ratio of Paired Shares.
(e) If Non-Electing Shares are not converted under either Section
1.7(b) or Section 1.7(c), the Exchange Agent shall determine by lot (or by
such other method as is deemed reasonable by the Parent Companies) which of
such Non-Electing Shares shall be converted in the Merger into the right to
receive $85.00 in cash per share, without interest (except to the extent
specified in Section 1.5(f)); provided, however, that such selection by lot
(or by such other method) will cease when the sum of the shares converted
in such manner, plus the number of shares of Company Common Stock covered
by Cash Elections is equal to such percentage, not less than 18% nor more
than 30%, as shall be specified by the Parent Companies in writing to the
Exchange Agent prior to the Effective Time, of the total number of shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time. Each Non-Electing Share not so converted into cash shall be
converted into the right to receive the Exchange Ratio of Paired Shares.
(f) For the purpose of this Section 1.7, outstanding shares of Company
Common Stock (other than shares owned by Parent, Sub, Trust or the Company
or any of their respective wholly owned Subsidiaries) as to which an
Election is not in effect at the Election Date and shares as to which an
Election has been withdrawn after the 60-day period following the Election
Date shall be called "Non-Electing Shares". If the Parent Companies and the
Company shall determine for any reason that any Election was not properly
made with respect to shares of Company Common Stock, such Election shall be
deemed to be ineffective and shares of Company Common Stock covered by such
Election shall, for purposes hereof, be deemed to be Non-Electing Shares.
Section 1.8 Parent Companies to Make Cash and Certificates Available;
Transfer Taxes; Withholding. (a) As soon as practicable after the Effective
Time, the Parent Companies shall deposit with the
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Exchange Agent, in trust for the holders of shares of Company Common Stock
converted in the Merger, certificates representing the Paired Shares issuable
and the cash then payable pursuant to Sections 1.5, 1.7, 1.9 and 1.10 (such cash
and Paired Shares, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"). The Exchange
Agent shall invest any cash included in the Exchange Fund as directed by the
Parent Companies, on a daily basis. Any interest or other income resulting from
such investments shall be paid to the Parent Companies. As soon as practicable
after the Effective Time, the Exchange Agent shall distribute to each holder of
shares of Company Common Stock converted into the right to receive cash or
Paired Shares pursuant to Section 1.5, 1.7, 1.9 and 1.10, upon surrender to the
Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Certificates for cancellation, a check for the amount
of cash to which such holder is entitled under such sections and certificates
representing Paired Shares to which such holder is entitled under such sections.
As soon as practicable after the Effective Time, the Exchange Agent shall mail
to each holder of record of a Certificate or Certificates whose shares were
converted pursuant to this Article I (other than any holder who previously
surrendered all its Certificates with a Form of Election or pursuant to a
guarantee of delivery set forth in a Form of Election) (A) a letter of
transmittal in form reasonably acceptable to the Company and the Parent
Companies (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon actual delivery of the
Certificates to the Exchange Agent) and (B) instructions for use in effecting
the surrender of the Certificates.
(b) Upon surrender for cancellation to the Exchange Agent of a
Certificate, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole Paired Shares
issuable and the cash payable to such holder pursuant to Sections 1.5, 1.7,
1.9 and 1.10 of this Agreement. Each Paired Share into which a share of
Company Common Stock shall be converted shall be deemed to have been issued
at the Effective Time. All Paired Shares shall be issued directly by the
Trust and Parent and no Paired Shares shall at any time be held by the
Surviving Corporation. If any certificate representing Paired Shares or
cash or other property is to be issued or delivered in a name other than
that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such Paired Shares in a name other than that
of the registered holder of the Certificate surrendered, or shall establish
to the satisfaction of the Exchange Agent that such tax has been paid or is
not applicable. The Parent Companies or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock
such amounts as the Parent Companies or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or under any
provision of state, local or foreign tax law. To the extent that amounts
are so withheld by the Parent Companies or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by the Parent
Companies or the Exchange Agent.
Section 1.9 Dividends. No dividends or other distributions that are
declared on or after the Effective Time on the Paired Shares, or are payable to
the holders of record thereof on or after the Effective Time, will be paid to
any person entitled by reason of the Merger to receive a certificate
representing Paired Shares until such person surrenders the related Certificate
or Certificates, as provided in this Article I. Subject to the effect of
applicable law, there shall be paid to each record holder of a new certificate
representing such Paired Shares: (i) at the time of such surrender or as
promptly as practicable thereafter, the amount, if any, of any dividends or
other distributions theretofore paid with respect to the Paired Shares
represented by such new certificate and having a record date on or after the
Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount,
if any, of any dividends or other distributions payable with respect to such
Paired Shares and having a record date on or after the Effective Time but prior
to such surrender and a payment date on or subsequent to such surrender. In no
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event shall the person entitled to receive such dividends or other distributions
be entitled to receive interest on such dividends or other distributions.
Section 1.10 No Fractional Securities. No certificates or scrip
representing fractional Paired Shares shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Parent or Trust
dividend or other distribution or stock split shall relate to any fractional
share, and no fractional share shall entitle the owner thereof to vote or to any
other rights of a security holder of Parent or Trust. In lieu of any such
fractional share, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a Paired Share upon surrender of Certificates for
exchange pursuant to this Article I will be paid an amount in cash (without
interest, except pursuant to Section 1.5(f)), rounded to the nearest cent,
determined by multiplying (i) the average of the per share closing prices on the
NYSE of a Paired Share (as reported in the NYSE Composite Transactions) during
the five consecutive trading days ending on the trading day immediately prior to
the date of the Effective Time by (ii) the fractional interest to which such
holder would otherwise be entitled. As promptly as practicable after the
determination of the amount of cash to be paid to holders of fractional share
interests, the Exchange Agent shall so notify the Parent Companies, and the
Parent Companies shall deposit such amount with the Exchange Agent and shall
cause the Exchange Agent to forward payments to such holders of fractional share
interests subject to and in accordance with the terms of this Article I. For
purposes of paying such cash in lieu of fractional shares, all Certificates
surrendered for exchange by a Company stockholder shall be aggregated, and no
such Company stockholder will receive cash in lieu of fractional shares in an
amount equal to or greater than the value of one full Paired Share with respect
to such Certificates surrendered.
Section 1.11 Return of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the former stockholders of the Company for one
year after the Effective Time shall be delivered to the Parent Companies and any
such former stockholders who have not theretofore complied with this Article I
shall thereafter look only to the Parent Companies for payment of their claim
for Paired Shares and/or cash into which such shares of Company Common Stock are
convertible, any cash in lieu of fractional shares of Parent Common Stock and
any dividends or distributions with respect to Paired Shares. None of Parent,
Trust or Surviving Corporation shall be liable to any former holder of Company
Common Stock for any such Paired Shares, cash and dividends and distributions
held in the Exchange Fund which is delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
Section 1.12 Adjustment of Exchange Ratio. In the event that, prior to the
Effective Time, Parent or Trust effects any reclassification, stock split or
stock dividend with respect to Parent Common Stock or Trust Shares, any change
or conversion of Parent Common Stock or Trust Shares into other securities or
any other dividend or distribution with respect to the Paired Shares, other than
(i) dividends contemplated by Sections 4.5(c) and (d) and (ii) dividends in the
aggregate not to exceed the greater of (a) the current rate of the Parent
Companies' dividends (together with any increases in such rate in the ordinary
course) and (b) the Trust's "real estate investment taxable income" (as such
term is defined for purposes of the Code) without regard to any net capital
gains or the deduction for dividends paid, appropriate and proportionate
adjustments, if any, shall be made to the Exchange Ratio, and all references to
the Exchange Ratio in this Agreement shall be deemed to be to the exchange Ratio
as so adjusted.
Section 1.13 No Further Ownership Rights in Company Common Stock. All
Paired Shares and cash issued or paid upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash or other
property paid pursuant to Sections 1.9 and 1.10) shall be deemed to have been
issued in full satisfaction of all rights pertaining to the shares of Company
Common Stock and associated Rights represented by such Certificates, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such shares of Company Common Stock
in accordance with the terms of this Agreement or prior to the date of this
Agreement and which remain unpaid at the Effective Time.
Section 1.14 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
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Corporation, the Exchange Agent or the Parent, such Certificates shall be
cancelled and exchanged as provided in this Article I.
Section 1.15 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Parent Companies or the Exchange Agent, the posting by such person of a
bond, in such reasonable amount as the Parent Companies or the Exchange Agent
may direct (but consistent with the practices the Parent Companies apply to
their own respective stockholders) as indemnity against any claim that may be
made against them with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Paired
Shares and/or cash or other property payable pursuant to this Article I.
Section 1.16 Further Assurances. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.17 Closing. The closing of the Merger (the "Closing") and all
actions contemplated by this Agreement to occur at the Closing shall take place
at the offices of Sidley & Austin, 875 Third Avenue, New York, New York, at
10:00 a.m., local time, on a date to be specified by the parties, which (subject
to fulfillment or waiver of the conditions set forth in Article VI) shall be no
later than the second business day following the day on which the last of the
conditions set forth in Article VI shall have been fulfilled or waived, or at
such other time and place as Parent and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT COMPANIES AND SUB
Each of the Parent Companies and Sub represents and warrants to the Company
as follows:
Section 2.1 Organization, Standing and Power. Each of the Parent Companies
and Sub is a real estate investment trust or a corporation, as the case may be,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to carry
on its business as now being conducted. Each Subsidiary of each of the Parent
Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized and has the requisite
corporate (in the case of a Subsidiary that is a corporation) or other power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power
or authority, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect (as hereinafter
defined) on the Parent Companies. The Parent Companies and each of their
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Parent Companies.
For all purposes of this Agreement, any reference to any state of facts,
event, change or effect having a "Material Adverse Effect" on or with respect to
the Parent Companies or the Company, as the case may be,
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means such state of facts, event, change or effect which has had, or would
reasonably be expected to have, a material adverse effect on the business,
properties, results of operations, financial condition or prospects of the
Parent Companies and their Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, as the case may be. For all purposes of this
Agreement, "Subsidiary" means any corporation, partnership, limited liability
company, joint venture or other legal entity of which the Parent Companies or
the Company, as the case may be (either alone or through or together with any
other Subsidiary), (i) owns, directly or indirectly, more than 50% of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation, partnership, limited liability company, joint venture or other
legal entity or (ii) is a general partner, trustee or other entity performing
similar functions.
Section 2.2 Capital Structure. At the date hereof, the authorized capital
stock of Parent consists of 100,000,000 shares of Parent Common Stock, and the
authorized capital stock of Trust consists of 100,000,000 Trust Shares,
20,000,000 excess trust shares, par value $.01 per share ("Excess Trust
Shares"), and 5,000,000 excess preferred shares, par value $.01 per share
("Excess Preferred Shares"). At the close of business on October 17, 1997,
51,302,015 shares of Parent Common Stock and 51,302,015 Trust Shares were issued
and outstanding. As of October 17, 1997, 62,978,381 units of SLT Realty Limited
Partnership ("SLT Units") and 63,232,722 units of SLC Operating Limited
Partnership ("SLC Units") were outstanding. As of October 17, 1997, the Trust
beneficially owned 51,302,015 SLT Units and Parent and its subsidiaries
beneficially owned 51,302,015 SLC Units and the remaining issued and outstanding
SLT Units and SLC Units were owned by the persons and in the quantities set
forth in Section 2.2 of the Parent Letter. All the outstanding SLT Units and SLC
Units have been duly authorized and are validly issued, fully paid and
nonassessable. The capital stock of Sub consists of 100,000 shares of Common
Stock, no par value, of which as of the date of this Agreement, 1,000 shares of
Common Stock were issued and outstanding, of which, as of the date of the
Agreement, 910 shares were owned directly by Parent and 90 shares were owned
directly by Trust, and 10,000 shares of Preferred Stock, no par value, of which
as of the date of this Agreement, no shares were issued and outstanding.
Immediately prior to the Effective Time, the Trust will acquire an appropriate
amount of Common Stock of the Sub. At the close of business on October 17, 1997,
none of the Parent Companies had any shares or units reserved for issuance,
except for Trust Shares and shares of Parent Common Stock reserved for issuance
upon the exchange of the SLT Units and the SLC Units, respectively, and except
that, as of October 17, 1997, there were 5,908,313 shares of Parent Common Stock
and 5,908,313 Trust Shares reserved for issuance pursuant to the Incentive and
Non-Qualified Shares Option Plan (1986) of the Trust, the Corporation Stock
Non-Qualified Stock Option Plan (1986) of the Trust, the Stock Option Plan
(1986) of the Corporation, the Trust Shares Option Plan (1986) of the
Corporation, the 1995 Share Option Plan of the Trust, and the 1995 Share Option
Plan of the Corporation (collectively, the "Parent Stock Plans"). Except as set
forth above, at the close of business on October 17, 1997, no shares of capital
stock or other voting securities of the Parent Companies were issued, reserved
for issuance or outstanding. All the outstanding shares of Parent Common Stock
and Trust Shares are validly issued, fully paid and nonassessable and free of
preemptive rights. All shares of Parent Common Stock and Trust Shares issuable
in exchange for Company Common Stock at the Effective Time in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid and nonassessable and free of preemptive rights and will be paired with
each other in the same ratio as all other shares of Parent Common Stock and
Trust Shares are paired with each other, as such ratio may change from time to
time. As of the date of this Agreement, except as set forth in Section 2.2 of
the letter dated the date hereof and delivered on the date hereof by the Parent
Companies to the Company, which letter relates to this Agreement and is
designated therein as the Parent Letter (the "Parent Letter"), and except for
(a) this Agreement, (b) stock options issued pursuant to the Parent Stock Plans
covering not in excess of 5,908,313 Trust Shares and 5,908,313 shares of Parent
Common Stock (collectively, the "Parent Stock Options"), (c) 11,930,707 Trust
Shares and 11,930,707 shares of Parent Common Stock issuable upon the exchange
of SLT Units and SLC Units, respectively, (d) the Transaction Agreement dated as
of September 8, 1997 (the "Westin Transaction Agreement"), among the Parent
Companies, WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital
Corporation, Juergen Bartels, W&S Hotel L.L.C., Westin Hotels & Resorts
Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp., Westin St. John Hotel
Company, Inc., W&S Denver Corp., W&S Atlanta Corp., SLT
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Realty Limited Partnership and SLC Operating Limited Partnership, and (e) Paired
Shares issuable pursuant to the Forward Purchase Contract dated as of October
13, 1997 (the "Forward Purchase Contract") with an affiliate of Union Bank of
Switzerland, there are no options, warrants, calls, rights or agreements to
which the Parent Companies or any of their Subsidiaries is a party or by which
any of them is bound obligating the Parent Companies or any of their
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Parent Companies or any of their
Subsidiaries or obligating the Parent Companies or any of their Subsidiaries to
grant, extend or enter into any such option, warrant, call, right or agreement.
Each outstanding share of capital stock of each Subsidiary of the Parent
Companies that is a corporation is duly authorized, validly issued, fully paid
and nonassessable and, except as disclosed in the Parent SEC Documents (as
defined in Section 2.5) filed prior to the date of this Agreement, each such
share is owned by the Parent Companies or another Subsidiary of the Parent
Companies, free and clear of all security interests, liens, claims, pledges,
mortgages, options, rights of first refusal, agreements, limitations on voting
rights, charges and other encumbrances of any nature whatsoever (each, a
"Lien"). As of the date of this Agreement, none of the Parent Companies has
outstanding any bonds, debentures, notes or other indebtedness of Parent having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders or shareholders of the
Parent Companies may vote. As of the date of this Agreement, there are no
outstanding contractual obligations of the Parent Companies or any of their
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Parent Companies or any of their Subsidiaries. Except as set forth
in Section 2.2 of the Parent Letter, Exhibit 21 to the Annual Report on Form
10-K of the Parent Companies for the year ended December 31, 1996 (the "Parent
Annual Report"), as filed with the Securities and Exchange Commission (the
"SEC"), is a true, accurate and correct statement in all material respects of
all the information required to be set forth therein by the rules and
regulations of the SEC.
Section 2.3 Authority. The Boards of Directors or Trustees, as the case may
be, of the Parent Companies and Sub have duly approved and adopted this
Agreement. The Board of Directors or Trustees, as the case may be, of each of
the Parent Companies has respectively declared advisable an amendment to
Parent's Articles of Incorporation and Trust's Declaration of Trust to (i)
increase the number of authorized shares of Parent Common Stock to 1,000,000,000
and the number of authorized Trust Shares to 1,000,000,000, respectively, and
(ii) include any provisions required by, or deemed advisable under, any Gaming
Laws (the "Charter Amendments"). The Board of Directors or Trustees, as the case
may be, of each of the Parent Companies has resolved to recommend the approval
by their respective stockholders or shareholders, as applicable, of the
respective Charter Amendments and the respective issuance of Parent Common Stock
and Trust Shares, in connection with the Merger as contemplated by this
Agreement (the "Share Issuances"). Each of the Parent Companies and Sub has all
requisite power and authority to enter into this Agreement and, subject to
approval by the stockholders or shareholders, as applicable, of Parent and Trust
of the respective Charter Amendments and Share Issuances, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Parent Companies and Sub and the consummation by the Parent Companies and
Sub of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Parent Companies and Sub, subject to
approval by the stockholders or shareholders, as applicable, of Parent and Trust
of the respective Charter Amendments and Share Issuances. This Agreement has
been duly executed and delivered by each of the Parent Companies and Sub and
(assuming the valid authorization, execution and delivery of this Agreement by
the Company and the validity and binding effect of this Agreement on the
Company) constitutes the valid and binding obligation of the Parent Companies
and Sub enforceable against each of them in accordance with its terms. The
Charter Amendments, the Share Issuances and the filing of a joint registration
statement on Form S-4 with the SEC by the Parent Companies under the Securities
Act of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), for the purpose of registering the Paired
Shares to be issued in connection with the Merger as contemplated by this
Agreement (together with any amendments or supplements thereto, whether prior to
or after the effective date thereof, the "Registration Statement") have been
duly authorized by Parent's Board of Directors and Trust's Board of Trustees.
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.4 have been obtained and all filings and obligations
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described in this Section 2.4 have been made, and except as set forth in Section
2.4 of the Parent Letter, the execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, result in any violation of, or default or loss
of a material benefit (with or without notice or lapse of time, or both) under,
or give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien upon any of the
properties, assets or operations of the Parent Companies or any of their
Subsidiaries under, any provision of (i) the Declaration of Trust, articles of
incorporation, Trust Regulations or by-laws, as applicable, of the Parent
Companies, (ii) any provision of the comparable charter or organization
documents of any Subsidiary of the Parent Companies, (iii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Parent
Companies or any of their Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Parent Companies
or any of their Subsidiaries or any of their respective properties, assets or
operations, other than, in the case of clauses (ii), (iii) or (iv), any such
violations, defaults, losses, rights or Liens that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Parent Companies, materially impair the ability of the Parent Companies or
Sub to perform their respective obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or approval of, any domestic
(federal or state), foreign or supranational court, commission, governmental
body, regulatory agency, authority or tribunal (a "Governmental Entity") is
required by or with respect to the Parent Companies or any of their Subsidiaries
in connection with the execution and delivery of this Agreement by the Parent
Companies or Sub or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except (i) in connection, or
in compliance, with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act and the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), (ii) the filing of the
Articles of Merger with the Secretary of State of the State of Nevada and
appropriate documents with the relevant authorities of other states in which the
Parent Companies or any of their Subsidiaries are qualified to do business,
(iii) such filings and consents as may be required under any environmental,
health or public or worker safety law or regulation specified in Section 2.4 of
the Parent Letter pertaining to any notification, disclosure or required
approval triggered by the Merger or by the transactions contemplated by this
Agreement, (iv) such filings as may be required in connection with the taxes
described in Section 5.11, (v) applicable requirements, if any, of state
securities or "blue sky" laws ("Blue Sky Laws") and the NYSE, (vi) as may be
required under foreign laws, (vii) such filings as may be required under the
rules of the NYSE in connection with the Charter Amendments, (viii) filings with
and approvals by any regulatory authority with jurisdiction over the Company's
gaming operations required under any Federal, state, local or foreign statute,
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, decree, injunction or other authorization governing or relating to the
current or contemplated casino and gaming activities and operations of the
Company, including the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, the Nevada Gaming Control Act and the rules
and regulations promulgated thereunder, the Mississippi Gaming Control Act and
the rules and regulations promulgated thereunder, the Clark County governmental
authorities and the rules and regulations promulgated thereby, the Indiana
Gaming Control Act and the rules and regulations promulgated thereunder, the
Nova Scotia Gaming Control Act and the rules and regulations promulgated
thereunder, and the Ontario-Gaming Control Act and the rules and regulations
promulgated thereunder (collectively, the "Gaming Laws"), (ix) filings with and
approvals of state educational regulatory authorities, nongovernmental
accrediting commissions and the U.S. Department of Education and, if required,
with the Federal Communications Commission, (x) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (a) as may be
required under the laws of any foreign country in which the Company or any of
its subsidiaries conducts any business or owns any property or assets or (b) as
are set forth in Section 2.4 of the Parent Letter, and (xi) such other consents,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Parent
Companies, materially impair the ability of the Parent Companies or Sub to
perform their respective obligations hereunder or prevent the consummation of
any of the transactions contemplated hereby.
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Section 2.5 SEC Documents and Other Reports. The Parent Companies have
filed all required documents with the SEC since January 1, 1996 (the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Parent Companies included in
the Parent SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles (except, in
the case of the unaudited statements, as permitted by Regulation S-X of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented the consolidated
financial position of Trust and Parent and their consolidated Subsidiaries as of
the respective dates thereof and the consolidated results of their operations
and their consolidated cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and to any
other adjustments described therein). Except as disclosed in the Parent SEC
Documents or as required by generally accepted accounting principles, the Parent
Companies have not, since December 31, 1996, made any change in the accounting
practices or policies applied in the preparation of their financial statements.
Section 2.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by the Parent Companies or Sub for inclusion or
incorporation by reference in the Registration Statement or the joint proxy
statement/prospectus included therein (together with any amendments or
supplements thereto, the "Joint Proxy Statement") relating to the Stockholder
Meetings (as defined in Section 5.1) will (i) in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Joint Proxy Statement, at the
time of the mailing of the Joint Proxy Statement and at the time of each of the
Stockholder Meetings, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event with
respect to the Parent Companies, their respective officers and directors or any
of their Subsidiaries shall occur that is required to be described in the Joint
Proxy Statement or the Registration Statement, such event shall be so described,
and an appropriate amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of Parent and the
Company. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act, and the Joint Proxy
Statement will comply (with respect to the Parent Companies) as to form in all
material respects with the provisions of the Exchange Act.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Documents filed prior to the date of this Agreement, since
December 31, 1996, (a) the Parent Companies and their Subsidiaries have not
sustained any loss or interference with their business or properties from fire,
flood, windstorm, accident or other calamity (whether or not covered by
insurance) that, individually or in the aggregate, has had, or would reasonably
be expected to have, a Material Adverse Effect on the Parent Companies, (b)
there have not been any events, changes or developments that, individually or in
the aggregate, have had or would reasonably be expected to have, a Material
Adverse Effect on the Parent Companies or (c) there has not been any split,
combination or reclassification of any of the capital stock of Parent or Trust
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of such capital stock,
except as contemplated by this Agreement. The approximate aggregate amount of
indebtedness of the Parent Companies and their respective Subsidiaries as of
September 30, 1997, is set forth in Section 2.7 of the Parent Letter.
Section 2.8 Permits and Compliance. Each of the Parent Companies and their
respective Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions,
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consents, certificates, approvals and orders of any Governmental Entity
necessary for the Parent Companies or any of their Subsidiaries to own, lease
and operate its properties or to carry on its business as it is now being
conducted (the "Parent Permits"), except where the failure to have any of the
Parent Permits, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies, and, as of the date of this Agreement, no suspension or cancellation
of any of the Parent Permits is pending or, to the Knowledge of the Parent
Companies (as hereinafter defined), threatened, except where the suspension or
cancellation of any of the Parent Permits, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Parent Companies. None of the Parent Companies or any of their
Subsidiaries is in violation of (A) their respective charter, by-laws or other
organizational documents, (B) any applicable law, ordinance, administrative or
governmental rule or regulation or (C) any order, decree or judgment of any
Governmental Entity having jurisdiction over the Parent Companies or any of
their Subsidiaries, except, in the case of clauses (A), (B) and (C), for any
violations that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. Except as disclosed in the Parent SEC Documents filed prior to the
date of this Agreement, as of the date hereof, there is no contract or agreement
that is material to the business, properties, results of operations or financial
condition of the Parent Companies and their Subsidiaries, taken as a whole.
Except as set forth in the Parent SEC Documents or Section 2.8 of the Parent
Letter, prior to the date of this Agreement, no event of default or event that,
but for the giving of notice or the lapse of time or both, would constitute an
event of default exists or, upon the consummation by the Parent Companies of the
transactions contemplated by this Agreement, will exist under any indenture,
mortgage, loan agreement, note or other agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
lease, license or other agreement or instrument to which the Parent Companies or
any of their Subsidiaries is a party or by which the Parent Companies or any
such Subsidiary is bound or to which any of the properties, assets or operations
of the Parent Companies or any such Subsidiary is subject, other than any
defaults that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. For purposes of this Agreement, the term "Knowledge" when used with
respect to the Parent Companies means the actual knowledge of the individuals
identified in Section 2.8 of the Parent Letter.
Section 2.9 Tax Matters. Except as otherwise set forth in Section 2.9 of
the Parent Letter, (i) the Parent Companies and each of their respective
Subsidiaries have timely filed all federal, state, local, foreign and provincial
income and Franchise Tax Returns and all other material Tax Returns required to
have been filed or appropriate extensions therefor have been properly obtained,
and such Tax Returns are, true, correct and complete, except to the extent that
any failure to so file or any failure to be true, correct and compete,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Parent Companies; (ii) all
Taxes required to have been paid by the Parent Companies and each of their
respective Subsidiaries have been timely paid or extensions for payment have
been properly obtained, except to the extent that any failure to pay any such
Taxes or to properly obtain an extension for such payment, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Parent Companies; (iii) the Parent Companies and
each of their respective Subsidiaries have complied in all material respects
with all rules and regulations relating to the withholding of Taxes except to
the extent that any failure to comply with such rules and regulations,
individually in the aggregate, has not had, and would not reasonably be expected
to have, a Material Adverse Effect on the Parent Companies; (iv) none of the
Parent Companies or any of their respective Subsidiaries has waived in writing
any statute of limitations in respect of its federal, state, local, foreign or
provincial income or franchise Taxes and no deficiency with respect to any Taxes
has been proposed, asserted or assessed against any of the Parent Companies or
any of their respective Subsidiaries, except to the extent that any such waiver
or deficiency, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies; (v) all Federal income Tax Returns referred to in clause (i) for all
years through 1993 have been examined by and settled with the Internal Revenue
Service or the period for assessment of Taxes in respect of which such Tax
returns were required to be filed has expired; (vi) no material issues that have
been raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently pending;
(vii) all material deficiencies
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asserted or material assessments made as a result of any examination of any Tax
Returns referred to in clause (i) by any taxing authority have been paid in
full; (viii) the most recent financial statements contained in the Parent SEC
Documents reflect an adequate reserve for all Taxes payable by the Parent
Companies and their respective Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements; and (ix) there are no
material liens for Taxes (other than for current Taxes not yet due and payable)
on the assets of the Parent Companies or any of their respective Subsidiaries.
For purposes of this Agreement: (i) "Taxes" means any federal, state, local,
foreign or provincial income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or add on
minimum, ad valorem, value-added, transfer or excise tax, or other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty imposed by any Governmental
Entity, and (ii) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
Section 2.10 Actions and Proceedings. Except as set forth in the Parent SEC
Documents filed prior to the date of this Agreement, there are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving the Parent Companies or any of their Subsidiaries, or
against or involving any of the directors, officers or employees of the Parent
Companies or any of their Subsidiaries, as such, any of its or their properties,
assets or business or any employee benefit plan of the Parent Companies (a
"Parent Plan") that, individually or in the aggregate, have had, or would
reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. As of the date of this Agreement, there are no actions, suits or
claims or legal, administrative or arbitrative proceedings or investigations
pending or, to the Knowledge of the Parent Companies, threatened against or
involving the Parent Companies or any of their Subsidiaries or any of their
directors, officers or employees, as such, or any of its or their properties,
assets or business or any Parent Plan that, individually or in the aggregate,
have had, or would reasonably be expected to have, a Material Adverse Effect on
the Parent Companies. As of the date hereof, there are no actions, suits, labor
disputes or other litigation, legal or administrative proceedings or
governmental investigations pending or, to the Knowledge of the Parent
Companies, threatened against or affecting the Parent Companies or any of their
Subsidiaries or any of their officers, directors or employees, as such, or any
of their properties, assets or business relating to the transactions
contemplated by this Agreement.
Section 2.11 Compliance with Worker Safety and Environmental Laws. (a)
Except as set forth in Section 2.11 of the Parent Letter, the properties, assets
and operations of the Parent Companies and their respective Subsidiaries are in
compliance with all applicable federal, state, local, regional and foreign laws,
rules and regulations, orders, decrees, common law, judgments, permits and
licenses relating to public and worker health and safety (collectively, "Worker
Safety Laws") and the protection, regulation and clean-up of the indoor and
outdoor environment and activities or conditions related thereto, including,
without limitation, those relating to the generation, handling, disposal,
transportation or release of hazardous or toxic materials, substances, wastes,
pollutants and contaminants including, without limitation, asbestos, petroleum,
radon and polychlorinated biphenyls (collectively, "Environmental Laws"), except
for any violations that, individually or in the aggregate, has not had, or would
not reasonably be expected to have, a Material Adverse Effect on the Parent
Companies. With respect to such properties, assets and operations, including any
previously owned, leased or operated properties, assets or operations, there are
no past, present or reasonably anticipated future events, conditions,
circumstances, activities, practices, incidents, actions or plans of the Parent
Companies or any of their respective Subsidiaries that may interfere with or
prevent compliance or continued compliance with applicable Worker Safety Laws
and Environmental Laws, other than any such interference or prevention that,
individually or in the aggregate, has not had, or would not reasonably be
expected to have, a Material Adverse Effect on the Parent Companies.
(b) The Parent Companies and their respective Subsidiaries have not
caused or permitted any property, asset, operation, including any
previously owned property, asset or operation, to use, generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer or
process hazardous or toxic materials, substances, wastes, pollutants or
contaminants, except in material compliance with all Environmental Laws and
Worker Safety Laws, other than any such activity that, individually or in
the
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aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Parent Companies. The Parent Companies and
their respective Subsidiaries have not reported to any Governmental Entity
any material violation of an Environmental Law or any release, discharge or
emission of any hazardous or toxic materials, substances, wastes,
pollutants or contaminants, other than any such violation, release,
discharge or emission that, individually or in the aggregate, has not had,
and would not reasonably be expected to have, a Material Adverse Effect on
the Parent Companies. The Parent Companies have no Knowledge of any
pending, threatened or anticipated claims or liabilities under CERCLA, 42
U.S.C. Section 9601 et seq., RCRA, 42 U.S.C. Section 6901 et seq., or
equivalent state law provisions and no Knowledge that any current or former
property, asset or operation is identified or currently proposed for the
National Priorities List at 40 CFR Section 300, Appendix B, or the CERCLIS
or equivalent state lists or hazardous substances release sites.
Section 2.12 Liabilities. Except as set forth in the Parent SEC Documents
filed prior to the date hereof, the Parent Companies and their Subsidiaries have
no liabilities, absolute or contingent, other than liabilities that,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Parent Companies.
Section 2.13 Intellectual Property. The Parent Companies and their
Subsidiaries own or have the right to use all patents, patent rights,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary intellectual property rights (collectively, "Intellectual Property
Rights") as are necessary in connection with the business of the Parent
Companies and their Subsidiaries, taken as a whole, except where the failure to
have such Intellectual Property Rights, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Parent Companies. Neither the Parent Companies nor any of their
respective Subsidiaries has infringed any Intellectual Property Rights of any
third party other than any infringements that, individually or in the aggregate,
have not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Parent Companies.
Section 2.14 Opinion of Financial Advisor. The Parent Companies have
received the written opinion of Bear Stearns & Co. Inc. dated November 12, 1997,
to the effect that, as of dated November 12, 1997, the consideration to be paid
by the Parent Companies in the Merger is fair to the Parent Companies from a
financial point of view.
Section 2.15 Required Vote of Parent and Trust Stockholders. The
affirmative votes of the holders of a majority of the outstanding shares of
Parent Common Stock and of the outstanding Trust Shares are required to approve
the respective Charter Amendments of Trust and Parent. The affirmative vote of a
majority of the votes cast on each Share Issuance is required to approve such
Share Issuance; provided, that the total votes cast on each such proposal
represent a majority of the outstanding shares of Parent Common Stock or Trust
Shares, as applicable. No other vote of the stockholders or shareholders of the
Parent Companies is required by law, the organization documents of the Parent
Companies or otherwise in order for the Parent Companies to consummate the
Merger and the transactions contemplated hereby.
Section 2.16 REIT Status. The Trust is a "real estate investment trust" for
federal income tax purposes and is not subject to Section 269B(a)(3) of the Code
by reason of Section 136(c) of the Deficit Reduction Act of 1984. The
consummation of the transactions contemplated by this Agreement will not cause
the Trust to cease to qualify as a "real estate investment trust" for federal
income tax purposes and will not cause the Trust to become subject to Section
269B(a)(3) of the Code.
Section 2.17 Brokers. No broker, investment banker or other person, other
than Bear Stearns & Co. Inc., Starwood Capital Group L.L.C. and Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, the fees and expenses of which will be
paid by the Parent Companies (subject to Section 5.7), is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Parent Companies.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Parent Companies and Sub
as follows:
Section 3.1 Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has the requisite corporate power and authority to carry on
its business as now being conducted. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or authority,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company. The Company and each
of its Subsidiaries are duly qualified to do business, and are in good standing,
in each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Company.
Section 3.2 Capital Structure. At the date hereof, the authorized capital
stock of the Company consists of 200,000,000 shares of Company Common Stock and
50,000,000 shares of Preferred Stock, no par value per share ("Company Preferred
Stock"). At the close of business on October 17, 1997, (i) 118,259,684 shares of
Company Common Stock were issued and outstanding, (ii) 1,123,526 shares of
Company Common Stock were held in the treasury of the Company or by its
Subsidiaries, (iii) 133,399 shares of Company Common Stock were reserved for
issuance pursuant to the Company's 1996 Restricted Stock Plan for Non-Employee
Directors, as amended, and the Company's 1995 Incentive Stock Plan, as amended
(collectively, the "Company Stock Plans"), and (iv) no shares of Company Common
Stock were reserved in connection with the Rights Agreement (as hereinafter
defined). Except as set forth above, at the close of business on October 17,
1997, no shares of capital stock or other voting securities of the Company were
issued, reserved for issuance or outstanding. All the outstanding shares of
Company Common Stock were validly issued, fully paid and nonassessable and free
of preemptive rights. As of the date of this Agreement, except for (a) stock
options issued pursuant to the Company Stock Plans covering not in excess of
8,718,231 shares of Company Common Stock (collectively, the "Company Stock
Options"),(b) the rights to purchase shares of Series A Participating Cumulative
Preferred Stock (the "Rights"), issued pursuant to the Rights Agreement dated as
of November 1, 1995 (the "Rights Agreement"), between the Company and The Bank
of New York, as Rights Agent, and (c) rights existing under an Investment
Agreement dated as of July 15, 1997 (the "CDRV Investment Agreement"), between
the Company and CDRV Acquisition, L.L.C., there are no options, warrants, calls,
rights or agreements to which the Company or any of its Subsidiaries is a party
or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right or agreement. Except
as set forth in Section 3.2 of the letter dated the date hereof and delivered on
the date hereof by the Company to Parent, which letter relates to this Agreement
and is designated therein as the Company Letter (the "Company Letter"), each
outstanding share of capital stock of each Subsidiary of the Company that is a
corporation is duly authorized, validly issued, fully paid and nonassessable
and, except as disclosed in the Company SEC Documents (as defined in Section
3.5) filed prior to the date of this Agreement, each such share is owned by the
Company or another Subsidiary of the Company, free and clear of all Liens. As of
the date of this Agreement, the Company does not have outstanding any bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Except (x)
pursuant to an agreement dated as of July 15, 1997 between the Company and
BellSouth Corporation, (y) to the extent that Article Ninth of the Restated
Articles of Incorporation of the Company or any comparable provision of the
articles of incorporation of any Subsidiary of the Company required under any
Gaming Laws could be construed as a contractual obligation or (z) with respect
to the withholding of exercise price or withholding taxes under any stock option
plan, as of the date of this Agreement, there are no
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outstanding contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries. Exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as filed with the SEC (the
"Company Annual Report"), is a true, accurate and correct statement in all
material respects of all the information required to be set forth therein by the
rules and regulations of the SEC.
Section 3.3 Authority. The Board of Directors of the Company has duly
approved and adopted this Agreement, and has resolved to recommend the approval
of this Agreement by the Company's stockholders and directed that this Agreement
be submitted to the Company's stockholders for approval. The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to approval by the stockholders of the Company of this Agreement, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to approval of this
Agreement by the stockholders of the Company. This Agreement has been duly
executed and delivered by the Company and (assuming the valid authorization,
execution and delivery of this Agreement by Parent, Trust and Sub and the
validity and binding effect of this Agreement on Parent, Trust and Sub)
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. The filing of the Joint Proxy
Statement with the SEC has been duly authorized by the Company's Board of
Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 have been obtained and all filings and obligations described in this Section
3.4 have been made, and except as set forth in Section 3.4 of the Company
Letter, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default or the loss
of a material benefit (with or without notice or lapse of time, or both) under,
or give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien, upon any of the
properties, assets or operations of the Company or any of its Subsidiaries under
any provision of (i) the Restated Articles of Incorporation, as amended, or the
Amended and Restated By-Laws of the Company, (ii) any provision of the
comparable charter or organization documents of any Subsidiary of the Company,
(iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its Subsidiaries or any of their respective properties, assets or operations,
other than, in the case of clauses (ii), (iii) or (iv), any such violations,
defaults, losses, rights or Liens that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or is necessary for the consummation of the Merger and
the other transactions contemplated by this Agreement, except (i) in connection,
or in compliance, with the provisions of the HSR Act, the Securities Act and the
Exchange Act, (ii) the filing of the Articles of Merger with the Secretary of
State of the State of Nevada and appropriate documents with the relevant
authorities of other states in which the Company or any of its Subsidiaries is
qualified to do business, (iii) such filings and consents as may be required
under any environmental, health or public or worker safety law or regulation
specified in Section 3.4 of the Company Letter pertaining to any notification,
disclosure or required approval triggered by the Merger or by the transactions
contemplated by this Agreement, (iv) such filings as may be required in
connection with the taxes described in Section 5.11, (v) applicable
requirements, if any, of Blue Sky Laws and the NYSE, (vi) as may be required
under foreign laws, (vii) filings with and approvals in respect of the Gaming
Laws, (viii) filings with and approvals of state educational regulatory
authorities, non-governmental accrediting commissions and the U.S. Department of
Education and, if required, with the Federal Communications Commission, (ix)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth in Section 3.4 of the Company Letter,
and (x) such other consents, orders, authorizations, registrations, declarations
and filings the
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failure of which to be obtained or made, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 3.5 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1996 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the
Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles (except, in
the case of the unaudited statements, as permitted by Regulation S-X of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by generally accepted accounting principles, the Company has not,
since December 31, 1996, made any change in the accounting practices or policies
applied in the preparation of its financial statements.
Section 3.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Joint Proxy Statement will (i) in
the case of the Registration Statement, at the time it becomes effective and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) in the case of the Joint
Proxy Statement, at the time of the mailing of the Joint Proxy Statement and at
the time of each of the Stockholder Meetings, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur that is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Parent and the Company. The Joint Proxy Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement since
December 31, 1996, (a) the Company and its Subsidiaries have not sustained any
loss or interference with their business or properties from fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance)
that, individually or in the aggregate, has had, or would reasonably be expected
to have, a Material Adverse Effect on the Company and (b)(i) there has been no
change in the capital stock of the Company (except for the issuance of shares of
the Company Common Stock pursuant to Company Stock Plans) and no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its stock and (ii) there have not been any events, changes or developments that,
individually or in the aggregate, have had or would reasonably be expected to
have a Material Adverse Effect on the Company. The aggregate amount of
indebtedness of the Company and its Subsidiaries as of September 30, 1997, is
set forth in Section 3.7 of the Company Letter.
Section 3.8 Permits and Compliance. Except as set forth in Section 3.8 of
the Company Letter, each of the Company and its Subsidiaries is in possession of
all franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for the Company or any of its Subsidiaries to own, lease and
operate its properties or to carry on its business as it is now being conducted
(the "Company Permits"), except where the failure to have any of the
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Company Permits, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company, and,
as of the date of this Agreement, no suspension or cancellation of any of the
Company Permits is pending or, to the Knowledge of the Company (as hereinafter
defined), threatened, except where the suspension or cancellation of any of the
Company Permits, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company.
Neither the Company nor any of its Subsidiaries is in violation of (A) its
charter, by-laws or other organizational documents, (B) any applicable law,
ordinance, administrative or governmental rule or regulation or (C) any order,
decree or judgment of any Governmental Entity having jurisdiction over the
Company or any of its Subsidiaries, except, in the case of clauses (A), (B) and
(C), for any violations that, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Company. Except as disclosed in the Company SEC Documents filed prior to the
date of this Agreement, as of the date hereof, there is no contract or agreement
that is material to the business, properties, results of operations or financial
condition of the Company and its Subsidiaries, taken as a whole. Except as set
forth in the Company SEC Documents or Section 3.8 of the Company Letter, prior
to the date of this Agreement, no event of default or event that, but for the
giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement, will exist under any indenture, mortgage, loan
agreement, note or other agreement or instrument for borrowed money, any
guarantee of any agreement or instrument for borrowed money or any lease,
license or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any such Subsidiary is bound
or to which any of the properties, assets or operations of the Company or any
such Subsidiary is subject, other than any defaults that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company. For purposes of this Agreement, the term
"Knowledge" when used with respect to the Company means the actual knowledge of
the individuals identified in Section 3.8 of the Company Letter.
Section 3.9 Tax Matters. Except as otherwise set forth in Section 3.9 of
the Company Letter, (i) the Company and each of its Subsidiaries have timely
filed all federal, state, local, foreign and provincial income and Franchise Tax
Returns and all other material Tax Returns required to have been filed or
appropriate extensions therefor have been properly obtained, and such Tax
Returns are true, correct and complete, except to the extent that any failure to
so file or any failure to be true, correct and complete, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect on the Company; (ii) all Taxes required to have been paid by the
Company and each of its Subsidiaries have been timely paid or extensions for
payment have been properly obtained, except to the extent that any failure to
pay any such Taxes or to properly obtain an extension for such payment,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company; (iii) the Company
and each of its Subsidiaries have complied in all material respects with all
rules and regulations relating to the withholding of Taxes except to the extent
that any failure to comply with such rules and regulations, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company; (iv) neither the Company nor any of its
Subsidiaries has waived in writing any statute of limitations in respect of its
federal, state, local, foreign or provincial income or franchise Taxes and no
deficiency with respect to any Taxes has been proposed, asserted or assessed
against the Company or any of its Subsidiaries, except the extent that any such
waiver to deficiency, individually or in the aggregate has not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Company;
(v) all Federal income Tax Returns referred to in clause (i) for all years
through 1989 have been examined by and settled with the Internal Revenue Service
or the period for assessment of the Taxes in respect of which such Tax Returns
were required to be filed has expired; (vi) no material issues that have been
raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently pending;
and (vii) all material deficiencies asserted or material assessments made as a
result of any examination of any Tax Returns referred to in clause (i) by any
taxing authority have been paid in full; (viii) the most recent financial
statements contained in the Company SEC Documents reflect an adequate reserve
for all Taxes payable by the Company and its Subsidiaries for all taxable
periods and portions thereof through the date of such financial statements; and
(ix) there are no
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material liens for Taxes (other than for current Taxes not yet due and payable)
on the assets of the Company or any of its Subsidiaries.
Section 3.10 Actions and Proceedings. Except as set forth in the Company
SEC Documents filed prior to the date of this Agreement, there are no
outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving the Company or any of its Subsidiaries,
or against or involving any of the directors, officers or employees of the
Company or any of its Subsidiaries, as such, any of its or their properties,
assets or business or any Company Plan (as hereinafter defined) that,
individually or in the aggregate, have had, or would reasonably be expected to
have, a Material Adverse Effect on the Company. Except as set forth in Section
3.10 of the Company Letter or in the Company SEC Documents filed prior to the
date hereof, as of the date of this Agreement, there are no actions, suits or
claims or legal, administrative or arbitrative proceedings or investigations
pending or, to the Knowledge of the Company, threatened against or involving the
Company or any of its Subsidiaries or any of its or their directors, officers or
employees as such, or any of its or their properties, assets or business or any
Company Plan that, individually or in the aggregate, have had, or would
reasonably be expected to have, a Material Adverse Effect on the Company. Except
as set forth in Section 3.10 of the Company Letter or in the Company SEC
Documents filed prior to the date hereof, as of the date hereof, there are no
actions, suits, labor disputes or other litigation, legal or administrative
proceedings or governmental investigations pending or, to the Knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of its or their officers, directors or employees, as such, or any of its
or their properties, assets or business relating to the transactions
contemplated by this Agreement.
Section 3.11 Certain Agreements. Except as set forth in the Company SEC
Documents filed prior to the date hereof or as listed on Section 3.11 of the
Company Letter, neither the Company nor any of its Subsidiaries is a party to
any oral or written agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. No holder of any option to purchase shares of Company Common Stock,
or shares of Company Common Stock granted in connection with the performance of
services for the Company or its Subsidiaries, is or will be entitled to receive
cash from the Company or any Subsidiary in lieu of or in exchange for such
option or shares as a result of the transactions contemplated by this Agreement
(subject to Section 5.8).
Section 3.12 ERISA. (a) Section 3.12 (a) of the Company Letter contains a
list of each Company Plan (as hereinafter defined) maintained by the Company and
each material Company Plan maintained by a Subsidiary of the Company. To the
extent applicable, with respect to each Company Plan, the Company has made, or
will as soon as practicable after the date hereof, make available to Parent a
true and correct copy of (i) the most recent annual report (Form 5500) filed
with the IRS, (ii) such Company Plan and all amendments thereto, (iii) each
trust agreement, insurance contract or administration agreement relating to such
Company Plan, (iv) the most recent summary plan description for each Company
Plan for which a summary plan description is required, (v) the most recent
actuarial report or valuation relating to a Company Plan subject to Title IV of
ERISA, (vi) the most recent determination letter, if any, issued by the IRS with
respect to any Company Plan intended to be qualified under Section 401(a) of the
Code, (vii) any request for a determination currently pending before the IRS and
(viii) all correspondence with the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation relating to any outstanding controversy. Except as
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, (i) each Company Plan complies with
ERISA, the Code and all other applicable statutes and governmental rules and
regulations, (ii) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred within the past three years with respect to any Company Plan
which is likely to result in liability to the Company, (iii) neither the Company
nor any of its ERISA Affiliates (as hereinafter defined) has withdrawn from any
Company Multiemployer Plan (as hereinafter defined) at any time within the past
six years or instituted, or is currently considering taking, any action to do
so, and (iv) no action has been taken, or is currently being considered, to
terminate any Company Plan subject to Title IV of ERISA.
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(b) There has been no failure to make any contribution or pay any
amount due to any Company Plan as required by Section 412 of the Code,
Section 302 of ERISA, or the terms of any such Plan, and no Company Plan,
nor any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
(c) With respect to the Company Plans, no event has occurred and, to
the Knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any ERISA Affiliate
would be subject to any liability under the terms of such Company Plans,
ERISA, the Code or any other applicable law which has had, or would
reasonably be expected to have, a Material Adverse Effect on the Company.
Except as listed on Section 3.12(c) of the Company Letter, all Company
Plans that are intended to be qualified under Section 401(a) of the Code
have been determined by the IRS to be so qualified, or a timely application
for such determination is now pending or will be filed on a timely basis
and, except as listed on Section 3.12(c) of the Company Letter, to the
Knowledge of the Company there is no reason why any Company Plan is not so
qualified in operation. Neither the Company nor any of its ERISA Affiliates
has been notified by any Company Multiemployer Plan that such Company
Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Company
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA. Neither the Company nor any of its ERISA Affiliates
has any liability or obligation under any welfare plan to provide life
insurance or medical benefits after termination of employment to any
employee or dependent other than as required by (i) Part 6 of Title I of
ERISA or as disclosed in Section 3.12(c) of the Company Letter or (ii) the
laws of a jurisdiction outside the United States.
(d) As used herein, (i) "Company Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Company Multiemployer
Plan)), a "welfare plan" (as defined in Section 3(1) of ERISA), or any
material bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established or maintained or contributed to by
the Company or any of its ERISA Affiliates or as to which the Company or
any of its ERISA Affiliates or otherwise may have any liability, (ii)
"Company Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which the Company or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may have any
liability, and (iii) with respect to any person, "ERISA Affiliate" means
any trade or business (whether or not incorporated) which is under common
control or would be considered a single employer with such person pursuant
to Section 414(b), (c), (m) or (o) of the Code and the regulations
promulgated under those sections or pursuant to Section 4001(b) of ERISA
and the regulations promulgated thereunder.
(e) Section 3.12(e) of the Company Letter contains a list of each
Company Ex-U.S. Pension Plan and the Company has made, or as soon as
practicable after the date hereof will make, available to Parent a copy of
any written plan document. Except as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company, each such plan has been maintained in all material respects in
compliance with all applicable laws, orders and regulations, and the fair
market value of the assets of each such plan which is intended to be a
funded Company plan or arrangement equals or exceeds the value of the
accrued benefits. "Company Ex-U.S. Pension Plan" shall mean any arrangement
(other than a Company Plan) providing retirement pension benefits that is
established or maintained by the Company or any Subsidiary exclusively for
the benefit of employees who are or were employed outside the United
States.
(f) Section 3.12(f) of the Company Letter contains a list, as of the
date of this Agreement, of all (i) severance and employment agreements with
officers of the Company and each ERISA Affiliate, (ii) severance programs
and formal policies of the Company with or relating to its employees and
(iii) plans, programs, agreements and other arrangements of the Company
with or relating to its employees which contain change of control or
similar provisions, in each case involving a severance or employment
agreement or arrangement with an individual officer or employee, only to
the extent such agreement or arrangement provides for minimum annual
payments in excess of $150,000. The Company
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has provided to the Parent a true and complete copy of each of the
foregoing or will provide such a copy as soon as practical after the date
hereof.
Section 3.13 Compliance with Worker Safety and Environmental Laws. (a)
Except as set forth in Section 3.13 of the Company Letter, the properties,
assets and operations of the Company and its Subsidiaries are in compliance with
all applicable federal, state, local, regional and foreign laws, rules and
regulations, orders, decrees, common law, judgments, permits and licenses
relating to public and worker health and safety (collectively, "Worker Safety
Laws") and the protection, regulation and clean-up of the indoor and outdoor
environment and activities or conditions related thereto, including, without
limitation, those relating to the generation, handling, disposal, transportation
or release of hazardous or toxic materials, substances, wastes, pollutants and
contaminants including, without limitation, asbestos, petroleum, radon and
polychlorinated biphenyls (collectively, "Environmental Laws"), except for any
violations that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company. With
respect to such properties, assets and operations, including any previously
owned, leased or operated properties, assets or operations, there are no past,
present or reasonably anticipated future events, conditions, circumstances,
activities, practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Worker Safety Laws and Environmental Laws, other than
any such interference or prevention that, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Company.
(b) The Company and its Subsidiaries have not caused or permitted any
property, asset, operation, including any previously owned property, asset
or operation, to use, generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer or process hazardous or toxic materials,
substances, wastes, pollutants or contaminants, except in material
compliance with all Environmental Laws and Worker Safety Laws, other than
any such activity that, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Company. The Company and its Subsidiaries have not reported to any
Governmental Entity any material violation of an Environmental Law or any
release, discharge or emission of any hazardous or toxic materials,
substances, wastes, pollutants or contaminants, other than any such
violation, release, discharge or emission that, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company. The Company has no Knowledge of any
pending, threatened or anticipated claims or liabilities under CERCLA, 42
U.S.C. Section 9601 et seq., RCRA, 42 U.S.C. Section 6901 et seq., or
equivalent state law provisions and no Knowledge that any current or former
property, asset or operation is identified or currently proposed for the
National Priorities List at 40 CFR Section 300, Appendix B, or the CERCLIS
or equivalent state lists or hazardous substances release sites.
Section 3.14 Liabilities. Except as set forth in Section 3.14 of the
Company Letter or in the Company SEC Documents filed prior to the date hereof,
the Company and its Subsidiaries have no liabilities, absolute or contingent,
other than liabilities that, individually or in the aggregate, have not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Company.
Section 3.15 Intellectual Property. The Company and its Subsidiaries own or
have the right to use all Intellectual Property Rights as are necessary in
connection with the business of the Company and its Subsidiaries, taken as a
whole, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries has infringed any Intellectual Property Rights of
any third party other than any infringements that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company.
Section 3.16 Rights Agreement. The Company has taken all necessary action
to (i) render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement and (ii) ensure that (y) neither Parent nor any
of its affiliates is an Acquiring Person (as defined in the Rights Agreement)
and (z) a Distribution Date (as defined in the Rights Agreement) does not occur
by reason of the announcement
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or consummation of the Merger or the consummation of any of the other
transactions contemplated by this Agreement.
Section 3.17 Parachute Payments to Disqualified Individuals. The estimated
"excess parachute payments" (as such term is defined in Section 280G(a) of the
Code) payable to all employees of the Company and its Subsidiaries who (i) are
"disqualified individuals" under Section 280G of the Code and (ii) are not
covered in the report prepared by Towers Perrin as of October 18, 1997 and
delivered to the Parent Companies prior to or on the date hereof will not exceed
$5,000,000, assuming for this purpose that no such employee's employment is
terminated in connection with the transactions contemplated under this
Agreement.
Section 3.18 Opinion of Financial Advisor. The Company has received the
written opinion of Lazard Freres & Co. LLC, dated November 12, 1997, to the
effect that, as of November 12, 1997, the consideration to be paid by the Parent
Companies in the Merger is fair to the Company's stockholders from a financial
point of view.
Section 3.19 State Takeover Statutes. The Board of Directors of the Company
has, to the extent such statutes are applicable, taken (or, with respect to
Sections 78.378 to 78.3793 of the NGCL, will take prior to the Effective Time)
all action necessary to exempt the Parent Companies, their respective
Subsidiaries and affiliates, the Merger, this Agreement and the transactions
contemplated hereby from Sections 78.378 to 78.3793 and Sections 78.411 to
78.444 of the NGCL or to satisfy the requirements thereof. To the Knowledge of
the Company, no other state takeover statutes are applicable to the Merger, this
Agreement or the transactions contemplated hereby.
Section 3.20 Required Vote of Company Stockholders. The affirmative vote of
the holders of a majority of the outstanding shares of Company Common Stock is
required to approve this Agreement. No other vote of the stockholders of the
Company is required by law, the Restated Articles of Incorporation, as amended,
or the Amended and Restated By-laws of the Company or otherwise in order for the
Company to consummate the Merger and the transactions contemplated hereby.
Section 3.21 Brokers. No broker, investment banker or other person, other
than Goldman, Sachs & Co., Lazard Freres & Co. LLC and Gleacher NatWest Inc.,
the fees and expenses of which will be paid by the Company (as reflected in
agreements between such firms and the Company, copies of which have been
furnished to Parent), is entitled to any broker's, finder's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. Except
as contemplated by Section 4.5 or as set forth in Section 4.1 of the Company
Letter, during the period from the date of this Agreement to the Effective Time,
the Company shall, and shall cause each of its Subsidiaries to, carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, licensors,
lessors and others having business dealings with it to the end that its goodwill
and ongoing business shall be unimpaired at the Effective Time. Except as
otherwise expressly permitted by this Agreement and as set forth in Section 4.2
of the Company Letter, the Company shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Parent:
(a) except as set forth in Section 4.5, (i) declare, set aside or pay
any dividends on, or make any other actual, constructive or deemed
distributions in respect of, any of its capital stock, or otherwise make
any payments to its stockholders in their capacity as such (other than
dividends and other distributions by direct or indirect wholly owned
Subsidiaries), (ii) other than in the case of any direct or indirect wholly
owned Subsidiary, split, combine or reclassify any of its capital stock or
issue or authorize the issuance of
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any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its Subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(b) except as set forth in Section 4.5, issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of its capital stock, any other
voting securities or equity equivalent or any securities convertible into,
or any rights, warrants or options to acquire any such shares, voting
securities, equity equivalent or convertible securities, other than the
issuance of shares of Company Common Stock (and associated Rights) upon the
exercise of employee stock options pursuant to the Company Stock Plans
outstanding on the date of this Agreement in accordance with their current
terms;
(c) amend its articles or certificate of incorporation or by-laws or
other comparable organizational documents;
(d) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or (ii) any assets that
are, individually or in the aggregate material to the Company and its
Subsidiaries taken as a whole, other than transactions that are in the
ordinary course of business consistent with past practice and not material
to the Company and its Subsidiaries taken as a whole;
(e) except as set forth in Section 4.5, sell, lease, license, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of, or
agree to sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of, any of its assets, other than
transactions that are in the ordinary course of business consistent with
past practice and not material to the Company and its Subsidiaries taken as
a whole;
(f) except as set forth in Section 4.5, incur any indebtedness for
borrowed money, guarantee any such indebtedness, issue or sell any debt
securities or warrants or other rights to acquire any debt securities,
guarantee any debt securities or make any loans, advances or capital
contributions to, or other investments in, any other person, or enter into
any arrangement having the economic effect of any of the foregoing, other
than (i) indebtedness incurred in the ordinary course of business
consistent with past practice and (ii) indebtedness, loans, advances,
capital contributions and investments between the Company and any of its
wholly owned Subsidiaries or between any of such wholly owned Subsidiaries;
(g) alter (through merger, liquidation, reorganization, restructuring
or in any other fashion) the corporate structure or ownership of the
Company or any Subsidiary;
(h) except as required under any collective bargaining agreement or
under Section 5.8, enter into or adopt any new, or amend any existing,
severance plan, agreement or arrangement or enter into any new or amend any
existing Company Plan or employment or consulting agreement, other than as
required by law or as set forth in Section 4.1(h) of the Company Letter,
except that the Company or its Subsidiaries may enter into (a) employment
agreements if such agreements (i) are no longer than one year in duration
and (ii) provide for an annual base salary of less than $150,000, and (b)
consulting agreements in the ordinary course of business that are
terminable on no more than 90 days' notice without penalty, and the Company
or its Subsidiaries may amend any Company Plan or other plan, program,
policy or arrangement if such amendment will result in not more than a de
minimus additional cost to the Company or its Subsidiaries;
(i) except (1) as permitted under Section 4.1(h), (2) as permitted
under Section 5.15 or (3) to the extent required by written employment
agreements existing on the date of this Agreement, increase the
compensation payable or to become payable to its officers or employees,
except for (i) increases in the ordinary course of business consistent with
past practice in salaries or wages of employees of the Company or any of
its Subsidiaries and (ii) except to the extent required under the terms of
any applicable incentive plan, the payment of annual incentive bonuses for
1997 which are not in the
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aggregate in excess of two times the target bonus for 1997 established for
1997 prior to the date of this Agreement;
(j) grant or award any stock options, restricted stock, performance
shares, stock appreciation rights or other equity-based incentive awards,
other than an award which (i) is made to a management employee or
non-employee director who would be eligible to receive such award under the
terms of the Company Stock Plans as applied consistently with past practice
and (ii) is made on terms substantially the same as the terms of awards
previously awarded under such plan;
(k) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken
by generally accepted accounting principles);
(l) except as disclosed in the Company's capital expenditure plan
which has been disclosed to Parent or for maintenance capital expenditures
in the ordinary course of business consistent with past practice, make or
agree to make any new capital expenditure or expenditures which,
individually, is in excess of $5,000,000 or, in the aggregate, are in
excess of $50,000,000;
(m) except as permitted by Section 4.5, pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Company SEC Documents or incurred in the ordinary course of business
consistent with past practice;
(n) settle or compromise any material federal, state, local or foreign
tax liability;
(o) authorize, recommend, propose or announce an intention to do any
of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.2 Conduct of Business by the Parent Companies Pending the
Merger. Except as contemplated by Section 4.5 or as set forth in Section 4.2 of
the Parent Letter, during the period from the date of this Agreement to the
Effective Time, the Parent Companies shall, and shall cause each of their
respective Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
keep available the services of their respective current officers and employees
and preserve their respective relationships with customers, suppliers,
licensors, lessors and others having business dealings with them to the end that
their goodwill and ongoing business shall be unimpaired at the Effective Time.
Except as otherwise expressly permitted by this Agreement and as set forth in
Section 4.2 of the Parent Letter, the Parent Companies shall not, and shall not
permit any of their respective Subsidiaries to, without the prior written
consent of the Company:
(a) except as contemplated by Section 4.5, (i) declare, set aside or
pay any dividends on, or make any other actual, constructive or deemed
distributions in respect of, any of its capital stock, or otherwise make
any payments to its stockholders or shareholders, as applicable, in their
capacity as such (other than (A) dividends in the aggregate amount not to
exceed the greater of (a) the current rate of the Parent Companies
dividends and (b) the Trust's "real estate investment taxable income" (as
such term is defined for purposes of the Code) without regard to any net
capital gains or the deduction for dividends paid (provided that this
Section 4.2(a) shall not be deemed to restrict any increases in the
dividend rate of the Parent Companies in the ordinary course consistent
with past practice) and (B) dividends and other distributions by direct,
indirect or wholly owned Subsidiaries) or (ii) other than in the case of
any Subsidiary, split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for Paired Shares;
(b) in the case of the Parent Companies only, except as set forth in
Section 4.5, amend its articles or certificate of incorporation or
declaration of trust, other than in connection with the respective Charter
Amendments;
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(c) take or omit any action that would reasonably be expected to cause
the Trust to cease to qualify as a "real estate investment trust" for
federal income tax purposes or that would reasonably be expected to cause
the Trust to become subject to Section 269B(a)(3) of the Code; or
(d) authorize, recommend, propose or announce an intention to do any
of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Notwithstanding anything contained herein to the contrary and except as
permitted by Section 4.5(c), neither Trust nor Parent shall declare, set aside
or pay any cash dividend or make any cash distribution or otherwise make any
payments in cash to its stockholders or shareholders, as applicable, having a
record date for the determination of the stockholders or shareholders entitled
to such dividend, distribution or other payment occurring during the period from
and including the first day of the Averaging Period through and including the
fourth trading day after the last day of the Averaging Period.
Section 4.3 No Solicitation. (a) The Company shall not, nor shall it permit
any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant, agent or
other advisor or representative of the Company or any of its Subsidiaries to,
(i) solicit, initiate, or encourage the submission of, any takeover proposal,
(ii) except to the extent permitted by paragraph (b), enter into any agreement
with respect to any takeover proposal or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
takeover proposal; provided, however, that prior to the Company Stockholders'
Meeting (as defined in Section 5.1), to the extent required by the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by a majority of the disinterested members thereof based on the advice of
outside counsel, the Company may, in response to unsolicited requests therefor,
participate in discussions or negotiations with, or furnish information pursuant
to an appropriate confidentiality agreement to, any person. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer, director or employee of or any investment
banker, attorney, accountant, agent or other advisor or representative of the
Company or any of its Subsidiaries, whether or not such person is purporting to
act on behalf of the Company or otherwise, shall be deemed to be a breach of
this paragraph by the Company. For all purposes of this Agreement, "takeover
proposal" means any proposal, other than a proposal by Parent or Trust for a
merger, consolidation, share exchange, business combination or other similar
transaction involving the Company or any of its Significant Subsidiaries or any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of the Company), other than a proposal or offer by Parent or Trust
to acquire in any manner, directly or indirectly, an equity interest in, any
voting securities of, or a substantial portion of the assets of, the Company or
any of its Significant Subsidiaries. The Company immediately shall cease and
cause to be terminated all existing discussions or negotiations with any persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, any takeover proposal. As used herein, a "Significant Subsidiary" means
any Subsidiary that would constitute a "significant subsidiary" within the
meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Parent, Trust or Sub, the approval or recommendation by
the Board of Directors of the Company or any such committee of this
Agreement or the Merger or (ii) approve or recommend, or propose to approve
or recommend, any takeover proposal. Notwithstanding the foregoing, the
Board of Directors of the Company, to the extent required by the fiduciary
obligations thereof, as determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel, may
approve or recommend (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) a superior
proposal. For all purposes of this Agreement, "superior proposal" means a
bona fide written proposal made by a third party to acquire the Company
pursuant to a tender or exchange offer, a merger, a share exchange, a sale
of all or substantially all its assets or otherwise on terms which a
majority of the disinterested members of the Board of Directors of the
Company determines in their good faith judgment (based on the opinion, with
only customary qualifications, of independent financial advisors that the
value of the consideration provided for in such proposal exceeds the value
of the consideration provided for in
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the Merger) to be more favorable to the Company and its stockholders than
the Merger and for which financing, to the extent required, is then fully
committed or which, in the good faith judgment of a majority of such
disinterested members (based on the advice of independent financial
advisors), is reasonably capable of being financed by such third party. If,
to the extent permitted by this Section 4.2(b), the Board of Directors of
the Company approves or recommends a superior proposal, the Company may
take appropriate action to render the Rights inapplicable to such superior
proposal.
(c) The Company shall immediately advise Parent orally and in writing
of any takeover proposal or any inquiry with respect to or which could
reasonably be expected to lead to any takeover proposal, the material terms
and conditions of such takeover proposal or inquiry and the identity of the
person making any such takeover proposal or inquiry. The Company will keep
Parent fully informed of the status and details of any such takeover
proposal or inquiry. The Parent Companies shall waive any applicable
confidentiality provisions to the extent necessary to allow the Company
solely to explain the terms of this transaction to persons making takeover
proposals.
Section 4.4 Third Party Standstill Agreements. Except to the extent
reasonably required in connection with the Company's obligations under Section
4.5(a) and permitted pursuant to that letter agreement dated as of November 6,
1997, among the Company, the Parent Companies and Sub, during the period from
the date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill or similar agreement to which the Company or any of its Subsidiaries
is a party (other than any involving Parent or Trust) unless a majority of the
disinterested members of the Board of Directors of the Company determines in
their good faith judgment based on the advice of outside counsel that failure to
take such action would violate the fiduciary obligations of such Board under
applicable law. Subject to the foregoing, during such period, the Company agrees
to enforce, to the fullest extent permitted under applicable law, the provisions
of any such agreements, including, but not limited to, obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States or any state thereof
having jurisdiction.
Section 4.5 Pre-Merger Transactions.
(a) The Company shall use reasonable efforts to enter into agreements
to sell assets of the Company as agreed from time to time between the
Company and Parent on terms acceptable to the Company and shall permit the
Parent Companies and their financial and legal advisors to participate in
such process; provided, however, that such agreements may provide at the
Company's election that any such sale or disposition shall not be
consummated until after the Effective Time and may provide at the Company's
election that such agreements are terminable by the Company if this
Agreement is terminated for any reason; provided further, however, that
neither the Company nor any of its Subsidiaries shall enter into a
definitive agreement with respect to any such sale without the prior
approval of both Parent Companies and the Board of Directors of the
Company.
(b) The Company shall not implement the Comprehensive Plan (as such
term is defined in the Definitive Proxy Statement on Schedule 14A filed
with the SEC on October 9, 1997 (the "Proxy Statement")), including,
without limitation, consummating the Tender Offers (as such term is defined
in the Proxy Statement); provided, however, that the Company shall be
permitted to pay the Termination Fee and Purchaser's Expenses (each as
defined in the CDRV Investment Agreement) and any other payments pursuant
to the CDRV Investment Agreement.
(c) Prior to the Effective Time, Trust may declare a dividend not to
exceed $1.5 billion, payable to its shareholders of record as of such time
and payable in property other than cash which property may subsequent to
such payment (but in any event not later than one day after the Effective
Time) be acquired by Parent in exchange for shares of Parent's capital
stock, and Parent may acquire all or any portion of such property in such
manner. In connection with the foregoing, the Pairing Agreement dated as of
June 28, 1980 between Parent and Trust may be amended to permit and
facilitate such transactions. In the event that Parent fails to exercise
its right, in whole or in part, to acquire such property prior to the
Effective Time or within one day thereafter, the Exchange Ratio shall be
equitably adjusted. The Parent Companies agree that in effecting
transactions contemplated by this Section 4.5(c), the stockholders of
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the Company shall be treated on a fair and equitable basis (including in
respect of the consideration payable in the Merger).
(d) The Company acknowledges and agrees that, prior to the Effective
Time, the Parent Companies and their Subsidiaries are obligated under the
Westin Transaction Agreement to use all reasonable efforts to consummate
the transactions contemplated thereby, including debt and equity financings
and certain restructurings and share issuances related thereto, the payment
of dividends on such share issuances, increases in stock option and similar
employee benefit plans and the increases in authorized capital of the
Parent Companies, all of which shall be deemed to be consistent with the
Parent Companies' obligations under Section 4.2. The Company and the Parent
Companies further acknowledge and agree that, prior to the Effective Time,
the Parent Companies shall have paid a fee to certain investment banks in
connection with the transactions contemplated by the Westin Transaction
Agreement, and such fee shall have been paid in the type and amount of
consideration previously discussed by and among the parties to this
Agreement.
Section 4.6 Post-Merger Transactions. Promptly after the consummation of
the Merger, the Trust shall dispose of any shares of common stock of the
Surviving Corporation received by the Trust in connection with the Merger.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholders Meetings. The Company, Parent and Trust each
shall, as soon as practicable following the date of this Agreement, duly call,
give notice of, convene and hold, a meeting of its stockholders or shareholders
(respectively, the "Company Stockholder Meeting", the "Parent Stockholder
Meeting", the "Trust Shareholder Meeting" and, collectively, the "Stockholder
Meetings") for the purpose of considering the approval of this Agreement (in the
case of the Company) and the respective Charter Amendments and the Share
Issuances (in the case of Parent and Trust). The Company, Parent and Trust will,
through their respective Boards of Directors or Trustees, as the case may be,
recommend to their respective stockholders or shareholders, as applicable,
approval of such matters and shall not withdraw such recommendation except to
the extent that the Board of Directors of the Company shall have withdrawn or
modified its approval or recommendation of this Agreement of the Merger as
permitted by Section 4.3(b). Without limiting the generality of the foregoing,
the Company agrees that its obligations pursuant to the first sentence of this
Section 5.1 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any takeover proposal. The
Company, Parent and Trust shall coordinate and cooperate with respect to the
timing of such meetings and shall use all reasonable efforts to hold such
meetings on the same day. At the Parent Stockholder Meeting and the Trust
Shareholder Meeting, the Parent Companies shall cause to be submitted to their
respective shareholders or stockholders, as applicable, a proposal to amend
Parent's Articles of Incorporation and Trust's Declaration of Trust to include a
provision substantially similar to ARTICLE NINTH of Restated Articles of
Incorporation, as amended, of the Company.
Section 5.2 Filings; Other Actions. (a) The Company, Parent and Trust shall
promptly prepare and file with the SEC the Joint Proxy Statement and the Parent
Companies shall prepare and file with the SEC the Registration Statement, in
which the Joint Proxy Statement will be included as a prospectus. Each of
Parent, Trust and the Company shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, each of Parent, Trust and
the Company shall mail the Joint Proxy Statement to its respective stockholders
or shareholders. Parent and Trust shall also take any action (other than
qualifying to do business in any jurisdiction in which they are currently not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Paired Shares in the Merger and upon the
exercise of the Substitute Options (as defined in Section 5.8), and the Company
shall furnish all information concerning the Company and the holders of Company
Common Stock as may be reasonably requested in connection with any such action,
including information relating to the number of Paired Shares required to be
registered.
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(b) Each party hereto agrees, subject to applicable laws relating to
the exchange of information, promptly to furnish the other parties hereto
with copies of written communications (and memoranda setting forth the
substance of all oral communications) received by such party, or any of its
subsidiaries, affiliates or associates (as such terms are defined in Rule
12b-2 under the Exchange Act as in effect on the date hereof), from, or
delivered by any of the foregoing to, any Governmental Entity in respect of
the transactions contemplated hereby.
(c) Each of the Company, Parent and Trust will promptly, and in any
event within fifteen business days after execution and delivery of this
Agreement, make all filings or submissions as are required under the HSR
Act. Each of the Company, Parent and Trust will promptly furnish to the
other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submissions
necessary under the HSR Act. Without limiting the generality of the
foregoing, each of the Company, Parent and Trust will promptly notify the
other of the receipt and content of any inquiries or requests for
additional information made by any Governmental Entity in connection
therewith and will promptly (i) comply with any such inquiry or request and
(ii) provide the other with a description of the information provided to
any Governmental Entity with respect to any such inquiry or request. In
addition, each of the Company, Parent and Trust will keep the other
apprised of the status of any such inquiry or request.
Section 5.3 Comfort Letters. (a) The Company shall use all reasonable
efforts to cause to be delivered to Parent "comfort" letters of Arthur Andersen
LLP, the Company's independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to Parent, Trust and the Company, in form and substance reasonably
satisfactory to Parent and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
(b) Parent and Trust shall use all reasonable efforts to cause to be
delivered to the Company "comfort" letters of Coopers & Lybrand L.L.P.,
Parent's and Trust's independent public accountants, dated the date on
which the Registration Statement shall become effective and as of the
Effective Time, and addressed to the Company, Parent and Trust, in form and
substance reasonably satisfactory to the Company and reasonably customary
in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by
this Agreement.
Section 5.4 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to the Parent Companies or to the
Company or any of their Subsidiaries, each of the Parent Companies and the
Company shall, and shall cause each of its Subsidiaries to, afford to the
accountants, counsel, financial advisors and other representatives of the other
party hereto reasonable access to, and permit them to make such inspections as
they may reasonably require of, during normal business hours during the period
from the date of this Agreement through the Effective Time, all their respective
properties, books, Tax Returns, contracts, commitments and records (including,
without limitation, the work papers of independent accountants, if available and
subject to the consent of such independent accountants) and, during such period,
each of the Parent Companies and the Company shall, and shall cause each of its
Subsidiaries to, furnish promptly to the other (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and (ii)
all other information concerning its business, properties and personnel as the
other may reasonably request. Notwithstanding the first sentence of this Section
5.4, neither the Company nor any of its accountants, counsel, financial advisors
or other representatives shall have access to any information relating to the
matters described in Section 5.4 of the Parent Letter. Notwithstanding the first
sentence of this Section 5.4, neither the Parent Companies nor any of their
respective accountants, counsel, financial advisors or other representatives
shall have access to any information relating to the matters described in
Section 5.4 of the Company Letter. No investigation pursuant to this Section 5.4
shall affect any representation or warranty in this Agreement of any party
hereto or any condition to the obligations of the parties hereto. All
information obtained by Parent or the Company pursuant to this Section 5.4 shall
be kept confidential in accordance with the Confidentiality Agreement dated
October 6, 1997 among the Parent Companies and the Company.
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Section 5.5 Compliance with the Securities Act. Within 30 days following
the date of this Agreement, the Company shall cause to be prepared and delivered
to Parent a list (reasonably satisfactory to counsel for Parent) identifying all
persons who, at the time of the Company Stockholder Meeting, in the Company's
reasonable judgment may be deemed to be "affiliates" of the Company as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). The Company shall use all reasonable efforts to cause
each person who is identified as a Rule 145 Affiliate in such list to deliver to
Parent on or prior to the Effective Time a written agreement in substantially
the form of Exhibit 5.5 hereto, executed by such person.
Section 5.6 Stock Exchange Listings. Parent shall use all reasonable
efforts to list on the NYSE, upon official notice of issuance, the Paired Shares
to be issued in connection with the Merger.
Section 5.7 Fees and Expenses. (a) Except as provided in Section 5.7(b) and
(c), whether or not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
including the fees and disbursements of counsel, financial advisors and
accountants, shall be paid by the party incurring such costs and expenses,
except that expenses incurred in connection with printing and mailing the Joint
Proxy Statement and the Registration Statement shall be borne equally by Parent
and the Company.
(b) Provided that none of Parent, Sub or Trust is in material breach
of their representations, warranties and agreements under this Agreement,
(i) if this Agreement is terminated by the Board of Directors of the
Company pursuant to Section 7.1(g), (ii) if this Agreement is terminated by
the Parent Companies pursuant to Section 7.1(b), (iii) if this Agreement is
terminated by the Parent Companies pursuant to Section 7.1(f) or (iv) if
(A) after the date of this Agreement, (x) any person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) shall have made or
indicated an intention to make or amend or modify (whether or not subject
to conditions) a takeover proposal or (y) it shall have been publicly
disclosed or Parent shall have otherwise learned that any person or "group"
has beneficial ownership (determined for the purpose of this paragraph as
set forth in Rule 13d-3 promulgated under the Exchange Act) of more than
15% of the outstanding shares of Company Common Stock or (z) Parent has the
right to terminate this Agreement under Section 7.1(f) because the Board of
Directors of the Company shall or shall resolve to take an action referred
to therein and (B) the stockholders of the Company do not approve the
Merger at the Company Stockholders Meeting called for such purpose pursuant
to Section 5.1 or this Agreement is terminated pursuant to Section 7.1(d)
prior to the Company Stockholders Meeting being held, then the Company
shall pay to Parent $225,000,000 (the "Termination Fee") in same-day funds,
plus (notwithstanding paragraph (a) of this Section 5.7) all the Expenses
(as defined below), on the date of such termination, in the case of clause
(i), (ii) or (iii), or on the date of the Company Stockholders Meeting or
such termination, as the case may be, in the case of clause (iv); provided,
however, that in the event the date of such termination, in the case of
clause (i), (ii), (iii) or (iv), is prior to November 21, 1997, then the
amount of the Termination Fee shall be deemed to be $195,000,000.
(c) If this Agreement is terminated for any reason (other than by the
Company pursuant to Section 7.1(b)), then the Company shall
(notwithstanding paragraph (a) of this Section 5.7), on the date of such
termination, pay to Parent the cash amount necessary to permit Parent fully
to reimburse itself, Sub and Trust and their affiliates for all
out-of-pocket fees and expenses incurred at any time prior to such
termination by any of them or on their behalf in connection with the
Merger, the preparation of this Agreement and the transactions contemplated
by this Agreement (including any currency or interest rate hedging
activities in connection with the transactions contemplated hereby),
including (x) all fees and expenses of counsel, investment banking firms,
financial advisors (regardless of whether such financial advisors are
affiliates of the Parent Companies), accountants, experts and consultants
to Parent, Sub and Trust or any of their affiliates and (y) all fees and
expenses payable to banks, investment banking firms and other financial
institutions and their respective counsel, accountants and agents in
connection with arranging or providing financing) (fees and expenses under
clause (y) collectively, "Financing Fees", and the fees and expenses
contemplated by this paragraph (c), collectively, but subject to the next
succeeding proviso, the "Expenses"); provided, however, that the aggregate
amount of
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Expenses, other than Financing Fees and all fees and expenses of counsel in
connection with any litigation, shall not exceed $25,000,000.
(d) The Company acknowledges that the agreements contained in
paragraphs (b) and (c) of this Section 5.7 are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, Parent, Sub and Trust would not enter into this Agreement;
accordingly, if the Company fails to pay promptly any amount due pursuant
to this Section 5.7 and, in order to obtain such payment, Parent, Sub or
Trust commences a suit that results in a judgment against the Company for
any such amount, the Company shall pay to Parent, Sub or Trust its cost and
expenses (including attorneys' fees) in connection with such suit, together
with interest on the amount of the fee at the prime or base rate of
Citibank, N.A. from the date such payment was due under this Agreement.
Section 5.8 Company Stock Options. (a) As of the Effective Time, each
Company Stock Option (and related stock appreciation right ("SAR")) that is
outstanding immediately prior to the Effective Time pursuant to the Company's
stock option plans (other than any "stock purchase plan" within the meaning of
Section 423 of the Code) in effect on the date hereof (the "Stock Plans") shall
be assumed by Parent and become and represent a fully exercisable option (and
related SAR) to purchase the number of Paired Shares (a "Substitute Option")
(decreased to the nearest full share) determined by multiplying (i) the number
of shares of Company Common Stock subject to such Company Stock Option
immediately prior to the Effective Time by (ii) the Exchange Ratio, at an
exercise price per Paired Share (rounded up to the nearest tenth of a cent)
equal to the difference between (A) the exercise price per share of Company
Common Stock immediately prior to the Effective Time divided by the Exchange
Ratio and (B) the amount, if any, payable per share of Company Common Stock
pursuant to Section 1.5(f) divided by the Exchange Ratio. Parent shall pay cash
to holders of Company Stock Options in lieu of issuing fractional Paired Shares
upon the exercise of Substitute Options. As of the Effective Time, each
Substitute Option shall be subject to the same terms and conditions as were
applicable immediately prior to the Effective Time under the related Company
Stock Option and Stock Plan under which it was granted, including those
providing for the accelerated exercisability and other special rights arising
upon an "Acceleration Event" in accordance with the terms of such Stock Plan.
The Company agrees to use all reasonable efforts to obtain any necessary
consents of holders of Company Stock Options and take such other actions as may
be necessary to effect this Section 5.8. The accelerated lapse of restrictions
and other special rights with respect to shares of restricted Company Common
Stock issued under the Stock Plans shall also be preserved following the
Effective Time in accordance with the terms of the Stock Plans.
(b) In respect of each Company Stock Option (and related SAR) as
converted into a Substitute Option pursuant to Section 5.8(a) and assumed
by Parent, and the shares of Parent Common Stock underlying such option,
Parent shall file and keep current a registration statement on Form S-8 (or
a post-effective amendment to a Registration Statement on Form S-8) or
other appropriate form for as long as such options remain outstanding.
(c) The provisions of this Section 5.8 are intended to be for the
benefit of, and shall be enforceable by, each person who is or has been an
employee of the Company or any of its subsidiaries and is a holder of
Employee Stock Options or SARS, and such employee's heirs and personal
representatives and shall be binding on all successors and assigns of the
Parent Companies.
Section 5.9 Reasonable Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, unless, to the extent permitted by
Section 4.3, the Board of Directors of the Company approves or recommends a
superior proposal, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including, but not limited to: (i) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from all Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity (including those in connection
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with the HSR Act, state takeover statutes and Gaming Laws), (ii) the obtaining
of all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
with respect to the Merger or this Agreement vacated or reversed, and (iv) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement.
(b) The Company shall use all reasonable efforts not to take any
action that, in any such case, might reasonably be expected to (i) cause
any of its representations or warranties contained in this Agreement that
is qualified as to materiality to be untrue, (ii) cause any of its
representations or warranties contained in this Agreement that is not so
qualified to be untrue in any material respect, (iii) result in a breach of
any covenant made by it in this Agreement, (iv) result directly or
indirectly in any of the conditions to the Merger set forth in Article VI
not being satisfied or (v) impair the ability of the parties to consummate
the Merger at the earliest practicable time (regardless of whether such
action would otherwise be permitted or not prohibited hereunder).
Section 5.10 Public Announcements. The Parent Companies and the Company
will not issue any press release with respect to the transactions contemplated
by this Agreement or otherwise issue any written public statements with respect
to such transactions without prior consultation with each other party, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange.
Section 5.11 Transfer and Gains Tax. The Parent Companies will pay any
Federal, state, local, foreign or provincial tax which is attributable to the
transfer of the beneficial ownership of the Company's or its Subsidiaries' real
property, if any (collectively, the "Gains Taxes"), any penalties or interest
with respect to the Gains Taxes, payable in connection with the consummation of
the Merger, (except as otherwise provided in Section 1.8) any Federal, state,
local, foreign or provincial tax which is attributable to the transfer of
Company Common Stock or Paired Shares pursuant to the terms of this Agreement
(collectively, "Stock Transfer Taxes") and any penalties or interest with
respect to any such Stock Transfer Taxes. The Company and the Parent Companies
agree to cooperate with the other in the filing of any returns with respect to
the Gains Taxes, including supplying in a timely manner a complete list of all
real property interests held by the Company and its Subsidiaries and any
information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the real
property of the Company and its Subsidiaries shall be agreed to between Parent
and the Company. The stockholders of the Company shall be deemed to have agreed
to be bound by the allocation established pursuant to this Section 5.11 in the
preparation of any return with respect to the Gains Taxes.
Section 5.12 State Takeover Laws. If any "fair price", "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent, Trust and the Company and their respective Boards of Directors or
Trustees, as the case may be, shall use all reasonable efforts to grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and shall otherwise act to minimize the effects of any such
statute or regulation on the transactions contemplated hereby.
Section 5.13 Indemnification; Directors and Officers Insurance. (a) The
Parent Companies agree that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of the Company
and its subsidiaries as provided in their respective articles or certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of the Company shall survive the Merger and shall
continue in full force and effect in accordance with their terms for a period of
not less than six years from the Effective Time and the obligations of the
Company in connection therewith shall be assumed by the Parent Companies. Parent
shall provide, or shall cause the Surviving Corporation to provide, the
Company's current directors and officers an insurance and indemnification policy
(including any fiduciary liability policy) that provides
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coverage with respect to any claims made during the six-year period following
the Effective Time for events occurring prior to the Effective Time (the "D&O
Insurance") that is substantially similar to the Company's existing policies or,
if substantially equivalent insurance coverage is unavailable, the best
available coverage; provided, however, that the Surviving Corporation shall not
be required to pay an annual premium for the D&O Insurance in excess of 150
percent of the last annual premium paid prior to the date hereof (which premium
the Company represents and warrants to be approximately $1.4 million in the
aggregate), but if such annual premium would but for this proviso exceed such
amount, then Parent shall purchase as much coverage as possible for such amount.
(b) The provisions of this Section 5.13 are intended to be for the
benefit of, and shall be enforceable by, each person who is or has been a
director or officer of the Company or a subsidiary of the Company, and such
director's or officer's heirs and personal representatives and shall be
binding on all successors and assigns of the Parent Companies.
Section 5.14 Notification of Certain Matters. The Parent Companies shall
use all reasonable efforts to give prompt notice to the Company, and the Company
shall use all reasonable efforts to give prompt notice to the Parent Companies,
of: (i) the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which it is aware and which would be reasonably likely to cause
(x) any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all material
respects, (ii) any failure of any of the Parent Companies or the Company, as the
case may be, to comply in a timely manner with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder or (iii)
any event, change or development that, individually or in the aggregate, has
had, or would reasonably be expected to have, a Material Adverse Effect on the
Parent Companies or the Company, as the case may be; provided, however, that the
delivery of any notice pursuant to this Section 5.14 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 5.15 Employees. (a) Comparable Benefits. Except as provided in
Section 5.8, for not less than one year following the Effective Time, the Parent
Companies shall maintain, or shall cause the Company and its Subsidiaries to
maintain, compensation and employee benefits plans and arrangements for
employees of the Company and its Subsidiaries ("Affected Employees") that are,
in the aggregate, no less favorable than as provided under the compensation
arrangements and Company Plans as in effect on the date hereof. Without limiting
the generality of the foregoing, for not less than one year following the
Effective Time (or such longer period as may be required under the applicable
Company Plan), the Parent Companies shall provide, or cause the Company and its
Subsidiaries to provide, severance pay and benefits to each Affected Employee as
of the Effective Time that are no less favorable than under the Company Plans
and current practices of the Company as in effect as of the date of this
Agreement. Notwithstanding the foregoing, the Parent Companies shall have the
right (i) following the Effective Time to transfer to one or more employee
benefit plans maintained by the Parent Companies any employee of the Company or
any Subsidiary who becomes an employee of the Parent Companies or any of their
respective Subsidiaries and (ii) in the good faith exercise of it managerial
discretion, to terminate the employment of any employee. Nothing in this
Agreement shall be construed as granting to any employee any rights of
continuing employment.
(b) Honoring Company Plans and Accrued Vacation. Parent Companies
shall, or shall cause the Company to, honor all Company Plans and other
contractual commitments in effect immediately prior to the Effective Time
between the Company or its Subsidiaries and Affected Employees or former
employees of the Company or its Subsidiaries. Without limiting the
generality or the foregoing, Parent Companies shall honor all vacation,
holiday, sickness and personal days accrued by Affected Employees and, to
the extent applicable, former employees of the Company and its Subsidiaries
("Former Employees") as of the Effective Time.
(c) Participation in Benefit Plans. Employees and, to the extent
applicable, Former Employees shall be given credit for all service with the
Company and its Subsidiaries (or service credited by the Company or such
Subsidiaries) under all employee benefit plans and arrangements currently
maintained by the Parent Companies or any of their respective Subsidiaries
in which they are or become participants
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for purposes of eligibility, vesting, level of participant contributions
and benefit accruals (but subject to an offset, if necessary, to avoid
duplication of benefits) to the same extent as if rendered to the Parent
Companies or any of their respective Subsidiaries. The Parent Companies
shall cause to be waived any pre-existing condition limitation under their
welfare plans that might otherwise apply to an Affected Employee or, to the
extent applicable, a Former Employee. The Parent Companies agree to
recognize (or cause to be recognized) the dollar amount of all expenses
incurred by Affected Employees or, to the extent applicable, Former
Employees, during the calendar year in which the Effective Time occurs for
purposes of satisfying the calendar year deductions and co-payment
limitations for such year under the relevant benefit plans of the Parent
Companies and their respective Subsidiaries.
Section 5.16 Rights Agreement. (a) The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section 3.16)
requested in writing by Parent (including redeeming the Rights immediately prior
to the Effective Time of the Merger or amending the Rights Agreement) in order
to render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement. Except as requested in writing by Parent or as
permitted by Section 5.16(b), prior to the Company Stockholders Meeting, the
Board of Directors of the Company shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or, except as specifically permitted by
Section 5.16(b), make any determination under, the Rights Agreement (including a
redemption of the Rights).
(b) If, to the extent permitted by Section 4.3(b), the Board of
Directors of the Company approves or recommends a superior proposal, the
Company may take appropriate action under the Rights Agreement solely in
order to render the Rights inapplicable to such superior proposal;
provided, however, that the foregoing shall not permit the Company to make
any determination under, or take any action with respect to, the Rights
Agreement in order to render the Rights applicable to the Merger or any of
the other transaction contemplated by this Agreement or to redeem the
Rights.
Section 5.17. Regulatory Matters. In connection with subsection (i) of the
first sentence of Section 5.9(a) and without limiting the generality of Section
5.9, the Parent Companies shall, and shall cause their respective subsidiaries
to (and shall use all reasonable efforts to cause their respective affiliates
other than subsidiaries to), if it is necessary to obtain any regulatory
approval for this Agreement or the transactions contemplated hereby,
disassociate themselves from any person or persons deemed, or reasonably likely
to be deemed, unacceptable by a Governmental Entity with authority to administer
Gaming Laws and, in the case of any such person who is a nominee to serve as a
director or trustee of a Parent Company or any subsidiary of a Parent Company,
the Parent Companies shall, and shall cause the relevant subsidiary or
subsidiaries to, replace any such director nominee with a suitable substitute
nominee. In connection with subsection (i) of the first sentence of Section
5.9(a), the Parent Companies agree that they shall use all reasonable efforts to
cause the trust arrangements described in either clause (x) or (y) of Section
6.1(c)(iii) to be in full force and effect and further agree that, if the
requisite approvals are obtained from the New Jersey Casino Control Commission,
they will place shares of Company Common Stock or shares of common stock of the
Surviving Corporation, as applicable, in trust as contemplated by such clauses.
Section 5.18. New Jersey Trust. In connection with the application for
qualification and licensing by the Parent Companies with the New Jersey Casino
Control Commission pursuant to the New Jersey Casino Control Act and the rules
and regulations promulgated thereunder, if requested by the Parent Companies
(for the purpose of permitting the Parent Companies to hold directly (and not in
trust) the shares of Company Common Stock to be acquired pursuant to the Merger
while the Parent Companies' application for qualification and licensing is
pending with the New Jersey Casino Control Commission), the Company shall
execute and deliver a trust agreement prepared by the Parent Companies and
reasonably acceptable to the Company and the New Jersey Casino Control
Commission and complying with the requirements of the New Jersey Casino Control
Act and the rules and regulations promulgated thereunder.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the fulfillment (or waiver by such party) at or prior to the Effective Time of
the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved
by the requisite vote of share holders of the Company in accordance with
applicable law and the Restated Articles of Incorporation, as amended, and
Amended and Restated By-laws of the Company, and the respective Charter
Amendments and Share Issuances shall have been duly approved by the
requisite vote of the stockholders or shareholders, as applicable, of each
of Parent and Trust in accordance with applicable rules of the NYSE,
applicable law and the Articles of Incorporation and By-laws of Parent and
Declaration of Trust and Trust Regulations of the Trust.
(b) Stock Exchange Listings. The Paired Shares issuable in the Merger
and pursuant to the Substitute Options shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(c) HSR and Other Approvals. (i) The waiting period (and any
extension thereof) applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(ii) All consents, approvals, orders or authorizations of or
registrations, declarations or filings with any Governmental Entity,
which the failure to obtain, make or occur would reasonably be expected
to have a Material Adverse Effect on the Company (assuming the Merger
had taken place), shall have been obtained, shall have been made or
shall have occurred, and shall be in full force and effect.
(iii) All consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, (A) any Governmental Entity
with jurisdiction in respect of Gaming Laws (other than New Jersey), (B)
the Federal Communications Commission and (C) state educational
authorities, non-governmental educational accrediting commissions and
the U.S. Department of Education (in the case of this clause (C)
required to be made or obtained prior to consummation of the Merger), in
each case, required or necessary in connection with the Merger and this
Agreement and the transactions contemplated by this Agreement (including
the changes in the composition of the Board of Directors of the Company)
shall have been obtained and shall be in full force and effect, and in
the case of the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, either, at the option of the Parent
Companies, (x) as contemplated by Section 5.17, all shares of the common
stock of Sub shall have been deposited in trust with a trustee qualified
and otherwise acceptable to the New Jersey Casino Control Commission and
the transactions and arrangements contemplated by Section 5.17 shall be
in full force and effect or (y) (1) the New Jersey Casino Control
Commission shall have approved a form of trust agreement in form and
substance reasonably satisfactory to the Parent Companies (including in
respect of control by the Parent Companies of the Company and its
subsidiaries) in respect of a trust arrangement for the shares of
Company Common Stock to be acquired pursuant to the Merger or shares of
the common stock of the Surviving Corporation pending final
qualification of the Parent Companies to hold a casino license under the
New Jersey Casino Control Act and the rules and regulations thereunder,
(2) a trustee qualified and otherwise acceptable to the New Jersey
Casino Control Commission and the Parent Companies in respect of such
trust arrangement for the shares of Company Common Stock to be acquired
pursuant to the Merger or shares of the common stock of the Surviving
Corporation shall have been appointed or designated and (3) the
directors of Sub shall have been qualified on a permanent or temporary
basis to serve as directors of a company (including the Company) that
either directly, or through its subsidiaries, holds a casino license
under the New Jersey Casino Control Act and the rules and regulations
thereunder.
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<PAGE> 210
(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall
have been initiated or, to the Knowledge of the Parent Companies or the
Company, threatened by the SEC. All necessary state securities or blue sky
authorizations shall have been received.
(e) No Order. No court or other Governmental Entity having
jurisdiction over the Company, Parent or Trust, or any of their respective
Subsidiaries, shall (after the date of this Agreement) have enacted,
issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of
making the Merger or any of the transactions contemplated hereby illegal;
provided, however, that each of the parties shall have used all reasonable
efforts to prevent and to appeal as promptly as possible any such law,
rule, regulation, executive order, decree, injunction or other order
(f) Change in Tax Laws. There shall not have been any Federal
legislative or regulatory change that would cause the Trust to cease to
qualify as a "real estate investment trust" for federal income tax purposes
or that would cause the Trust to become subject to Section 269B(a)(3) of
the Code.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment (or waiver by the Company) at or prior to the Effective Time of
the following additional condition:
(a) Performance of Obligations; Representations and Warranties. Each
of Parent, Sub and Trust shall have performed in all material respects each
of its agreements contained in this Agreement required to be performed at
or prior to the Effective Time, each of the representations and warranties
of Parent, Sub and Trust contained in this Agreement that is qualified as
to materiality shall be true and correct at and as of the Effective Time as
if made at and as of such time (other than representations and warranties
which address matters only as of a certain date, which shall be true and
correct as of such certain date) and each of the representations and
warranties that is not so qualified shall be true and correct in all
material respects at and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date, which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by this Agreement, and the Company shall have received
certificates signed on behalf of each of Parent, Sub and Trust by its Chief
Executive Officer and its Chief Financial Officer to such effect.
(b) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or
before any court or governmental authority, agency or tribunal, domestic or
foreign, in each case that has a significant likelihood of success
challenging the acquisition by any of the Parent Companies of any shares of
Company Common Stock, seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement
or seeking to obtain from Parent, Trust or Sub any damages that are
material in relation to the Company, the Parent Companies and their
Subsidiaries taken as a whole.
(c) Tax Opinion. On the Closing Date, the opinion of Sidley & Austin,
counsel to the Parent Companies, shall have been delivered to the Company
in form and substance reasonably satisfactory to the Company stating that
(i) the Trust is a "real estate investment trust" for federal income tax
purposes and the Trust is not subject to Section 269B(a)(3) of the Code by
reason of Section 136(c) of the Deficit Reduction Act of 1984 and (ii)
consummation of the transactions contemplated by this Agreement will not
cause the Trust to cease to qualify as a "real estate investment trust" for
federal income tax purposes and will not cause the Trust to become subject
to Section 269B(a)(3) of the Code. In rendering such opinion, such counsel
shall be entitled to rely upon customary representations reasonably
requested by such counsel and made by the Parent Companies.
Section 6.3 Conditions to Obligations of Parent, Sub and Trust to Effect
the Merger. The obligations of Parent, Sub and Trust to effect the Merger shall
be subject to the fulfillment (or waiver by the Parent Companies) at or prior to
the Effective Time of the following additional conditions:
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<PAGE> 211
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed at or prior
to the Effective Time, each of the representations and warranties of the
Company contained in this Agreement that is qualified as to materiality
shall be true and correct at and as of the Effective Time as if made at and
as of such time (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct as of
such certain date) and each of the representations and warranties that is
not so qualified shall be true and correct in all material respects at and
as of the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and the Parent Companies shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(b) Consents Under Agreements. Except for the consents listed in
Section 6.3(b) of the Company Letter, the Company shall have obtained the
consent or approval of each person that is not a Governmental Entity whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, hotel management agreement or other agreement or
instrument, except as to which the failure to obtain such consents and
approvals, individually or in the aggregate, would not be expected, in the
reasonable opinion of the Parent Companies, to have a Material Adverse
Effect on the Company or upon the consummation of the transactions
contemplated in this Agreement.
(c) Letters from Company Affiliates. Parent shall have received from
each person named in the letter referred to in Section 5.5 an executed copy
of an agreement substantially in the form of Exhibit 5.5 hereto.
(d) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or
before any court or governmental authority, agency or tribunal, domestic or
foreign, in each case that has a significant likelihood of success (i)
challenging the acquisition by any of the Parent Companies of any shares of
Company Common Stock, seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement
or seeking to obtain from the Company any damages that are material in
relation to the Company, the Parent Companies and their Subsidiaries taken
as a whole, (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective Subsidiaries of any material
portion of the combined business or assets of the Company, Parent, Trust
and their respective Subsidiaries, or to compel the Company, Parent, Trust
and their respective subsidiaries to dispose of or hold separate any
material portion of the combined business or assets of the Company, Parent,
the Trust and their respective Subsidiaries, as a result of the Merger or
any of the other transactions contemplated by this Agreement, (iii) seeking
to impose limitations on the ability of Parent, the Trust or Sub to acquire
or hold, or exercise full rights of ownership of, any shares of Company
Common Stock, including, without limitation, the right to vote any Company
Common Stock purchased by it on all matters properly presented to the
shareholders of the Company, (iv) seeking to prohibit Parent, the Trust or
any of their respective Subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its
Subsidiaries or (v) which otherwise would reasonably be expected to have a
Material Adverse Effect on the Company.
(e) Rights Agreement. The Rights shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of the Rights
Agreement.
37
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of any matters presented
in connection with the Merger by the stockholders or shareholders, as
applicable, of the Company or of the Parent Companies:
(a) by mutual written consent of the Parent Companies and the Company;
(b) by either the Parent Companies or the Company if there has been a
material breach of the representations, warranties, covenants and
agreements on the part of the other set forth in this Agreement, which
breach has not been cured within ten business days following receipt by the
breaching party of notice of such breach from the nonbreaching party;
(c) by either the Parent Companies or the Company if any permanent
order, decree, ruling or other action of a court or other competent
authority restraining, enjoining or otherwise preventing the consummation
of the Merger shall have become final and non-appealable;
(d) by either the Parent Companies or the Company if the Merger shall
not have been consummated before December 31, 1998, unless the failure to
consummate the Merger is the result of a material breach of this Agreement
by the party seeking to terminate this Agreement; provided, however, that
the passage of such period shall be tolled for any part thereof during
which any party shall be subject to a nonfinal order, decree, ruling or
other action restraining, enjoining or otherwise preventing the
consummation of Merger;
(e) by either the Parent Companies or (if the Company has paid to
Parent an amount in cash equal to the sum of the Termination Fee plus all
Expenses if required by Section 5.7 (b) and (c)) the Board of Directors of
the Company if any required approval of the Merger by the stockholders of
the Company shall not have been obtained by reason of the failure to obtain
the required vote upon a vote held at a duly held meeting of such
stockholders or at any adjournment thereof;
(f) by the Parent Companies if the Board of Directors of the Company
shall or shall resolve to (i) not recommend, or withdraw its approval or
recommendation of, the Merger, this Agreement or any of the transactions
contemplated hereby (other than transactions contemplated by Section
4.5(a)), (ii) modify such approval or recommendation in a manner adverse to
Parent, Sub or Trust or (iii) approve or recommend a superior proposal
pursuant to Section 4.3(b);
(g) by the Board of Directors of the Company if (i) (x) to the extent
permitted by Section 4.3(b), the Board of Directors of the Company approves
or recommends a superior proposal or (y) nominees of Hilton Hotels
Corporation are elected as a majority of the members of the Board of
Directors of the Company at the Company's 1997 annual meeting of
stockholders and (ii) the Company has paid to Parent an amount in cash
equal to the sum of the Termination Fee plus all Expenses as provided by
Section 5.7(b); or
(h) by either the Parent Companies or the Board of Directors of the
Company if the approval of the Charter Amendments and the Share Issuances
by the shareholders of Trust or the stockholders of Parent shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of such shareholders or stockholders, as
the case may be, or at any adjournment thereof.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either the Parent Companies or the Company, as provided in Section
7.1, this Agreement shall forthwith become void and there shall be no liability
hereunder on the part of the Company, Parent, Trust, Sub or their respective
officers or directors (except for the last sentence of Section 5.4 and the
entirety of Sections 2.14, 3.21, 5.7 and 5.16, this Section 7.2 and Article
VIII, which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any liability
for any willful breach of a representation or warranty contained in this
Agreement or the breach of any covenant contained in this Agreement.
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<PAGE> 213
Section 7.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors or
Trustees, as the case may be, at any time before or after approval of the
matters presented in connection with the Merger by the respective stockholders
or shareholders of Parent, Trust and the Company, but, after any such approval,
no amendment shall be made which by law requires further approval by such
stockholders or shareholders without such further approval. This Agreement may
not be amended except by an instrument in writing duly executed by each of the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing duly executed by such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to a nationally recognized overnight courier or when telecopied
(with a confirmatory copy sent by such overnight courier) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent, Sub or Trust, to
Starwood Lodging Corporation
Starwood Lodging Trust
c/o Starwood Capital Group
3 Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Barry Sternlicht
Chief Executive Officer
Facsimile No.: (203) 861-2101
with copies to:
Sherwin L. Samuels
Sidley & Austin
555 W. Fifth Street
Los Angeles, California 90013
Facsimile No.: (213) 896-6600
Scott M. Freeman
Sidley & Austin
875 Third Avenue
New York, New York 10022
Facsimile No.: (212) 906-2021
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<PAGE> 214
(b) if to the Company, to
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019
Attention: Rand V. Araskog
Chairman and Chief
Executive
with a copy to:
Philip A. Gelston
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile No.: (212) 474-3700
Section 8.3 Interpretation. When a reference is made in this Agreement to a
Section or Article, such reference shall be to a Section or Article of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrase "the date
hereof" in this Agreement means the date of the Original Merger Agreement and
this Agreement shall be deemed to have been entered into as of the date of the
Original Merger Agreement.
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
except as provided in the last sentence of Section 5.4 and the first sentence of
Section 4.4, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral (including the Original
Merger Agreement), among the parties with respect to the subject matter hereof.
This Agreement, except for the provisions of Section 5.8 and Section 5.13, is
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
Section 8.6 Governing Law. Except to the extent that the laws of the State
of Nevada are mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent, Trust or to any direct or indirect wholly owned Subsidiary
of Parent or Trust, but no such assignment shall relieve Sub of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
40
<PAGE> 215
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
Section 8.10 Trust. The name "Starwood Trust" is the designation of Trust
and its Trustees (as Trustees but not personally) under a Declaration of Trust
dated August 25, 1969 as amended and restated, and all persons dealing with
Trust must look solely to Trust's property for the enforcement of any claims
against Trust, as the Trustees, officers, agents and security holders of Trust
assume no personal obligations of Trust, and their respective properties shall
not be subject to claims of any person relating to such obligation.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
STARWOOD LODGING CORPORATION
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Authorized Signatory
CHESS ACQUISITION CORP.
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Authorized Signatory
STARWOOD LODGING TRUST
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Chairman and Chief Executive
Officer
ITT CORPORATION
By: /s/ RAND V. ARASKOG
------------------------------------
Name: Rand V. Araskog
Title: Chairman and Chief Executive
41
<PAGE> 216
ANNEX B
[BEAR STEARNS LOGO]
[BEAR STEARNS LETTERHEAD]
November 12, 1997
Board of Trustees
Starwood Lodging Trust
2331 East Camelback Road
Suite 410
Phoenix, Arizona 85016
Board of Directors
Starwood Lodging Corporation
2331 East Camelback Road
Suite 400
Phoenix, Arizona 85016
Gentlemen:
We understand that Starwood Lodging Trust ("SLT") and Starwood Lodging
Corporation ("SLC" and, collectively, "Starwood") and ITT Corporation ("Hotel")
intend to enter into an Amended and Restated Agreement and Plan of Merger to be
dated as of November 12, 1997 (the "Merger Agreement"), pursuant to which a
newly formed subsidiary of SLC will be merged with and into Hotel and each
outstanding share of common stock, no par value, of Hotel (the "Hotel Shares"),
other than shares to be cancelled pursuant to the terms of the Merger Agreement,
will be converted into the right to receive, at the holder's election, $85 in
cash or shares of common stock, par value $.01 per share, of SLC paired with
trust shares, par value $.01 per share, of SLT (as so paired, the "Paired
Shares"), with a value of $85, together with any interest provided in the Merger
Agreement, subject to certain collar provisions; provided that the aggregate
number of Hotel Shares to be converted into the right to receive cash shall not
exceed 30% nor be less than 18% of the total number of Hotel Shares outstanding
immediately prior to the time of the Merger (the "Merger Consideration"), all in
accordance with the terms and conditions of the Merger Agreement.
You have asked us to render our opinion as to whether the Merger
Consideration is fair, from a financial point of view, to Starwood.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed each of SLT's, SLC's and Hotel's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the years ended December
31, 1994 through 1996, and their respective Quarterly Reports on Form 10-Q
for the periods ended March 31, 1997 and June 30, 1997;
3. reviewed certain operating and financial information, including
projections and projected cost savings and synergies, provided to us by
Starwood's and Hotel's respective managements relating to their respective
businesses and prospects;
4. met with certain members of Starwood's and Hotel's senior
management to discuss the operations, historical financial statements and
future prospects of Starwood and Hotel and their view of the business,
operational and strategic benefits, cost savings, potential synergies and
other implications of the Merger;
<PAGE> 217
5. reviewed the historical stock prices and trading activity of the
Paired Shares and the Hotel Shares;
6. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Starwood and Hotel or otherwise relevant to our inquiry;
7. reviewed the terms, to the extent publicly available, of recent
mergers and acquisitions which we deemed generally comparable to the Merger
or otherwise relevant to our inquiry; and
8. considered such other information and conducted such other studies,
analyses, inquiries and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Starwood and Hotel. With respect to
Starwood's and Hotel's projected financial results (including projected
divestitures, cost savings and synergies resulting from, and contemplated tax
and accounting effects of the Merger and related transactions), we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Starwood and
Hotel as to the expected future performance of Starwood and Hotel, respectively.
We have not assumed any responsibility for the information provided to us and we
have further relied upon the assurances of the managements of Starwood and Hotel
that they are unaware of any facts that would make the information provided to
us incomplete or misleading. We have also assumed with your consent that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement. In arriving at our opinion, we have not performed any independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Starwood or Hotel and we have not been furnished with any such evaluation or
appraisal.
Our opinion is necessarily based on economic, market and other conditions,
and the information made available to us, as they exist and can be evaluated as
of the date hereof. Our opinion as expressed below does not imply any conclusion
as to the likely trading range of the Paired Shares either prior to or
subsequent to the consummation of the Merger, which may vary depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion as expressed below does not
address Starwood's underlying business decision to effect the Merger or the
treatment of SLC and SLT in the Merger, and is not a recommendation to Starwood
directors or shareholders as to whether to approve or vote for the Merger.
We have acted as financial advisor to Starwood in connection with the
Merger and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the Merger. We have
previously rendered certain investment banking and financial advisory services
to Starwood and Hotel for which we received customary compensation. In the
ordinary course of our business, we may actively trade the securities of
Starwood or Hotel for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of
the Boards of Starwood and is not to be used for any other purpose, or
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, without our prior written consent; provided, however, that this letter may
be included in its entirety in any joint proxy statement/prospectus to be
distributed to the holders of Paired Shares in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to Starwood.
Very truly yours,
BEAR, STEARNS & CO. INC.
BY: /s/ ANTHONY J. MAGRO
------------------------------------
Managing Director
<PAGE> 218
ANNEX C-1
[LAZARD FRERES & CO. LLC LETTERHEAD]
January 14, 1998
The Board of Directors
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019
Dear Members of the Board:
We understand that Starwood Lodging Corporation ("Starwood Lodging"), Chess
Acquisition Corp., a wholly-owned subsidiary of Starwood Lodging ("Merger Sub"),
Starwood Lodging Trust, a real estate investment trust ("Starwood Trust" and,
together with Starwood Lodging, the "Starwood Companies"), and ITT Corporation
(the "Company") have entered into an Amended and Restated Agreement and Plan of
Merger, dated as of November 12, 1997 (the "Agreement"), pursuant to which
Merger Sub will merge with and into the Company (the "Merger"). Pursuant to the
Agreement, upon consummation of the Merger, each issued and outstanding share of
common stock, no par value, of the Company (other than shares held in the
treasury of the Company or owned by the Company, any of the Starwood Companies
or any of their respective direct or indirect wholly-owned subsidiaries) will be
converted into the right to receive (A) at the option of the holder of such
share (subject to certain proration limitations set forth below) either (i)
$85.00 in cash or (ii) a number of Paired Shares equal to the Exchange Ratio (as
defined in the Agreement and as described below) and (B) if the consummation of
the Merger occurs after January 31, 1998, cash in an amount per share equal to
(i) $85.00 times (ii) 7% per annum (without compounding) accrued from and
including January 31, 1998, to but excluding the date of the consummation of the
Merger (the aggregate consideration payable to the holders of Company common
stock in the Merger being referred to herein as the "Consideration"). As more
fully defined in the Agreement, "Exchange Ratio" means that number equal to the
quotient of (x) $85.00 divided by (y) the average of the daily high and low
prices per Paired Share as reported on the NYSE Composite Transactions reporting
system for 20 New York Stock Exchange, Inc. ("NYSE") trading days randomly
selected by an independent accounting firm from the 30 consecutive trading days
immediately preceding the date which is the fifth NYSE trading day prior to the
date of the Company stockholder meeting at which the Agreement is approved by
the stockholders of the Company; provided, however, that under the Agreement, in
no event shall the Exchange Ratio be (A) greater than an amount equal to $85.00
divided by $53.263 or (B) less than an amount equal to $85.00 divided by
$61.263. In addition, as more fully set forth in the Agreement, proration
limitations will apply to any stockholder's election described above to choose
Paired Shares or cash such that the aggregate number of shares of common stock
of the Company to be converted into the right to receive cash shall not (i)
exceed 30% or (ii) be less than 18%, in either case of all shares of common
stock of the Company issued and outstanding immediately prior to the effective
time of the Merger. For purposes hereof, "Paired Shares" refers to shares of
common stock, par value $0.01 per share, of Starwood Lodging when paired with
shares of beneficial interest, par value $0.01 per share, of Starwood Trust.
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Company common stock of the Consideration. In
connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company and the Starwood Companies;
<PAGE> 219
[LAZARD FRERES & CO. LLC]
(iii) Reviewed various financial forecasts and other data provided to
us by the Company and the Starwood Companies relating to their respective
businesses and the benefits projected by the Starwood Companies to be
realized in connection with the Merger;
(iv) Participated in discussions with members of the senior management
of the Company and the Starwood Companies with respect to the business and
prospects of the Company and the Starwood Companies, the strategic
objectives of each and the possible benefits which might be realized
following the Merger;
(v) Reviewed public information with respect to certain other
companies in lines of business we believe to be generally comparable to
those of the Company and the Starwood Companies;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be generally
comparable to those of the Company and the Starwood Companies;
(vii) Reviewed the historical stock prices and trading volumes of the
Company common stock and the Paired Shares;
(viii) Held discussions with your attorneys concerning legal,
structural and tax aspects of the Merger; and
(ix) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information. With respect to financial forecasts, including
therein the synergies and tax savings projected to be realized from the Merger,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management of the Company
and the Starwood Companies as to the future financial performance of the Company
and the Starwood Companies, respectively, and that the synergies and tax savings
projected to be realized from the Merger are realized substantially in
accordance with such projections, both as to the financial effect and timing
thereof. We assume no responsibility for and express no view as to such
forecasts or the assumptions on which they are based.
In arriving at our opinion, we have not performed any independent
evaluations or appraisals of the assets or liabilities of the Company or the
Starwood Companies or their respective subsidiaries or trusts, as the case may
be, nor have we been furnished with any such evaluations or appraisals. In
rendering our opinion herein, we have not solicited, and have not been requested
to solicit, any third party acquisition interest in the Company. In addition, we
are not expressing any opinion as to the price or range of prices at which the
Paired Shares may trade subsequent to the announcement of the execution of the
Agreement or the consummation of the Merger. Our opinion is directed only to the
fairness, from a financial point of view, of the Consideration to be received by
the holders of Company common stock in the Merger pursuant to the Agreement and
does not address the business judgment of the Company's Board of Directors in
entering into the Agreement.
Further, our opinion is necessarily based on economic, monetary, market,
legislative and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and that obtaining the necessary
regulatory approvals for the Merger will not have a material adverse effect on
the Company, the Starwood Companies or the trading of Paired Shares.
We are acting as financial advisor to the Company in connection with the
Merger and have received a fee for our services. In addition, we have from time
to time in the past provided, and we are currently providing, in matters
unrelated to the Merger, investment banking services to the Company for which we
have received, or
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[LAZARD FRERES & CO. LLC]
expect to receive, customary fees. As you know, a managing director of our firm
is a member of the Company's Board of Directors.
Our engagement and the opinion expressed herein are for the benefit of the
Board of Directors of the Company and our opinion is rendered in connection with
its consideration of the Merger. This opinion is not intended to and does not
constitute a recommendation to any shareholder of the Company as to whether such
holder should vote to approve the Merger and the transactions contemplated by
the Agreement. It is understood that, except for inclusion of this letter in its
entirety in a proxy statement from the Company to its shareholders, this letter
may not be disclosed or otherwise referred to without our prior written consent,
except as may otherwise be required by law or by a court of competent
jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration is fair to the holders of Company common
stock from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ GERALD ROSENFELD
------------------------------------
Managing Director
<PAGE> 221
ANNEX C-2
[LAZARD FRERES & CO. LLC LETTERHEAD]
November 12, 1997
The Board of Directors
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019
Dear Members of the Board:
We understand that Starwood Lodging Corporation ("Starwood Lodging"), Chess
Acquisition Corp., a wholly-owned subsidiary of Starwood Lodging ("Merger Sub"),
Starwood Lodging Trust, a real estate investment trust ("Starwood Trust" and,
together with Starwood Lodging, the "Starwood Companies"), and ITT Corporation
(the "Company") have entered into an Amended and Restated Agreement and Plan of
Merger, dated as of November 12, 1997 (the "Starwood Agreement"), pursuant to
which Merger Sub will merge with and into the Company (the "Starwood Merger").
Pursuant to the Starwood Agreement, upon consummation of the Starwood Merger,
each issued and outstanding share of common stock, no par value, of the Company
(other than shares held in the treasury of the Company or owned by the Company,
any of the Starwood Companies or any of their respective direct or indirect
wholly-owned subsidiaries) will be converted into the right to receive (A) at
the option of the holder of such share (subject to certain proration limitations
set forth below) either (i) $85.00 in cash or (ii) a number of Paired Shares
equal to the Exchange Ratio (as defined in the Starwood Agreement and as
described below) and (B) if the consummation of the Starwood Merger occurs after
January 31, 1998, cash in an amount per share equal to (i) $85.00 times (ii) 7%
per annum (without compounding) accrued from and including January 31, 1998, to
but excluding the date of the consummation of the Starwood Merger (the aggregate
consideration payable to the holders of Company common stock in the Starwood
Merger being referred to herein as the "Starwood Transaction Consideration"). As
more fully defined in the Starwood Agreement, "Exchange Ratio" means that number
equal to the quotient of (x) $85.00 divided by (y) the average of the daily high
and low prices per Paired Share as reported on the NYSE Composite Transactions
reporting system for 20 New York Stock Exchange, Inc. ("NYSE") trading days
randomly selected by an independent accounting firm from the 30 consecutive
trading days immediately preceding the date which is the fifth NYSE trading day
prior to the date of the Company stockholder meeting at which the Starwood
Agreement is approved by the stockholders of the Company; provided, however,
that under the Starwood Agreement, in no event shall the Exchange Ratio be (A)
greater than an amount equal to $85.00 divided by $53.263 or (B) less than an
amount equal to $85.00 divided by $61.263. In addition, as more fully set forth
in the Starwood Agreement, proration limitations will apply to any stockholder's
election described above to choose Paired Shares or cash such that the aggregate
number of shares of common stock of the Company to be converted into the right
to receive cash shall not (i) exceed 30% or (ii) be less than 18%, in either
case of all shares of common stock of the Company issued and outstanding
immediately prior to the effective time of the Starwood Merger. For purposes
hereof, "Paired Shares" refers to shares of common stock, par value $0.01 per
share, of Starwood Lodging when paired with shares of beneficial interest, par
value $0.01 per share, of Starwood Trust.
In addition, we understand that, as set forth in Amendment Number 36 to the
Tender Offer Statement on Schedule 14D-1 filed by Hilton Hotels Corporation
("Hilton") with the Securities and Exchange Commission on November 3, 1997 (the
"Hilton Tender Offer Statement"), Hilton has amended its proposal (the "Amended
Hilton Proposal") to acquire the Company by amending the terms of the cash
tender offer (the "Hilton Offer") that Hilton commenced on January 27, 1997 and
the terms of the consideration payable
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[LAZARD FRERES & CO. LLC]
to the holders of Company common stock in the Hilton Second-Step Merger (as
defined below). Under the Amended Hilton Proposal, (i) Hilton is offering in the
Hilton Offer to purchase 65,000,000 shares of Company common stock at a purchase
price of $80.00 per share in cash, and (ii) following completion of the Hilton
Offer, in accordance with the proposed Agreement and Plan of Merger (the "Hilton
Proposed Merger Agreement") by and among the Company, Hilton and HLT
Corporation, a wholly-owned subsidiary of Hilton ("HLT") that is filed as an
exhibit to the Hilton Tender Offer Statement, the Company would be merged with
and into HLT in the proposed second-step merger (the "Hilton Second-Step Merger"
and together with the Hilton Offer, the "Hilton Transaction"), and each share of
Company common stock that is issued and outstanding immediately prior to the
effective time of the Hilton Second-Step Merger (the "Effective Time") (other
than shares of Company common stock held in the treasury of the Company or owned
by Hilton or any direct or indirect wholly-owned subsidiary of Hilton) would be
converted into (a) two shares of Hilton common stock, $2.50 par value per share
("Hilton Common Stock"), and (b) unless the volume-weighted average of the
prices per share of Hilton Common Stock for all trades reported on the NYSE (or
such other exchange on which shares of Hilton Common Stock are then listed)
during the 20 trading days immediately preceding the last business day before
the Effective Time is equal to or greater than $40.00, two shares of Contingent
Value Preferred Stock ("CVP Shares") (the aggregate consideration payable to the
holders of Company common stock pursuant to the Hilton Offer set forth in clause
(i) and the aggregate consideration payable to the holders of Company common
stock pursuant to the Hilton Second-Step Merger set forth in subclauses (a) and
(b) of clause (ii) is collectively referred to as the "Hilton Transaction
Consideration"). We also understand that the Amended Hilton Proposal provides
that each CVP Share will entitle the holder to receive the amount, if any, by
which $40.00 exceeds the per share stock price of the Hilton Common Stock as
measured during the 45 trading day period immediately preceding (but not
including) the first anniversary of the Effective Time, subject to a maximum
amount of $12 per CVP Share. The terms of the CVP Shares are set forth in more
detail in Annex I to the Hilton Offer.
You have requested that we confirm in writing our prior oral advice, as of
the date provided, with respect to the relationship from a financial point of
view of the Starwood Transaction Consideration and the Hilton Transaction
Consideration. In connection with our opinion set forth in this letter, we have:
(i) Reviewed the financial terms and conditions of (a) the Starwood
Agreement and (b) the Hilton Tender Offer and the Hilton Proposed Merger
Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company, the Starwood Companies and Hilton;
(iii) Reviewed various financial forecasts and other data provided to
us by the Company, the Starwood Companies and Hilton relating to their
respective businesses and the benefits projected by the Starwood Companies
and Hilton to be realized in connection with the Starwood Merger and the
Hilton Transaction, respectively;
(iv) With respect to the Company and the Starwood Companies,
participated in discussions with members of the senior management of the
Company and the Starwood Companies with respect to the business and
prospects of the Company and the Starwood Companies, and the strategic
objectives of each and the possible benefits which might be realized
following the Starwood Merger, and with respect to Hilton, participated in
discussions with members of the management of Hilton with respect to the
results of Hilton's pro forma financial analysis after giving effect to the
Hilton Transaction, including the assumptions underlying such analysis;
(v) Reviewed public information with respect to certain other
companies in lines of business we believe to be generally comparable to
those of the Company, the Starwood Companies and Hilton;
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[LAZARD FRERES & CO. LLC]
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be generally
comparable to those of the Company, the Starwood Companies and Hilton;
(vii) Reviewed the historical stock prices and trading volumes of the
Company common stock, the Paired Shares and the Hilton Common Stock;
(viii) Held discussions with your attorneys concerning legal,
structural, regulatory and tax aspects of the Starwood Merger and the
Hilton Transaction; and
(ix) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information. With respect to financial forecasts, including
therein the synergies and tax savings projected to be realized from the Starwood
Merger and the synergies projected to be realized from the Hilton Transaction,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management of the Company,
the Starwood Companies and Hilton as to the future financial performance of the
Company, the Starwood Companies and Hilton, respectively. In addition, we have
assumed that the synergies and tax savings projected to be realized from the
Starwood Merger and the synergies projected to be realized from the Hilton
Transaction would be realized substantially in accordance with such projections,
both as to the financial effect and timing thereof. We assume no responsibility
for and express no view as to such forecasts or the assumptions on which they
are based. As you know, we had only very limited access to both confidential
information regarding Hilton and members of Hilton's management team. In
rendering our opinion, we have with your permission relied upon the advice of
the Company and its legal counsel concerning the expected time required to
satisfy the conditions to the Starwood Transaction.
In arriving at our opinion, we have not performed any independent
evaluations or appraisals of the assets or liabilities of the Company, the
Starwood Companies or Hilton or their respective subsidiaries or trusts, as the
case may be, nor have we been furnished with any such evaluations or appraisals.
Although we were authorized by the Company to contact Hilton in response to its
inquiries, in rendering our opinion herein, we have not solicited, and have not
been requested to solicit, any third party acquisition interest in the Company.
In addition, we are not expressing any opinion as to the price or range of
prices at which the Paired Shares or shares of Hilton Common Stock may trade
subsequent to the consummation of the Starwood Merger or the Hilton Transaction.
Our opinion does not address the business judgement of the Company's Board of
Directors in amending the Starwood Agreement or recommending the Starwood
Transaction.
Further, our opinion is necessarily based on economic, monetary, market,
legislative and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Starwood Merger would be
consummated on the terms described in the Starwood Agreement and that the Hilton
Transaction would be consummated on the terms described in the Amended Hilton
Proposal, in each case without any waiver of any material terms or conditions by
the Company. In addition, we have assumed that (i) obtaining the necessary
regulatory approvals for the Starwood Merger would not have a material adverse
effect on the Company, the Starwood Companies or the trading of Paired Shares
and (ii) obtaining the necessary regulatory approvals for the Hilton Transaction
would not have a material adverse effect on the Company, Hilton or the trading
of Hilton Common Stock. We have also assumed the absence of any change in the
United States tax laws and regulations applicable to the Starwood Merger or the
Amended Hilton Proposal and in effect on the date hereof.
We are acting as financial advisor to the Company in connection with the
Starwood Merger and the Amended Hilton Proposal and have received a fee for our
services. In addition, we have from time to time in the past provided, and we
are currently providing, in matters unrelated to the Starwood Merger and Amended
<PAGE> 224
[LAZARD FRERES & CO. LLC]
Hilton Proposal, investment banking services to the Company for which we have
received, or expect to receive, customary fees. As you know, a managing director
of our firm is a member of the Company's Board of Directors.
Our engagement and the opinions expressed herein are for the benefit of the
Board of Directors of the Company and our opinion is rendered in connection with
its consideration of the Starwood Merger and Amended Hilton Proposal. This
opinion is not intended to and does not constitute a recommendation to any
shareholder of the Company as to whether such holder should vote to approve the
Starwood Merger and the transactions contemplated by the Starwood Agreement. It
is understood that, except for inclusion of this letter in its entirety in a
proxy statement from the Company to its stockholders, this letter may not be
disclosed or otherwise referred to without our prior written consent, except as
may otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing and such other factors as we have
deemed relevant, we are of the opinion that, as of the date hereof, the Starwood
Transaction Consideration is superior to the Hilton Transaction Consideration
from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ GERALD ROSENFELD
--------------------------------------
Managing Director
<PAGE> 225
[GLEACHER NATWEST, INC. LETTERHEAD]
ANNEX C-3
November 16, 1997
Special Committee of the Board of Directors
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019
Gentlemen:
This letter will confirm our oral opinion delivered to you on November 12,
1997 (the "Opinion Date"), as to (i) the fairness to the stockholders of ITT
(the "Stockholders") from a financial point of view, as of the Opinion Date, of
the Starwood Transaction Consideration (as defined below) and (ii) the
relationship from a financial point of view, as of the Opinion Date, of the
Starwood Transaction Consideration to the Hilton Transaction Consideration (as
defined below).
We understand that, as set forth in the Amended and Restated Agreement and
Plan of Merger (the "Amended Starwood Merger Agreement"), dated as of November
12, 1997, among Starwood Lodging Corporation ("Starwood Corporation"), Chess
Acquisition Corp., Starwood Lodging Trust ("Starwood Trust" and, collectively
with Starwood Corporation, "Starwood") and ITT Corporation ("ITT"), Starwood has
amended its proposal (the "Amended Starwood Proposal") to acquire ITT through a
merger (the "Starwood Merger") of Chess Acquisition Corp. with and into ITT.
Pursuant to the Amended Starwood Merger Agreement, each share of the Common
Stock of ITT (such shares, together with the associated rights to purchase
shares of Series A Participating Cumulative Preferred Stock, the "Common Stock")
(other than shares of Common Stock held in the treasury of ITT and shares of
Common Stock owned by Starwood or Chess Acquisition Corp.) will be cancelled and
converted into (x) the right to receive, at the election of each Stockholder or
any of their respective wholly-owned subsidiaries, either (i) $85.00 per share
of Common Stock, without interest (except as specified in clause (y) below)
(together with the interest, if any payable pursuant to clause (y) below, the
"Starwood Cash Consideration"), or (ii) the right to receive Paired Shares at
the Exchange Ratio (as defined below) (together with the interest, if any
payable pursuant to clause (y) below, the "Paired Share Consideration") and (y)
if (but only if) the closing of the Starwood Merger occurs after January 31,
1998, cash in an amount per share of Common Stock equal to (i) $85.00 multiplied
by (ii) 7% per annum accrued from and including January 31, 1998, to but
excluding the date of the closing of the Starwood Merger (without compounding)
(the aggregate consideration payable to the Stockholders pursuant to the
Starwood Merger is referred to as the "Starwood Transaction Consideration"). As
used in connection with the Amended Starwood Proposal, the "Exchange Ratio"
means a number equal to the quotient, rounded to the nearest thousandth, or if
there shall not be a nearest thousandth, the next higher thousandth, of (x)
$85.00 divided by (y) the Market Price (as defined below) of the paired shares
of common stock, par value $0.01 per share, of Starwood Corporation
("Corporation Shares"), and shares of beneficial interest, par value $0.01 per
share, of Starwood Trust ("Trust Shares" and, when paired with Corporation
Shares, "Paired Shares") on the fifth New York Stock Exchange, Inc. ("NYSE")
trading day prior to the date of the meeting of the Stockholders to be convened
to approve the Amended Starwood Merger Agreement; provided, however, that in no
event shall the Exchange Ratio be (A) greater than an amount equal to $85.00
divided by $53.263 or (B) less than an amount equal to $85.00 divided by
$61.263. As used in
[GLEACHER NATWEST INC. LETTERHEAD ADDRESS LINE]
<PAGE> 226
Special Committee of the Board of Directors
November 16, 1997
Page 2
connection with the Amended Starwood Proposal, the "Market Price" of a Paired
Share on any date means the average of the Average Prices (as defined below) for
the twenty NYSE trading days (the "Averaging Period") randomly selected by a
neutral independent accounting firm appointed by mutual agreement of Starwood
Trust and ITT from the thirty consecutive NYSE trading days immediately
preceding such date. The "Average Price" for any date means the average of the
daily high and low prices per Paired Share as reported on the NYSE Composite
Transactions reporting system (as published in The Wall Street Journal or, if
not published therein, in another authoritative source mutually selected by ITT
and Starwood Corporation). We also understand that the aggregate number of
shares of Common Stock to be converted in the Starwood Merger into the right to
receive cash shall not (x) exceed 30% or (y) be less than 18%, in either case of
all shares of Common Stock issued and outstanding immediately prior to the
effective time of the Starwood Merger, subject to the proration provisions of
the Amended Starwood Merger Agreement.
We further understand that, as set forth in Amendment No. 36 to the Tender
Offer Statement on Schedule 14D-1 filed by Hilton Hotels Corporation ("Hilton")
and HLT Corporation with the Securities and Exchange Commission (the
"Commission") on November 3, 1997 (the "Hilton Tender Offer Statement"), Hilton
has amended its proposal (the "Amended Hilton Proposal") to acquire ITT by
amending the terms of the cash tender offer (the "Hilton Offer") that Hilton
commenced on January 31, 1997, and the terms of the consideration payable to the
Stockholders in the Hilton Second-Step Merger (as defined below). Under the
Amended Hilton Proposal, (i) Hilton is offering in the Hilton Offer to purchase
up to 65,000,000 shares of Common Stock, representing approximately 55% of the
issued and outstanding shares of Common Stock, at a purchase price of $80.00 per
share of Common Stock in cash, and (ii) following completion of the Hilton
Offer, in accordance with the form of Agreement and Plan of Merger among ITT,
Hilton and HLT Corporation (the "Form Hilton Merger Agreement") that is attached
as an exhibit to the Hilton Tender Offer Statement, HLT Corporation would be
merged with and into ITT in a proposed second-step merger (the "Hilton
Second-Step Merger" and, collectively with the Hilton Offer, the "Hilton
Two-Step Transaction"), and each share of Common Stock not purchased in the
Hilton Offer (other than shares held in the treasury of ITT or owned by Hilton,
HLT Corporation or another direct or indirect wholly-owned subsidiary of Hilton)
will be converted into (x) two shares of the common stock, par value $2.50 per
share, of Hilton ("Hilton Common Stock") and (y) unless the volume-weighted
average of the prices per share of Hilton Common Stock for all trades reported
on the NYSE (or such other exchange on which shares of Hilton Common Stock are
then listed) during the twenty business days immediately preceding the last
business day before the effective time of the Hilton Second-Step Merger is equal
to or greater than $40.00, two shares of Contingent Value Preferred Stock (the
"CVP Shares") issued by the surviving corporation in the Hilton Second-Step
Merger on the terms set forth on Annex I to the Hilton Tender Offer Statement
(the aggregate consideration payable to the Stockholders pursuant to the Hilton
Offer set forth in clause (i) above and the aggregate consideration payable to
the Stockholders pursuant to the Hilton Second-Step Merger set forth in
subclauses (x) and (y) of clause (ii) is collectively referred to as the "Hilton
Transaction Consideration"). Upon the redemption of the CVP Shares, each CVP
Share will entitle the holder (a "CVP Holder") to receive the amount, if any, by
which $40.00 exceeds the per share stock price of the Hilton Common Stock
measured, as described below, during a Valuation Period (as defined below)
ending immediately prior to the first anniversary of the effective time of the
Hilton Second-Step Merger, subject to a maximum amount of $12.00 per CVP Share
(the "Maximum Redemption Amount"). The CVP Shares will be redeemed for this
amount on the first anniversary of the effective time of the Hilton Second-Step
Merger, unless earlier redeemed in accordance with their proposed terms.
We understand that the Hilton Offer provides that the per share stock price
of the Hilton Common Stock for purposes of determining whether the CVP Shares
will be issued will be measured by taking the volume-weighted average of the
prices per share of Hilton Common Stock for all trades reported on the NYSE (or
such other exchange on which shares of Hilton Common Stock are then listed) of
shares of Hilton Common Stock on twenty trading days in the Valuation Period,
which twenty trading days will be randomly chosen on
<PAGE> 227
Special Committee of the Board of Directors
November 16, 1997
Page 3
the first business day following the end of the Valuation Period by the public
accounting firm then serving as the auditor of Hilton's financial statements.
The "Valuation Period" means the 45 trading day period immediately preceding
(but not including) the first anniversary of the effective time of the Hilton
Second-Step Merger. We further understand that any amount to be paid to holders
of CVP Shares upon redemption of the CVP Shares may be paid in cash, in the
equivalent value of registered Hilton Common Stock, or in any combination
thereof, except amounts payable upon redemption for $0.001 per CVP Share (the
"Minimum Redemption Amount") will be paid in cash. The CVP Shares will be
redeemed for the Minimum Redemption Amount if (i) the Current Market Value
equals or exceeds $40.00, calculated as described above, or (ii) the
volume-weighted average of the prices per share of Hilton Common Stock for all
trades reported on the NYSE (or such other exchange on which shares of Common
Stock are then listed) during any twenty consecutive trading day period prior to
the first anniversary of the effective time of the Hilton Second-Step Merger
equals or exceeds $40.00 per share.
For the purposes of the opinion set forth herein, we have:
1. analyzed the historical publicly filed financial statements of ITT,
Starwood Corporation, Starwood Trust and Hilton;
2. analyzed the Starwood Merger and the Two-Step Hilton Transaction;
3. reviewed the Amended Starwood Merger Agreement, the Form Hilton Merger
Agreement and the Hilton Tender Offer Statement;
4. reviewed the historical market prices and reported trading activity of
the Common Stock, the Paired Shares, and Hilton Common Stock;
5. compared the financial performance of Starwood with, and reviewed the
historical market prices and reported trading activity of the common
shares of, publicly traded Real Estate Investment Trusts whose
operating characteristics and ownership structure resemble those of
Starwood;
6. reviewed public information with respect to the financial performances
of certain other companies in lines of business we believe to be
comparable to the businesses of ITT, Starwood and Hilton and reviewed
the historical market prices and reported trading activity of such
companies;
7. reviewed the financial terms of certain business combinations involving
companies in lines of business which we believe to be comparable to the
businesses of ITT, Starwood and Hilton;
8. reviewed selected financial analyses and other presentation materials
as prepared by ITT's financial advisors, Lazard Freres & Co. LLC and
Goldman, Sachs & Co. (including certain estimated financial results of
ITT contained therein for the fiscal years ending on December 31, 1997
and 1998); and
9. performed such other analyses as we have deemed appropriate.
We have assumed and relied upon, without assuming responsibility for
independent verification, the accuracy and completeness of the information
reviewed by us for purposes of this opinion. With respect to the estimated
financial results and other financial analyses and materials reviewed by us, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the senior management of ITT as
to the future financial performance of ITT. We have also assumed, based upon the
information which has been provided to us and without assuming responsibility
for independent verification thereof, that no material undisclosed or contingent
liability exists with respect to Starwood or ITT. Other than the estimated
financial results of ITT referred to in numbered clause 8 above, Gleacher
NatWest has reviewed no financial projections of ITT or Starwood. We have not
solicited, and were not asked to solicit, any third party acquisition interests
in ITT. In addition, we do not express any view as to the price or range of
<PAGE> 228
Special Committee of the Board of Directors
November 16, 1997
Page 4
prices at which the Paired Shares or the Hilton Common Stock or the CVP Shares
would trade subsequent to the consummation of the Merger or the Two-Step Hilton
Transaction, as the case may be. We were not requested to, and our opinion does
not, address the business judgment of the ITT Board of Directors or of the
Special Committee in entering into the Amended Starwood Merger Agreement or
recommending the Starwood Merger. Our opinion is based necessarily on the
economic, market, and other conditions as in effect on, and the information made
available to us as of, the Opinion Date.
In rendering our opinion, we have assumed that the Starwood Merger will be
consummated on the terms described in the Amended Starwood Merger Agreement and
that the Two-Step Hilton Transaction would be consummated on the terms described
in the Hilton Tender Offer Statement, in each case without waiver or variation
of any material terms or conditions. In rendering our opinion we have also
assumed that obtaining all necessary approvals and consents including, but not
limited to, regulatory approvals, would not have a material adverse effect, in
the case of the Starwood Merger, on ITT, Starwood or the value and trading price
of the Paired Shares and, in the case of the Two-Step Hilton Transaction, on
ITT, Hilton or the value and trading price of the Hilton Common Stock or the CVP
Shares. Finally, we have assumed the absence of any material change in the tax
laws of the United States, any state or any political subdivision thereof, or
any regulations promulgated thereunder, and the absence of any material change
in the laws and regulations affecting the gaming or lodging industries in the
United States, any state or any political subdivision thereof.
The Special Committee acknowledges that the opinion and any advice or
materials provided by Gleacher NatWest in connection with its engagement
hereunder is intended for the benefit and use of the Special Committee and the
Board of Directors of ITT in considering the transaction to which the opinion,
advice or materials relate and the Special Committee agrees that, except for
references to this opinion and our engagement in the Amended Starwood Merger
Agreement and references to this Opinion and our engagement in and the
attachment of this Opinion to, the joint Proxy Statement/Prospectus to be
prepared in connection with the Starwood Merger, no such opinion, advice or
material shall be used for any other purpose or be reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor shall
any public references to Gleacher NatWest be made by or on behalf of ITT, in
each case without Gleacher NatWest's prior written consent.
Based upon and subject to the foregoing and other such factors as we deemed
relevant, we are of the opinion that, as of the Opinion Date, (i) the Starwood
Transaction Consideration is fair to the Stockholders from a financial point of
view; and (ii) the Starwood Transaction Consideration is superior to the Hilton
Transaction Consideration from a financial point of view.
Very truly yours,
GLEACHER NATWEST INC.
/s/ ERIC J. GLEACHER
--------------------------------------
Eric J. Gleacher
Chairman and Chief Executive Officer
<PAGE> 229
ANNEX D
PROPOSED AMENDMENT TO CORPORATION ARTICLES
ARTICLE NINETEENTH
In order to enable the Corporation and any Subsidiary (as hereinafter
defined) to secure and maintain in good standing all licenses, franchises and
other regulatory approvals issued by Gaming Authorities (as hereinafter defined)
which are necessary for the lawful operation of gaming and related businesses
now or hereafter engaged in by the Corporation or any Subsidiary within or
without the United States of America, which licenses, franchises or other
regulatory approvals are conditioned upon some or all of the holders of the
Corporation's stock possessing prescribed qualifications (the "Gaming
Licenses"), and in order to insure that the business of the Corporation and its
Subsidiaries will be carried on in compliance with the laws and regulations
governing the conduct of gaming and related businesses (the "Gaming Laws"), the
following provisions are made and shall apply for so long as the Corporation is
subject to Gaming Laws:
(a) Securities (as hereinafter defined) of the Corporation shall be
subject to redemption by the Corporation, pursuant to Section 78.196 of the
Nevada Revised Statutes or any other applicable provision of law, to the
extent necessary to prevent the loss or to secure the reinstatement of any
Gaming License held by the Corporation or any Subsidiary.
(b) Securities of the Corporation shall be held subject to the
condition that if a holder thereof is found by a Gaming Authority to be
disqualified or unsuitable pursuant to any Gaming Law (a "Disqualified
Holder"), such holder shall dispose of all of the Corporation's Securities
held by such holder within the 120 day period (the "Disposition Period")
commencing on the date (the "Notice Date") upon which the Corporation shall
have received notice from a Gaming Authority of such holder's
disqualification or unsuitability (the "Disqualification Notice"). Promptly
following its receipt of a Disqualification Notice, the Corporation shall
cause such Disqualification Notice to be delivered to the Disqualified
Holder named therein by personal delivery, by mailing it to the address
shown on the Corporation's books and records or through the use of any
other reasonable means. Failure of the Corporation to provide such
Disqualification Notice to a Disqualified Holder after making reasonable
efforts to do so shall not preclude the Corporation from exercising its
rights.
(c) If any Disqualified Holder fails to dispose of the Corporation's
Securities within the Disposition Period, the Corporation may redeem such
Securities at the lesser of (1) the lowest closing sale price of such
Securities on any trading day during the Disposition Period or (2) such
Disqualified Holder's original purchase price; provided, that if the
Securities to be so redeemed are paired with securities of SLT (the
Securities of the Corporation and the securities of SLT when so paired
being herein referred to as "Paired Securities") pursuant to the Pairing
Agreement, dated as of June 25, 1980, as amended, between SLT and the
Corporation, the Corporation and SLT may redeem such Paired Securities for
an aggregate amount equal to the lesser of (1) the lowest closing sale
price of such Paired Securities on any trading day during the Disposition
Period or (2) such Disqualified Holder's original purchase price for such
Paired Securities.
(d) Commencing on the Notice Date, it shall be unlawful for a
Disqualified Holder to:
(1) receive payments of dividends or interest upon any Securities
of the Corporation held by such Disqualified Holder,
(2) exercise, directly or indirectly, any right conferred by the
Corporation's Securities upon the holders thereof, or
(3) receive any remuneration in any form, for services rendered or
otherwise, from the Subsidiary of the Corporation that holds a Gaming
License.
(e) The Board of Directors shall have the power to determine, on the
basis of information known to the Board after reasonable inquiry, all
questions arising under this Article NINETEENTH including,
<PAGE> 230
without limitation, (1) whether a person is a Disqualified Holder, (2)
whether a Disqualified Holder has disposed of Securities pursuant to
Paragraph (b) of this Article NINETEENTH and (3) the amount of Securities
held directly or indirectly by any person. Any such determination shall be
binding and conclusive on all such persons.
(f) The Corporation shall be entitled to injunctive relief in any
court of competent jurisdiction to enforce the provisions of this Article
NINETEENTH, and each holder of Securities of the Corporation will be deemed
to have acknowledged by acquiring or retaining Securities of the
Corporation that failure to comply with this Article NINETEENTH will expose
the Corporation to irreparable injury for which there is not adequate
remedy at law and that the Corporation is entitled to injunctive relief to
enforce the provisions of this Article NINETEENTH.
(g) A Disqualified Holder shall indemnify the Corporation and its
Subsidiaries for any and all direct or indirect costs (including attorney's
fees) incurred by the Corporation as a result of such holder's continuing
ownership of or failure to divest the Securities.
(h) The following definitions shall apply with respect to this Article
NINETEENTH:
(1) The term "Gaming Authorities" includes all governmental
authorities within or without the United States of America which issue
or grant any license, franchise or regulatory approval necessary or
appropriate for the lawful operation of gaming and related businesses.
With respect to the State of Nevada, the term "Gaming Authorities" shall
include, without limitation, the Nevada Gaming Commission, the Nevada
State Gaming Control Board or their respective successors; and with
respect to Atlantic City, New Jersey, the term "Gaming Authorities"
shall include, without limitation, the New Jersey Casino Control
Commission, the Division of Gaming Enforcement or their respective
successors.
(2) The term "Securities" means any instrument evidencing a direct
or indirect beneficial ownership or creditor interest in the
Corporation, including but not limited to, Common Stock, Preferred
Stock, bonds, mortgages, debentures, security agreements, notes,
warrants, options and rights.
(3) The term "Subsidiary" (A) in matters relating to Gaming Laws of
the State of New Jersey, shall have the definition set forth in the New
Jersey Statutes Annotated 5:12-47 or (B) in matters relating to Gaming
Laws outside of the State of New Jersey, means (i) a corporation, more
than 50% of the outstanding voting securities of which the Corporation
or a Subsidiary of the Corporation owns or has the power to vote or (ii)
a firm, association, partnership, limited liability company, trust or
other form of business organization, not a natural person, of which the
Corporation or a Subsidiary of the Corporation owns or has the power to
vote a majority interest.
<PAGE> 231
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS, TRUSTEES AND
OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Corporation contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
The Maryland REIT Law permits a Maryland REIT to include in its declaration
of trust a provision limiting the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Trust Declaration contains such a
provision which eliminates such liability to the fullest extent permitted by the
Maryland law for acts or omissions after June 6, 1988.
The Corporation Articles and the Trust Declaration provide that the
Corporation and the Trust, respectively, shall indemnify, to the fullest extent
permitted by law, all persons who may be indemnified pursuant to the MGCL and
Maryland REIT Law, respectively. The MGCL requires a corporation or a Maryland
REIT (unless its charter or declaration provides otherwise, which the
Corporation Articles and the Trust Declaration do not) to indemnify a director,
trustee or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation or Maryland REIT to indemnify
its present and former directors, trustees and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director, trustee or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director, trustee or officer actually received an improper personal benefit in
money, property or services or (c) in the case of any criminal proceeding, the
director, trustee or officer had reasonable cause to believe that the act or
omission was unlawful. However, under the MGCL, a Maryland corporation or a
Maryland REIT may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or the Maryland REIT or for a judgment of liability on
the basis that personal benefit was improperly received, unless in either case a
court orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation or a Maryland REIT to advance reasonable expenses to a
director, trustee or officer upon the receipt by the corporation or the Maryland
REIT of (a) a written affirmation by the director, trustee or officer of his
good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation or the Maryland
REIT if it shall ultimately be determined that the standard of conduct was not
met.
The Trust Declaration provides that no Trustee, officer or agent of the
Trust shall be liable or held to any personal liability whatsoever for an
obligation or contract of the Trust. In addition, the Trust Declaration provides
that the provisions of the MGCL which set forth the standard of care required of
directors of corporations organized under the laws of the State of Maryland, and
all other statutory or decisional law which sets forth the standard of care
required of officers, employees and agents for corporations organized under the
laws of the State of Maryland, shall be fully applicable to the Trust, and to
the Trustees, officers, employees and agents of the Trust, as if the Trust were
a corporation organized under the laws of the State of Maryland and its
Trustees, officers, employees and agents were, respectively, directors,
officers, employees and agents of such corporation. Notwithstanding the
foregoing, the Trust Declaration provides that to the fullest extent permitted
by Maryland statutory or decisional law, no Trustee or officer of the Trust
shall be liable to the Trust or its stockholders for money damages arising out
of acts or omissions occurring on or after June 6, 1988;
II-1
<PAGE> 232
provided, however, that such provision shall not limit the liability of the
Trustees or officers to the Trust or its shareholders (i) to the extent that is
proved that such person actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit in money,
property or services actually received, or (ii) to the extent that a judgment or
final adjudication adverse to such person is entered in a proceeding based on a
finding in the proceeding that such person's action, or failure to act, was the
result of active and deliberate dishonesty which was material to the cause of
action adjudicated in the proceeding.
Starwood Lodging has entered into indemnification agreements with its
directors, trustees and executive officers providing for the maintenance of
directors, trustees and officers liability insurance, subject to certain
conditions, and the indemnification of and advancement of expenses to such
directors, trustees and executive officers.
ITEM 21. EXHIBITS.
(a) Exhibits. The following is a list of Exhibits included as part of this
Registration Statement. Items marked with an asterisk are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of October 19, 1997 among ITT Corporation,
Starwood Lodging Corporation, Starwood Lodging Trust and Chess Acquisition Corp.
(included as Annex A to the Joint Proxy Statement/Prospectus). Schedules to the
Agreement and Plan of Merger are omitted pursuant to Item 601(b)(2) of Regulation
S-K. Starwood Lodging hereby agrees to furnish copies of such Schedules to the
Commission upon request.
4.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as
amended (incorporated by reference to Exhibit 3A to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated January 31, 1995 (the "January
1995 Form 8-K")).
4.2 Amendment and Restatement of Articles of Incorporation of the Corporation, as
amended (incorporated by referenced to Exhibit 3B to the January 1995 Form 8-K).
4.3 Trustees' Regulations of the Trust, as amended (incorporated by referenced to
Exhibit 3.3 to the Trust's and the Corporation's Joint Annual Report on Form 10-K
for the year ended December 31, 1994 (the "1994 Form 10-K")).
4.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to
the 1994 Form 10-K).
4.5 Form of Indenture for Debt Securities (incorporated by reference to Exhibit 4.1 to
the Trust's and the Corporation's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on October 3, 1996 (Registration Nos. 333-13411
and 333-13411-01) (the "1996 Form S-3").
4.6 Form of Indenture for Convertible Notes (incorporated by reference to Exhibit 4.2 to
the 1996 Form S-3).
4.7 Form of Convertible Notes (included in Exhibit 4.6).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll.
8.1* Opinion of Sidley & Austin as to certain United States federal income tax
consequences.
8.2* Opinion of Cravath, Swaine & Moore as to certain United States federal income tax
consequences.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Price Waterhouse LLP.
23.4* Consent of Arthur Andersen LLP.
23.5* Consent of Arthur Andersen LLP.
</TABLE>
II-2
<PAGE> 233
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
23.6* Consent of Lazard Freres & Co. LLC. (included in Annexes C-1 and C-2 to the Joint
Proxy Statement/Prospectus).
23.7* Consent of Bear Stearns & Co. Inc. (included in Annex B to the Joint Proxy
Statement/ Prospectus).
23.8* Consent of Gleacher NatWest Inc. (included in Annex C-3 to the Joint Proxy
Statement/Prospectus).
23.9* Consent of Sidley & Austin (included in Exhibit 8.1).
23.10 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.1).
23.11* Consent of Cravath, Swaine & Moore (included in Exhibit 8.2).
23.12* Consent of Goldman Sachs & Co.
24 Powers of Attorney (contained in signature pages hereto).
99.1* Form of proxy card to be mailed to holders of Paired Shares.
99.2* Form of proxy card to be mailed to holders of ITT Common Stock.
99.3* Form of Form of Election.
99.4* Determination Letter dated August 15, 1994 to Hotel Investors Trust from the IRS.
</TABLE>
- ---------------
* Filed herewith.
(b) Financial Statement Schedules.
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are incorporated by reference herein.
(c) Reports, Opinions or Appraisals.
The opinions of Bear, Stearns & Co. Inc., the two opinions of Lazard Freres
& Co. LLC and the opinion of Gleacher NatWest Inc. are included as Annexes B,
C-1, C-2 and C-3, respectively, to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwith-
II-3
<PAGE> 234
standing 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) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrants pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(c) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(e) The Registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(g) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 235
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment 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 14th day of January, 1998.
STARWOOD HOTELS & RESORTS TRUST
By: /s/ RONALD C. BROWN
------------------------------------
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
* Chairman, Chief Executive January 14, 1998
- ------------------------------------------ Officer and Trustee (Principal
Barry S. Sternlicht Executive Officer)
* President and Trustee January 14, 1998
- ------------------------------------------
Gary M. Mendell
* Senior Vice President (Principal January 14, 1998
- ------------------------------------------ Financial and Accounting
Ronald C. Brown Officer)
* Senior Vice President January 14, 1998
- ------------------------------------------ and Trustee
Steven R. Goldman
* Trustee January 14, 1998
- ------------------------------------------
Bruce W. Duncan
* Trustee January 14, 1998
- ------------------------------------------
Madison F. Grose
* Trustee January 14, 1998
- ------------------------------------------
Roger S. Pratt
</TABLE>
II-5
<PAGE> 236
<TABLE>
<C> <S> <C>
* Trustee January 14, 1998
- ------------------------------------------
Stephen R. Quazzo
*By: /s/ RONALD C. BROWN
- ------------------------------------------
Ronald C. Brown
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 237
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment 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 14th day of January, 1998.
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
By: /s/ ERIC A. DANZIGER
------------------------------------
Eric A. Danziger
President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
* Chairman of the Board January 14, 1998
- ------------------------------------------ and Director
Barry S. Sternlicht
* President and Chief Executive January 14, 1998
- ------------------------------------------ Officer (Principal Executive
Eric A. Danziger Officer)
* Vice President and Corporate January 14, 1998
- ------------------------------------------ Controller (Principal
Alan M. Schnaid Financial and Accounting
Officer)
* Director January 14, 1998
- ------------------------------------------
Jonathan D. Eilian
* Director January 14, 1998
- ------------------------------------------
Bruce M. Ford
* Director January 14, 1998
- ------------------------------------------
Graeme W. Henderson
* Director January 14, 1998
- ------------------------------------------
Earle F. Jones
</TABLE>
II-7
<PAGE> 238
<TABLE>
<C> <S> <C>
* Director January 14, 1998
- ------------------------------------------
Michael A. Leven
* Director January 14, 1998
- ------------------------------------------
Daniel W. Yih
*By: /s/ ALAN M. SCHNAID
- ------------------------------------------
Alan M. Schnaid
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 239
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
2.1 Agreement and Plan of Merger dated as of October 19, 1997 among ITT Corporation,
Starwood Lodging Corporation, Starwood Lodging Trust and Chess Acquisition Corp.
(included as Annex A to the Joint Proxy Statement/Prospectus). Schedules to the
Agreement and Plan of Merger are omitted pursuant to Item 601(b)(2) of Regulation
S-K. Starwood Lodging hereby agrees to furnish copies of such Schedules to the
Commission upon request.
4.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as
amended (incorporated by reference to Exhibit 3A to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated January 31, 1995 (the "January
1995 Form 8-K")).
4.2 Amendment and Restatement of Articles of Incorporation of the Corporation, as
amended (incorporated by referenced to Exhibit 3B to the January 1995 Form 8-K).
4.3 Trustees' Regulations of the Trust, as amended (incorporated by referenced to
Exhibit 3.3 to the Trust's and the Corporation's Joint Annual Report on Form 10-K
for the year ended December 31, 1994 (the "1994 Form 10-K")).
4.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to
the 1994 Form 10-K).
4.5 Form of Indenture for Debt Securities (incorporated by reference to Exhibit 4.1 to
the Trust's and the Corporation's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on October 3, 1996 (Registration Nos. 333-13411
and 333-13411-01) (the "1996 Form S-3").
4.6 Form of Indenture for Convertible Notes (incorporated by reference to Exhibit 4.2 to
the 1996 Form S-3).
4.7 Form of Convertible Notes (included in Exhibit 4.6).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll.
8.1* Opinion of Sidley & Austin as to certain United States federal income tax
consequences.
8.2* Opinion of Cravath, Swaine & Moore as to certain United States federal income tax
consequences.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Price Waterhouse LLP.
23.4* Consent of Arthur Andersen LLP.
23.5* Consent of Arthur Andersen LLP.
23.6* Consent of Lazard Freres & Co. LLC. (included in Annexes C-1 and C-2 to the Joint
Proxy Statement/Prospectus).
23.7* Consent of Bear Stearns & Co. Inc. (included in Annex B to the Joint Proxy
Statement/ Prospectus).
23.8* Consent of Gleacher NatWest Inc. (included in Annex C-3 to the Joint Proxy
Statement/ Prospectus).
23.9* Consent of Sidley & Austin (included in Exhibit 8.1).
23.10 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.1).
23.11* Consent of Cravath, Swaine & Moore (included in Exhibit 8.2).
23.12* Consent of Goldman Sachs & Co.
24 Powers of Attorney (contained in signature pages hereto).
99.1* Form of proxy card to be mailed to holders of Paired Shares.
99.2* Form of proxy card to be mailed to holders of ITT Common Stock.
99.3* Form of Form of Election.
99.4* Determination Letter dated August 15, 1994 to Hotel Investors Trust from the IRS.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
Exhibit 8.1
[SIDLEY & AUSTIN LETTERHEAD]
January 14, 1998
Starwood Hotels & Resorts Trust
2231 E. Camelback Road
Suite 410
Phoenix, Arizona 85016
Starwood Hotels & Resorts Worldwide, Inc.
2231 E. Camelback Road
Suite 400
Phoenix, Arizona 85016
Re: Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
Registration Statement on Form S-4
File Nos. 333-39409 and 333-39409-1
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Starwood Hotels & Resorts Trust, 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 "Starwood Lodging"), in connection with
<PAGE> 2
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
January 14, 1998
Page 2
the preparation of the Registration Statement on Form S-4 of Starwood Lodging,
as initially filed with the Securities and Exchange Commission (the
"Commission") on November 4, 1997 (as thereafter amended from time to time and
together with all exhibits thereto, the "Registration Statement"). This opinion
is being furnished in accordance with the requirements of Item 21(a) of Form S-4
and Item 601(b)(8) of Regulation S-K under the Securities Act of 1933, as
amended (the "Act"). Capitalized terms used but not otherwise defined herein
have the respective meanings set forth in the Registration Statement.
<PAGE> 3
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
January 14, 1998
Page 3
Our opinion is based upon an examination of the Registration
Statement, and such other documents as we have deemed necessary or appropriate
as a basis therefor. In our examination, we have assumed the legal capacity of
all natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, or photostatic copies,
and the authenticity of the originals of such copies. As to any facts material
to this opinion that we did not independently establish or verify, we have
relied upon the detailed statements and representations of Starwood Lodging set
forth in its letters to us dated the date of this opinion, which letters are
attached hereto and incorporated by reference herein. Our opinion is premised on
the accuracy of such statements and representations. We have also
assumed that the Merger and the other transactions specified in the Merger
Agreement to be effected on or prior to the Closing Date will be consummated as
contemplated in the Registration Statement.
I. ANALYSIS AND DISCUSSION
1. In General
The analysis and discussion set forth in the summary contained in
the Registration Statement under the caption "Federal Income Tax Consequences"
is hereby incorporated by reference as though set forth herein in its entirety.
2. Section 269B of the Code
Section 269B(a)(3) of the Code provides that, for purposes of
determining whether any stapled entity is a REIT, all entities which are stapled
entities with respect to each
<PAGE> 4
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
January 14, 1998
Page 4
other shall be treated as one entity. Section 269B(c) of the Code defines the
term "stapled entities" to mean any group of two or more entities if more than
50 percent in value of the beneficial ownership in each of such entities
consists of interests where, by reason of form of ownership, restrictions on
transfer, or other terms or conditions, the transfer of one of such interests
causes or requires the transfer of the other of such interests.
The Trust and the Corporation are "stapled entities" within the
meaning of Section 269B(c) of the Code. Therefore, if Section 269B(a)(3) were to
apply to the Trust and the Corporation, they would be treated as one entity for
purposes of determining whether the Trust is a REIT. In such case, the Trust
would not satisfy either the 75 percent or the 95 percent gross income tests
provided in Sections 856(c)(2) and (3) of the Code and the Trust would not
qualify as a REIT.
Section 136(c)(3) of the Deficit Reduction Act of 1984, P.L.
98-369 (the "1984 Tax Act"), however, provides that Section 269B(a)(3) of the
Code shall not apply in determining the application of Sections 856 through 859
of the Code to any REIT which is part of a group of stapled entities if:
(A) all members of such group were stapled entities as of June 30,
1983, and
(B) as of June 30, 1983, such group included one or more REITs.
No regulations, rulings or cases have been issued or decided interpreting
Section 136(c)(3) of the 1984 Tax Act.
Section 269B(a)(3) of the Code does not apply to the Trust because
the Trust and the Corporation were stapled entities on June 30, 1983 and the
Trust was a REIT on such date. Section 136(c)(3) of the 1984 Tax Act does not,
by its terms, require the Trust to have been a REIT at all times after June 30,
1983 in order for Section 269B(a)(3) of the Code not to apply. Therefore, the
termination of the Trust's status as a REIT for the taxable years ended December
31, 1991 through 1994 did not result in Section 269B(a)(3) of the Code applying
to the Trust for the taxable year ending December 31, 1995, nor will it result
in Section 269B(a)(3) of the Code applying to the Trust for future taxable
years. Because there are no judicial or administrative authorities interpreting
Section 136(c)(3) of the 1984 Tax Act, this conclusion is based solely on the
literal language of this provision.
<PAGE> 5
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
January 14, 1998
Page 5
II. OPINION
In rendering our opinion, we have considered the applicable
provisions of the Code, Regulations, judicial decisions, administrative rulings
and other applicable authorities, in each case as in effect on the date hereof.
The statutory provisions, regulations, decisions, rulings and other authorities
on which this opinion is based are subject to change, and such changes could
apply retroactively. Opinions of counsel are not binding on the IRS or on any
court. Accordingly, no assurance can be given that the IRS will not challenge
the propriety of one or more of the opinions set forth in the following
paragraphs or that such a challenge would not be successful.
Based upon and subject to the foregoing, we are of the opinion
that:
1. The discussion set forth in the section of the Registration
Statement entitled "Federal Income Tax Consequences" constitutes, in
all material respects, a fair and accurate summary of the Federal
income tax consequences that are likely to be material to Starwood
Lodging and to its shareholders and stockholders and constitutes the
opinion of Sidley & Austin to the extent so stated in such section.
2. Commencing with its taxable year ended December 31, 1995, the
Trust was organized and operated in conformity with the requirements
for qualification as a REIT pursuant to Sections 856 through 860 of the
Code and the Regulations, and Starwood Lodging's proposed method of
operation will enable the Trust to continue to meet the requirements
for qualification and taxation as a REIT under the Code and the
Regulations for its taxable year ending December 31, 1998 and for
future taxable years.
3. Section 269B(a)(3) of the Code has not applied and will
continue not to apply to the Trust and the Corporation.
4. The separate corporate identities of the Trust and the
Corporation will be respected.
5. The Leases will be treated as true leases for Federal income
tax purposes.
6. Except to the extent such rent is attributable to personal
property, the rent payable under the Leases will be treated as "rents
from real property" for purposes of Sections 856(c)(2) and (3) of the
Code.
7. Based on examples contained in Section 1.701-2(b) of the
Regulations, the structure of Starwood Lodging is not inconsistent with
the intent of Subchapter K of the Code and the IRS will not be able to
invoke Section 1.701-2(b) of the Regulations to recast the structure of
the Starwood Lodging for Federal income tax purposes.
<PAGE> 6
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
January 14, 1998
Page 6
Other than as expressly stated above, we express no opinion on any
issue relating to Starwood Lodging or to any investment therein or under any
other law. We are furnishing this opinion to you for Starwood Lodging's benefit
in connection with the filing of the Registration Statement with the Commission
and this opinion is not to be used, circulated, quoted, or otherwise referred to
for any other purpose without our written permission. This opinion is expressed
as of the date hereof, and we disclaim any undertaking to advise you of any
subsequent changes of the matters stated, represented, or assumed herein or any
subsequent changes in applicable law, regulations or interpretations thereof.
We consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference to Sidley & Austin therein under the
caption "Legal Matters." In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Act or the rules or regulations of the Commission promulgated thereunder.
Very truly yours,
Sidley & Austin
<PAGE> 7
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
2231 E. CAMELBACK ROAD
SUITE 400
PHOENIX, ARIZONA 85016
January 14, 1998
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Re: Tax Opinion
Ladies and Gentlemen:
In connection with the opinion letter (the "Opinion Letter")
to be provided by Sidley & Austin in connection with the preparation of the
Registration Statement on Form S-4 of Starwood Lodging, as initially filed with
the Securities and Exchange Commission on November 4, 1997 (as thereafter
amended from time to time and together with all exhibits thereto, the
"Registration Statement") and recognizing that Sidley & Austin will rely on this
letter in providing the Opinion Letter, the undersigned, an officer of Starwood
Hotels & Resorts Worldwide, Inc. (the "Corporation"), duly appointed by the
Board of Directors of the Corporation and acting as such, hereby certifies the
following, to the best knowledge of the Corporation, as of the date hereof.
Insofar as such certification pertains to any person other than the Corporation,
such certification is only as to the knowledge of the undersigned without
specific inquiry. Capitalized terms used but not defined herein have the meaning
provided in the Registration Statement. References to the Trust and the
Corporation include their respective subsidiaries.
1. Each of the following documents has been (or will be) duly
authorized, executed, and delivered, and has not been amended or
further amended after the noted date:
a. The Articles of Incorporation of the Corporation
as amended and restated as of February 1, 1995, and as amended
as of January 2, 1998;
b. The Certificate of Limited Partnership of the
Operating Partnership dated as of December 13, 1994, as
corrected as of December 20,
<PAGE> 8
Sidley & Austin
January 14, 1998
Page 2
1994, as amended as of March 30, 1995, as amended and restated
as of July 5, 1995, and as further amended as of November 14,
1997;
c. The Second Amended and Restated Limited
Partnership Agreement of the Operating Partnership dated as of
November 14, 1997, and as amended as of January 1, 1998 (the
"Operating Agreement");
d. The organizational documents and the limited
partnership agreement or limited liability company agreement,
as the case may be, for each of the limited partnerships and
limited liability companies in which the Corporation owns a
direct or indirect interest (the "Operating Subsidiary
Entities"), as amended to the date hereof;
e. The Transaction Agreement;
f. The Merger Agreement; and
g. Any other documents we have furnished you in
connection with your issuance of your opinion.
2. During its taxable years ended December 31, 1995, 1996 and
1997 and during each of its taxable years ending after December 31,
1997, each of the Corporation, the Operating Partnership and the
Operating Subsidiary Entities has operated and will operate in such a
manner that will make each representation set forth below true for such
years or for the period set forth in such representation.
3. The Corporation will not make any amendments to its
organizational documents after the date hereof that would affect the
Trust's qualification as a real estate investment trust as defined in
Section 856(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
4. Each partner of the Operating Partnership and of an
Operating Subsidiary Entity that is a partnership and each member of an
Operating Subsidiary Entity that is a limited liability company that is
a corporation or other entity has a valid legal existence.
<PAGE> 9
Sidley & Austin
January 14, 1998
Page 3
5. Each partner and each member, as the case may be, has full
power, authority, and legal right to enter into and perform the terms
of the Operating Agreement or the partnership or limited liability
company agreements of the Operating Subsidiary Entities, as the case
may be, and the transactions contemplated thereby.
6. No actions will be taken by the Corporation, the Operating
Partnership, or any Operating Subsidiary Entity or the partners or the
members of any of them, that would have the effect of altering the
facts upon which your opinion is based.
7. The Paired Shares were paired prior to June 30, 1983, and
at all times thereafter.
8. Not all of the trustees of the Trust are also directors of
the Corporation, and some of the directors of the Corporation are not
trustees of the Trust. No individual serves as an officer of both the
Trust and the Corporation concurrently.
9. The Corporation, the Operating Partnership, each Operating
Subsidiary Entity, Atlanta and St. John each maintain separate books
and records.
10. The Trust, the Realty Partnership, the Realty Subsidiary
Entities and the Subsidiary REITs do not and will not furnish or render
any services to the Corporation, the Operating Partnership, any of the
Operating Subsidiary Entities, Atlanta or St. John.
11. At all times, material transactions among the Trust, the
Corporation, the Realty Partnership, the Realty Subsidiary Entities,
the Subsidiary REITs, the Operating Partnership, the Operating
Subsidiary Entities, Atlanta or St. John, or any of them, have been and
will be negotiated and structured with the intention of achieving an
arm's-length result.
12. The Operating Partnership and the Operating Subsidiary
Entities are each bona fide and each transaction or series of related
transactions will be entered into for a substantial business purpose.
13. The payment of cash in lieu of fractional Paired Shares
was not separately bargained for consideration and will be made solely
for the purpose of saving the Trust and the Corporation the expense and
inconvenience of issuing fractional Paired Shares.
<PAGE> 10
Sidley & Austin
January 14, 1998
Page 4
14. The fair market value of the real estate assets of ITT
Corporation exceeds four billion dollars ($4,000,000,000).
15. As of the date hereof, the fair market value of the
Corporation Shares and the fair market value of the Trust Shares
relative to the total fair market value of the Paired Shares is 30% and
70%, respectively.
16. The 0.25% per annum fee to be received by the Trust for
its guarantee of the third party indebtedness to be incurred by the
Corporation in connection with the Merger is reasonable as to each of
the Trust and the Corporation.
17. As of the date hereof, the Corporation could arrange debt
financing for the acquisition of ITT without the credit support
provided by a guaranty by the Trust.
18. The Merger will be consummated in compliance with the
material terms of the Merger Agreement, and none of the material terms
and conditions therein have been waived or modified.
19. Where the foregoing representations involve matters of
law, you have explained to us the relevant and material legal authority
to which such representations relate.
The undersigned fully understands that Sidley & Austin will be relying
on the accuracy and completeness of the statements made in this letter in
rendering the opinions contained in the Opinion Letter, and the undersigned has
examined such records and other documents and made such inquiries and
investigation as the undersigned deemed necessary to obtain sufficient actual
knowledge to support the representations made herein.
Very truly yours,
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ Alan M. Schnaid
--------------------------
Name: Alan M. Schnaid
Title: Vice President and
Corporate Controller
<PAGE> 11
STARWOOD HOTELS & RESORTS TRUST
2231 E. CAMELBACK ROAD
SUITE 410
PHOENIX, ARIZONA 85016
January 14, 1998
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Re: Tax Opinion
Ladies and Gentlemen:
In connection with the opinion letter (the "Opinion Letter")
to be provided by Sidley & Austin in connection with the preparation of the
Registration Statement on Form S-4 of Starwood Lodging, as initially filed with
the Securities and Exchange Commission on November 4, 1997 (as thereafter
amended from time to time and together with all exhibits thereto, the
"Registration Statement") and recognizing that Sidley & Austin will rely on this
letter in providing the Opinion Letter, the undersigned, an officer of Starwood
Hotels & Resorts Trust (the "Trust"), duly appointed by the Board of Trustees of
the Trust and acting as such, hereby certifies the following, to the best
knowledge of the Trust, as of the date hereof. Insofar as such certification
pertains to any person other than the Trust, such certification is only as to
the knowledge of the undersigned without specific inquiry. Capitalized terms
used but not defined herein have the meaning provided in the Registration
Statement. References to the Trust and the Corporation include their respective
subsidiaries.
1. Each of the following documents has been (or will be) duly
authorized, executed, and delivered, and has not been amended or
further amended after the noted date:
a. The Trust's Declaration of Trust dated August 25,
1969, as amended and restated as of June 6, 1988, as further
amended as of February 1, 1995, and as further amended as of
January 2, 1998;
b. The letter ruling issued by the Internal Revenue
Service (the "IRS") to the Trust dated January 4, 1980;
<PAGE> 12
Sidley & Austin
January 14, 1998
Page 2
c. The letter from the IRS to the Trust dated August
15, 1994, concerning the termination of the Trust's election
to be taxed as a REIT (the "IRS Letter");
d. The Certificate of Limited Partnership of the
Realty Partnership dated December 9, 1994, as corrected as of
December 20, 1994, as amended as of March 30, 1995, and as
amended and restated as of July 5, 1995;
e. The Second Amended and Restated Limited
Partnership Agreement of the Realty Partnership dated as of
November 14, 1997, as amended as of January 1, 1998 (the
"Realty Agreement");
f. The Formation Agreement dated as of November 11,
1994, among the Trust, the Corporation, Starwood Capital
Group, L.P., Berl Holdings, L.P., Starwood Apollo Hotel
Partners I, L.P., Starwood Apollo Hotel Partners VIII, L.P.,
Starwood Apollo Hotel Partners IX, L.P., and Starwood Nomura
Hotel Investors, L.P. as amended to the date hereof, and the
exhibits and schedules attached thereto;
g. The organizational documents and the limited
partnership agreement or limited liability company agreement,
as the case may be, for each of the limited partnerships and
limited liability companies in which the Trust owns a direct
or indirect interest (the "Realty Subsidiary Entities"), as
amended to the date hereof;
h. The Transaction Agreement;
i. The Merger Agreement; and
j. Any other documents we have furnished you in
connection with your issuance of your opinion.
2. During its taxable year ended December 31, 1995 and during
each of its taxable years ending after December 31, 1995, each of the
Trust, the Realty Partnership and the Realty Subsidiary Entities has
operated and will operate in such a manner that will make each
representation set forth below true for such years or for the period
set forth in such representation.
<PAGE> 13
Sidley & Austin
January 14, 1998
Page 3
3. The Trust will not make any amendments to its
organizational documents after the date hereof that would affect the
Trust's qualification as a real estate investment trust as defined in
Section 856(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
4. Each partner of the Realty Partnership, and each partner or
member of the Realty Subsidiary Entities that is a corporation or other
entity has a valid legal existence.
5. Each partner and each member of the Realty Partnership and
the Realty Subsidiary Entities has full power, authority, and legal
right to enter into and perform the terms of the Realty Agreement or
the partnership or limited liability company agreements, as the case
may be, of each Realty Subsidiary Entity, and the transactions
contemplated thereby.
6. No actions will be taken by the Trust, any Realty
Subsidiary Entity or the partners or the members of any of them, that
would have the effect of altering the facts upon which your opinion is
based.
7. The Trust has filed amended federal income tax returns for
its taxable years ended December 31, 1991 and 1992 reflecting that it
did not qualify as a real estate investment trust (a "REIT") and was
taxable as a C corporation. The Trust has filed its federal income tax
returns for its taxable years ended December 31, 1993 and 1994
reflecting that it did not qualify as a REIT and was taxable as a C
corporation.
8. At all times on or after January 1, 1995, the Trust was and
will be managed by the Board of Trustees and, except for immaterial
amounts, the paired shares of the Trust and the Corporation (the
"Paired Shares") were and will be transferable. At all times after the
Closing Date, each Subsidiary REIT will be managed by its board of
directors and we will not agree to any changes to the certificate of
incorporation, by-laws or other relevant documents that would result in
the stock of each Subsidiary REIT not being transferable.
9. The Trust timely elected to be a REIT for its taxable year
ending December 31, 1995, computed its taxable income as a REIT on its
federal income tax return for that taxable year, and filed IRS Form
1120-REIT with a copy of the IRS Letter attached thereto properly and
timely electing REIT status and has not terminated or revoked such
election. The Subsidiary REITs will timely file IRS Forms 1120-REIT for
their taxable years ending December 31, 1998, will timely elect to be
taxed as REITs for such year and will not terminate or revoke such
elections.
<PAGE> 14
Sidley & Austin
January 14, 1998
Page 4
10. The Trust has timely filed its income tax return for its
taxable year ended December 31, 1996, and will timely file its income
tax returns for subsequent taxable years reflecting that it has
qualified as a REIT and will not terminate or revoke its election to be
taxed as a REIT.
11. The Trust, as of December 31, 1994, did not have any
accumulated earnings and profits. As of December 31, 1998, the Trust
will not have any earnings and profits accumulated in any year in which
the Trust, or any corporation to whose earnings and profits the Trust
succeeded by operation of Section 381 of the Code, was not a REIT.
12. The Trust timely made an election pursuant to IRS
Notice 88-19, 1988-2 C.B. 486, to apply rules similar to those of
Section 1374 of the Code for its taxable year ended December 31, 1995
and the Trust and the Subsidiary REITs will each make such an election
for their taxable years ending December 31, 1998.
13. The Paired Shares were paired prior to June 30, 1983, and
at all times thereafter.
14. The following requirements are now and will continue to be
met by any person which provides services with respect of or to any
tenant of a property in which the Realty Partnership, the Realty
Subsidiary Entities and, commencing with the taxable year ending
December 31, 1998, the Subsidiary REITs, own an interest (the
"Properties"):
a. Such person does not and will not own, directly or
indirectly (within the meaning of Section 856(d)(5) of the
Code), more than 35 percent of the shares of beneficial
interest of the Trust (the "Trust Shares") or the stock of any
Subsidiary REIT;
b. If such person is a corporation, not more than 35
percent of its stock, measured by voting power or number of
shares, or, if such person is a non corporate entity, not more
than a 35 percent interest in its assets or net profits is or
will be owned, directly or indirectly (within the meaning of
Section 856(d)(5) of the Code), by one or more persons who own
35 percent or more of the Trust Shares or the stock of any
Subsidiary REIT;
c. None of the Trust, any Realty Subsidiary Entity or
any Subsidiary REIT presently derives or receives, or will
derive or receive, any income from such person;
<PAGE> 15
Sidley & Austin
January 14, 1998
Page 5
d. Such person was, is and will be adequately
compensated for its services; and
e. If such person is an individual, he or she is not
and will not be an officer of the Trust, any Realty Subsidiary
Entity or any Subsidiary REIT.
15. Beneficial ownership of the Trust was held by 100 or more
persons for at least 335 days of each of the taxable years ended
December 31, 1995, 1996 and 1997 and will be held by 100 or more
persons for at least 335 days of each taxable year ending after
December 31, 1997. Beneficial ownership of each Subsidiary REIT will be
held by 100 or more persons for at least 335 days of each taxable year
ending on or after December 31, 1999.
16. At no time during the last half of the Trust's taxable
years ended December 31, 1995, 1996 and 1997 and at no time during the
last half of each of the Trust's taxable years ending after December
31, 1997, were or will more than 50 percent in value of the Trust
Shares be owned, directly or indirectly (within the meaning of Section
544 of the Code, as modified by Section 856(h)(1)(B) of the Code), by
or for the benefit of five or fewer individuals. At no time during the
last half of each Subsidiary REITs' taxable years ending on or after
December 31, 1999, were or will more than 50 percent in value of the
stock of any Subsidiary REIT be owned, directly or indirectly (within
the meaning of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code), by or for the benefit of five or fewer
individuals.
17. During the Trust's taxable years ended December 31, 1995,
1996 and 1997 and during each of the Trust's taxable years ending after
December 31, 1997, at least 95 percent of the gross income of the Trust
and each Subsidiary REIT, determined after application of Treas. Reg.
Section 1.856-3(g), excluding gross income from the sale of property
held as inventory or held primarily for sale to customers in the
ordinary course of the trade or business of the Trust, each Realty
Subsidiary Entity and each Subsidiary REIT, as the case may be
("Prohibited Income"), was and will be derived from:
a. Dividends;
b. Interest;
c. Rents from real property;
<PAGE> 16
Sidley & Austin
January 14, 1998
Page 6
d. Gain from the sale or other disposition of stock,
securities, and real property (including interests in real
property and interests in mortgages on real property) that is
not Prohibited Income;
e. Abatements and refunds of taxes on real property;
f. Income and gain derived from foreclosure property
as defined in Section 856(e) of the Code ("Foreclosure
Property");
g. Amounts (other than amounts the determination of
which depends in whole or in part on the income or profits of
any person) received or accrued as consideration for entering
into agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property);
h. Gain from the sale or other disposition of real
estate assets (including regular and residual interests in
real estate mortgage investment conduits ("REMICs")) that is
not Prohibited Income;
i. Payments under bona fide interest rate swap or cap
agreements entered into by any of the Trust or any Realty
Subsidiary Entity to hedge variable rate indebtedness that it
incurred to acquire or carry real estate assets (including
regular and residual interests in REMICs, to the extent
provided in Section 856(c)(6)(E) of the Code) ("Qualified
Hedging Contracts")(1); and
j. Gain from the sale or other disposition of
Qualified Hedging Contracts.
18. During the Trust's taxable years ended December 31, 1995,
1996 and 1997 and during each of the Trust's taxable years ending after
December 31, 1997, and during each Subsidiary REIT's taxable years
ending on or after December 31, 1998, at least 75 percent of the gross
income of the Trust and each Subsidiary REIT, determined after
- ------------------
(1) For taxable years ending after December 31, 1997, Qualified Hedging
Contracts will include any interest rate swap or cap agreement, option, futures
contract, forward rate agreement, or any similar financial instrument, entered
into in a transaction to reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred to acquire or carry real estate assets.
<PAGE> 17
Sidley & Austin
January 14, 1998
Page 7
application of Treas. Reg. Section 1.856-3(g) (excluding Prohibited
Income) was and will be derived from:
a. Rents from real property (excluding any interest
accrued on such rents);
b. Interest on obligations secured by mortgages on
real property or on interests in real property (including
interests on regular or residual interests in REMICs, to the
extent provided in Section 856(c)(6)(E) of the Code);
c. Gain from the sale or other disposition of real
property (including interests in real property and interests
in mortgages on real property) that was not Prohibited Income;
d. Dividends or other distributions on, and gain
(other than Prohibited Income) from the sale or other
disposition of, transferable shares in other REITs;
e. Abatements and refunds of taxes on real property;
f. Income and gain (other than Prohibited Income)
derived from Foreclosure Property;
g. Amounts (other than amounts the determination of
which depends in whole or in part on the income or profits of
any person) received or accrued as consideration for entering
into agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property);
h. Gain (other than Prohibited Income) from the sale
or other disposition of real estate assets (including regular
and residual interests in REMICs, to the extent provided in
Section 856(c)(6)(E) of the Code); and
i. Income that is (i) attributable to stock or a debt
instrument, (ii) attributable to the temporary investment of
amounts received in exchange for Trust Shares (other than
Trust Shares issued pursuant to a dividend reinvestment plan)
or in a public offering of debt obligations of the Trust which
have maturities of at least five years, and (iii) received or
accrued during the one-year period beginning on the date on
which the Trust received such amounts.
<PAGE> 18
Sidley & Austin
January 14, 1998
Page 8
19. The leases entered into by the Trust, the Realty
Partnership, the Realty Subsidiary Entities and the Subsidiary REITs to
the Corporation, the Operating Partnership, the limited partnerships or
limited liability companies owned in whole or in part by the Operating
Partnership (the "Operating Subsidiary Entities") and others (the
"Leases") provide that rent is the greater of a fixed amount or a
percentage amount that is either fixed or based on a percentage of
receipts or sales derived with respect to the property (the "Percentage
Rent"). The percentages used to compute the Percentage Rent (i) will
not be renegotiated during the term of the Leases in a manner that has
the effect of basing the Percentage Rent on income or profits of any
person and (ii) will conform with normal business practices.
20. The parties to each Lease intend for their relationship to
be that of lessor and lessee, or sublessor and sublessee, as the case
may be, and each current relationship is and each future relationship
shall be documented by a lease agreement; the lessees or sublessees, as
the case may be, have and shall have the right to exclusive possession
and use and quiet enjoyment of the leased premises during the term of
the Leases; the lessees bear and will bear the cost of, and are or will
be responsible for, day-to-day maintenance and repair of the leased
premises, other than the cost of certain capital expenditures, and
dictate and will dictate how the leased premises are operated and
maintained; the lessees or sublessees, as the case may be, bear and
will bear all of the costs and expenses of operating the leased
premises during the term of the Leases; the term of each Lease is less
than the economic life of the leased premises and the lessees do not
have purchase options with respect to the leased premises; the lessees
or sublessees, as the case may be, are required to pay substantial
fixed rent during the term of the Leases; and each lessee or sublessee,
as the case may be, stands to incur substantial losses or reap
substantial profits depending on how successfully it operates the
leased premises.
21. The Trust has monitored and will monitor the terms of each
lease entered into or assumed by it, the Realty Partnership, any Realty
Subsidiary Entity and each Subsidiary REIT to ensure that the amount of
rent attributable to personal property received or accrued by the
Realty Partnership, the Realty Subsidiary Entities and each Subsidiary
REIT does not cause the Trust or any Subsidiary REIT to fail to satisfy
the gross income tests of Sections 856(c)(2) and (3) of the Code.
22. During the Trust's taxable years ended December 31, 1995,
1996 and 1997 and during each of the Trust's taxable years ending after
December 31, 1997, the Trust, determined after application of Treas.
Reg. Section 1.856-3(g), and, for taxable years ending on or after
December 31, 1998, the Subsidiary REITs, did not and will not receive
or accrue, directly or indirectly, any rent, interest, contingency
fees, or other amounts that were
<PAGE> 19
Sidley & Austin
January 14, 1998
Page 9
determined in whole or in part with reference to the income or profits
derived by any person (excluding amounts received (i) as rents that are
(A) based solely on a percentage or percentages of receipts or sales
and the percentage or percentages are fixed at the time the leases are
entered into, are not renegotiated during the term of the leases in a
manner that has the effect of basing rent on income or profits, and
conform with normal business practices or (B) attributable to qualified
rents from subtenants as provided in Section 856(d)(6) of the Code, and
(ii) as interest that was (A) based solely on a fixed percentage or
percentages of receipts or sales or (B) attributable to qualified rents
received or accrued by debtors as provided by Section 856(f)(2) of the
Code).
23. During the Trust's taxable years ended December 31, 1995,
1996 and 1997 and for each of the Trust's taxable years ending after
December 31, 1997, the Trust and, for taxable years ending on or after
December 31, 1998, the Subsidiary REITs did not and will not own,
directly or indirectly (within the meaning of Section 856(d)(5) of the
Code), 10 percent or more, by voting power, value or number, of the
shares of the Corporation or 10 percent or more of the assets or net
profits of the Operating Partnership or any Operating Subsidiary
Entity, except that for taxable years ending after December 31, 1997,
the Trust may own 100 percent of the stock of a subsidiary corporation.
The Trust and, for taxable years ending on or after December 31, 1998,
the Subsidiary REITs did not and will not receive or accrue, directly
or indirectly, any rents from any of the following:
a. A corporation of which the Trust or any Subsidiary
REIT owns, directly or indirectly (within the meaning of
Section 856(d)(5) of the Code), 10 percent or more of the
stock, by voting power or number of shares; or
b. A non-corporate entity in which the Trust or any
Subsidiary REIT owns, directly or indirectly (within the
meaning of Section 856(d)(5) of the Code), 10 percent or more
of the assets or net profits.
24. The Trust currently enforces and will continue to enforce
the provisions of its Declaration of Trust, the Realty Agreement and
the partnership or limited liability company agreements, as the case
may be, of the Realty Subsidiary Entities concerning any and all
restrictions on ownership of Paired Shares. Each Subsidiary REIT will
enforce any and all restrictions in its articles of incorporation
concerning restrictions on ownership of its stock.
<PAGE> 20
Sidley & Austin
January 14, 1998
Page 10
25. During the Trust's taxable years ended December 31, 1995,
1996 and 1997, less than 30 percent of the gross income of the Trust,
determined after application of Treas. Reg. Section 1.856-3(g), was be
derived from the sale or other disposition of:
a. Stock, Qualified Hedging Contracts, or other
securities held for less than one year;
b. Property in a transaction that generates
Prohibited Income; or
c. Real property (including interests in real
property, interests in mortgages on real property, regular and
residual interests in REMICs, and mortgage pass-through
securities) held for less than four years other than (i)
property compulsorily or involuntarily converted to another
form as a result of its destruction (in whole or in part),
seizure, requisition, or condemnation (or the threat or
imminence thereof) and (ii) Foreclosure Property.
26. At the close of each quarter of a taxable year commencing
with the quarter ended March 31, 1995, (i) at least 75 percent of the
value of the total assets of the Trust were and will be represented by
real estate assets (including interests in mortgages on real property
and interests in REMICs, to the extent provided in Section 856(c)(6)(E)
of the Code), cash and cash items (including receivables), and
government securities (the "75 Percent Test") and (ii) with respect to
the securities of the Trust not included under the 75 Percent Test, (A)
not more than five percent of the value of the Trust's total assets did
and will consist of the securities of any one issuer (excluding the
Trust's interest in the Realty Partnership, the Realty Subsidiary
Entities, the Subsidiary REITs or any corporation with respect to which
the Trust has directly held 100 percent of the stock at all times
during such corporation's existence) and (B) not more than 10 percent
of the outstanding voting securities of any one issuer (excluding the
Trust's interest in the Realty Partnership, the Realty Subsidiary
Entities, the Subsidiary REITs or any corporation with respect to which
the Trust has directly held 100 percent of the stock at all times
during such corporation's existence)(2) will be held by the Trust. At
the close of each quarter of a taxable year commencing with the quarter
ended March 31, 1998, (i) at least 75 percent of the value of the total
assets of each Subsidiary REIT will be represented by real estate
assets (including interests in mortgages on real property and interests
in REMICs, to the extent provided in Section 856(c)(6)(E) of the Code),
cash and cash items (including receivables), and
- ------------------
(2) For taxable years ending after December 31, 1997, a REIT may own 100% of the
stock of a subsidiary corporation at the close of any quarter.
<PAGE> 21
Sidley & Austin
January 14, 1998
Page 11
government securities (the "75 Percent Test") and (ii) with respect to
the securities of each Subsidiary REIT not included under the 75
Percent Test, (A) not more than five percent of the value of each
Subsidiary REIT's total assets will consist of the securities of any
one issuer (excluding each Subsidiary REIT's interest in any
corporation with respect to which the Subsidiary REIT holds 100 percent
of the stock) and (B) not more than 10 percent of the outstanding
voting securities of any one issuer (excluding each Subsidiary REIT's
interest in any corporation with respect to which the Subsidiary REIT
holds 100 percent of the stock) will be held by any Subsidiary REIT.
With respect to this representation, the assets of the Trust and the
Subsidiary REITs will be as determined pursuant to Treas. Reg.
Section 1.856-3(g) and the term "value" means (i) fair value as
determined in good faith by the Board of Trustees of the Trust or the
board of directors of each Subsidiary REIT, as the case may be, or (ii)
in the case of securities for which market quotations are readily
available, the market value of such securities.
27. With respect to each loan secured by real estate held by
the Trust, the Realty Partnership or any Realty Subsidiary Entity the
amount of the loan has not exceeded and does not exceed the fair market
value of the real property security therefor, except by amounts which
would not cause the Trust to fail to satisfy the asset tests of Section
856(c)(5) of the Code or the gross income test of Section 856(c)(3) of
the Code.
28. The Trust and each Subsidiary REIT maintains and will
continue to maintain until the expiration of any applicable statute of
limitations period sufficient records as to its investments to be able
to show that it complies with the asset tests described above.
29. None of the Management Subsidiaries will provide
Prohibited Services to any of the Corporation, the Operating Subsidiary
Entities, Atlanta or St. John or will manage or operate any assets
owned directly or indirectly by the Trust, the Realty Partnership or
any Subsidiary REIT.
30. During the Trust's taxable years ended December 31, 1995,
1996 and 1997 and during each of the Trust's taxable years ending after
December 31, 1997, the deduction for dividends paid by the Trust (as
defined in Section 561 of the Code, but without regard to capital gain
dividends, as defined in Section 857(b)(3)(C) of the Code) has equaled
or exceeded or will equal or exceed (i) the sum of (A) 95 percent of
the Trust's real estate investment trust taxable income (as defined in
Section 857(b)(2) of the Code, but without regard to the deduction for
dividends paid and excluding any net capital gain) and (B) 95 percent
of the excess of its net income from Foreclosure Property over the tax
imposed on such income by Section 857(b)(4)(A) of the Code, minus (ii)
any
<PAGE> 22
Sidley & Austin
January 14, 1998
Page 12
excess noncash income (as determined under Section 857(e) of the Code).
During the taxable years of the Subsidiary REITs ending on or after
December 31, 1998, the deduction for dividends paid by each Subsidiary
REIT (as defined in Section 561 of the Code, but without regard to
capital gain dividends, as defined in Section 857(b)(3)(C) of the Code)
will equal or exceed (i) the sum of (A) 95 percent of each Subsidiary
REIT's real estate investment trust taxable income (as defined in
Section 857(b)(2) of the Code, but without regard to the deduction for
dividends paid and excluding any net capital gain) and (B) 95 percent
of the excess of its net income from Foreclosure Property over the tax
imposed on such income by Section 857(b)(4)(A) of the Code, minus (ii)
any excess noncash income (as determined under Section 857(e) of the
Code). For purposes of this paragraph, the deduction for dividends paid
shall be determined after the application of Section 857(d)(3) of the
Code.
31. At all times after December 31, 1994, the dividends paid
by the Trust have been paid and will be paid in respect of each class
of stock pro rata, with no preference to any share as compared with
other shares of the same class. At all times after December 31, 1997,
the dividends paid by each of the Subsidiary REITs will be paid in
respect of each class of stock pro rata, with no preference to any
share as compared with other shares of the same class.
32. On or before January 30, 1996 and 1997, the Trust
demanded, and within 30 days after the end of the Trust's taxable year
ended December 31, 1997, the Trust will demand written statements from
each record shareholder of one percent or more of its stock (or, if the
Trust has 2,000 or more shareholders of record of its stock on any
dividend record date, each record shareholder of five percent or more
of its stock) setting forth the following information:
a. The actual owners of the Trust's stock (i.e., the
persons who are required to include in gross income in their
returns the dividends received on the stock); and
b. The maximum number of shares of the Trust
(including the number and face value of securities convertible
into stock of the Trust) that were considered owned, directly
or indirectly (within the meaning of Section 544 of the Code,
as modified by Section 856(h)(1)(B) of the Code), by each of
the actual owners of any of the Trust's stock at any time
during the last half of the Trust's taxable year.
<PAGE> 23
Sidley & Austin
January 14, 1998
Page 13
33. The Trust will maintain the written statements described
in the preceding paragraph and the Trust and the Subsidiary REITs will
keep and maintain all records required pursuant to Treas. Reg. Section
1.857-8 in the internal revenue district in which they are required to
file their federal income tax returns, and the statements and records
will be available for inspection by the IRS until the expiration of any
applicable statute of limitations period.
34. The shareholder demand letters sent in January 1996 were
sent by the Corporation for the benefit of and at the request and under
the direction and control of the Trust.
35. The Trust will continue to, and the Subsidiary REITs will,
use the calendar year as their taxable year.
36. Not all of the trustees of the Trust are also directors of
the Corporation, and some of the directors of the Corporation are not
trustees of the Trust. No individual serves as an officer of both the
Trust and the Corporation concurrently.
37. The Trust, the Realty Partnership, each Realty Subsidiary
Entity and each Subsidiary REIT each maintain separate books and
records.
38. The Trust, the Realty Partnership, the Realty Subsidiary
Entities and each Subsidiary REIT (and any other entity in which the
Trust directly or indirectly holds an interest) do not and will not
furnish or render any services to the Corporation, the Operating
Partnership, any Operating Subsidiary Entity, Atlanta or St. John.
39. At all times, material transactions among the Trust, the
Corporation, the Realty Partnership, the Realty Subsidiary Entities,
the Operating Partnership, the Operating Subsidiary Entities, the
Subsidiary REITs, Atlanta and St. John, or any of them, have been and
will be negotiated and structured with the intention of achieving an
arm's-length result.
40. The Realty Partnership and each Realty Subsidiary Entity
is operated and will continue to be operated in accordance with the
enabling statute of the jurisdiction under which it is organized, its
organizational documents and its partnership or limited liability
company agreement, as the case may be.
41. The partnership or limited liability company agreement, as
the case may be, of the Realty Partnership and each Realty Subsidiary
Entity will remain in substantially the
<PAGE> 24
Sidley & Austin
January 14, 1998
Page 14
same form as it is upon the date of this letter and will not be amended
in any manner which would affect your opinion.
42. No general partner is acting as an agent of any limited
partner in connection with the investments by the limited partners in,
and operations of, the Realty Partnership or any Realty Subsidiary
Entity that is a limited partnership. The Trust will be active in the
management of the Realty Partnership and will be independent of the
limited partners.
43. No member is acting as an agent of any other member in
connection with the investments by the members in, and operations of,
any Realty Subsidiary Entity that is a limited liability company. The
Trust and the Realty Partnership will be active in the management of
the Realty Subsidiary Entities.
44. The transactions in which the partners and members
acquired interests in the Realty Partnership and the Realty Subsidiary
Entities are not required to be registered under the Securities Act of
1933, as amended.
45. The Realty Partnership will not have more than 100
Partners.
46. The interests in each of the Realty Partnership and each
Realty Subsidiary Entity will not be traded on an established
securities market or be readily tradeable on a secondary market (or the
substantial equivalent thereof).
47. The Realty Partnership and the Realty Subsidiary Entities
intend to hold assets for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing,
owning, and operating hotel properties and interests in hotels and to
make such occasional sales of such properties, including peripheral
land, as are consistent with the investment objectives of the Realty
Partnership and the Realty Subsidiary Entities.
48. Neither the Realty Partnership nor any Realty Subsidiary
Entity has elected or will elect to be classified as an association for
federal tax purposes.
49. The Realty Partnership and each Realty Subsidiary Entity
that was in existence prior to January 1, 1997 claimed or will claim
classification as a partnership for federal tax purposes for all
periods prior to January 1, 1997 during which it was in existence.
<PAGE> 25
Sidley & Austin
January 14, 1998
Page 15
50. The Trust expects to own in excess of 20 percent of the
partnership interests of the Realty Partnership throughout the life of
the Realty Partnership.
51. The intent of the partners and the members of the Realty
Partnership and the Realty Subsidiary Entities is to conduct joint
business and investment activities through a flexible economic
arrangement without incurring an entity-level tax.
52. The Realty Partnership and the Realty Subsidiary Entities
are each bona fide and each transaction or series of related
transactions will be entered into for a substantial business purpose.
53. The payment of cash in lieu of fractional Paired Shares in
connection with any stock dividend was not and will not be separately
bargained for consideration and was or will be made solely for the
purpose of saving the Trust and the Corporation the expense and
inconvenience of issuing fractional Paired Shares.
54. Westin Worldwide, Seattle, Lauderdale and Denver have each
declared and paid a dividend prior to and independent of the Closing
Date and neither the amount nor the source of funds for such dividends
was dependent on the occurrence of the Closing Date.
55. The Westin Acquisition was consummated in compliance with
the material terms of the Transaction Agreement, and none of the
material terms and conditions therein were waived or modified.
56. The ratio for the exchange of Worldwide Shares for
Exchangeable Preferred Shares and cash in the Westin Acquisition was
negotiated through arm's-length bargaining.
57. There is no plan by the Members to sell, exchange or
otherwise dispose of a number of Exchangeable Preferred Shares received
pursuant to the Westin Acquisition that would reduce the Members'
ownership of Exchangeable Preferred Shares to a number of shares having
a value as of January 2, 1998 of less than fifty percent (50%) of the
value of all of the formerly outstanding Worldwide Shares as of January
2, 1998. For purposes of this representation, Worldwide Shares
exchanged for cash or exchanged for cash in lieu of fractional
Exchangeable Preferred Shares were treated as outstanding Worldwide
Shares as of January 2, 1998. Moreover, Worldwide Shares and
Exchangeable Preferred Shares held by the Members and otherwise sold,
redeemed or disposed of prior or subsequent to January 2, 1998 were
considered in making this representation.
<PAGE> 26
Sidley & Austin
January 14, 1998
Page 16
58. The Trust has no plan to reacquire any of the Exchangeable
Preferred Shares issued pursuant to the Westin Acquisition.
59. The Trust has no plan to sell or otherwise dispose of any
of the assets of Westin Worldwide acquired in the Westin Acquisition,
except for dispositions (i) in the ordinary course of business, or (ii)
that are necessary to ensure that the representations set forth herein
are accurate, or in transactions described in Section 368(a)(2)(C) of
the Internal Revenue Code.
60. The Trust will continue the historic business of Westin
Worldwide or use a significant portion of Westin Worldwide's historic
business assets in a business.
61. Except as set forth in the Transaction Agreement, the
Westin Companies paid their expenses incurred in connection with the
Westin Acquisition. Westin Worldwide did not pay any of the expenses of
the Members incurred in connection with the Westin Acquisition.
62. There is no intercorporate indebtedness existing between
the Trust and Westin Worldwide that was issued, acquired, or will be
settled at a discount.
63. Westin Worldwide is not an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
64. Westin Worldwide is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
65. As of January 2, 1998, the fair market value of the assets
of Westin Worldwide exceeded the sum of its liabilities (including any
liabilities to which its assets are subject).
66. The payment of cash in lieu of fractional Exchangeable
Preferred Shares or Paired Shares was not separately bargained for
consideration and was made solely for the purpose of saving the Trust
and the Corporation the expense and inconvenience of issuing fractional
Exchangeable Preferred Shares or fractional Paired Shares.
67. The Merger will be consummated in compliance with the
material terms of the Merger Agreement, and none of the material terms
and conditions therein have been waived or modified.
<PAGE> 27
Sidley & Austin
January 14, 1998
Page 17
68. The fair market value of the real estate assets of ITT
Corporation exceeds four billion dollars ($4,000,000,000).
69. As of the date hereof, the fair market value of the
Corporation Shares and the fair market value of the Trust Shares
relative to the total fair market value of the Paired Shares is 30% and
70%, respectively.
70. The 0.25% per annum fee to be received by the Trust for
its guarantee of the third party indebtedness to be incurred by the
Corporation in connection with the Merger is reasonable as to each of
the Trust and the Corporation.
71. As of the date hereof, the Corporation could arrange debt
financing for the acquisition of ITT without the credit support
provided by a guaranty by the Trust.
72. Where the foregoing representations involve matters of
law, you have explained to us the relevant and material legal authority
to which such representations relate.
The undersigned fully understands that Sidley & Austin will be relying
on the accuracy and completeness of the statements made in this letter in
rendering the opinions contained in the Opinion Letter, and the undersigned has
examined such records and other documents and made such inquiries and
investigation as the undersigned deemed necessary to obtain sufficient actual
knowledge to support the representations made herein.
Very truly yours,
STARWOOD HOTELS & RESORTS TRUST
By: /s/ Ronald Brown
---------------------------
Name: Ronald Brown
Title: Senior Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 8.2
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
January 14, 1998
Starwood Hotels & Resorts Trust
Starwood Hotels & Resorts Worldwide, Inc.
Registration Statement on Form S-4
File Nos. 333-39409 and 333-39409-1
Ladies and Gentlemen:
We have acted as special counsel to ITT Corporation, a Nevada corporation
("ITT"), in connection with the preparation of the Registration Statement on
Form S-4 of Starwood Hotels & Resorts Trust, a Maryland real estate investment
trust (the "Trust"), and Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation (the "Corporation" and, together with the Trust, "Starwood
Lodging"), as initially filed with the Securities and Exchange Commission (the
"Commission") on November 4, 1997 (as thereafter amended from time to time and
together with all exhibits thereto, the "Registration Statement"). This opinion
is being furnished in accordance with the requirements of Item 21(a) of Form
S-4 and Item 601(b)(8) of Regulation S-K under the Securities Act of 1933, as
amended (the "Act"). Capitalized terms used but not otherwise defined herein
have the respective meanings set forth in the Registration Statement.
Our opinion is based upon an examination of the Registration Statement,
the Agreement and Plan of Merger, dated as of October 19, 1997 and amended as
of November 12, 1997, among the Corporation, Chess Acquisition Corp., a Nevada
corporation and a controlled subsidiary of the Corporation, the Trust and ITT
(such agreement, the "Merger Agreement"), and such other documents as we have
deemed necessary or appropriate as a basis therefor. In our examination, we
have assumed the legal capacity of all natural persons, the genuineness of all
signatures, the
<PAGE> 2
2
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed, or
photostatic copies, and the authenticity of the originals of such copies. We
have also assumed that the Merger and the other transactions specified in the
Merger Agreement to be effected on or prior to the Closing Date will be
consummated as contemplated in the Registration Statement.
The analysis and discussion set forth in the three paragraphs contained
in the Registration Statement under the caption "Federal Income Tax
Consequences -- Federal Income Tax Consequences of the Merger -- Federal Income
Tax Consequences to ITT Stockholders" is hereby incorporated by reference as
though set forth herein in its entirety.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
decisions, administrative rulings and other applicable authorities, in each case
as in effect on the date hereof. The statutory provisions, regulations,
decisions, rulings and other applicable authority on which this opinion is based
are subject to change, and any such change could apply retroactively.
Based upon the foregoing, we are of opinion that the discussion set forth
in the three paragraphs contained in the Registration Statement under the
caption "Federal Income Tax Consequences -- Federal Income Tax Consequences of
the Merger -- Federal Income Consequences to ITT Stockholders" represents an
accurate summary of the material Federal income tax consequences of the Merger
to the shareholders of ITT.
We express no opinion on any issue relating to Federal income tax
consequences other than those described in the three paragraphs referred to
above. We are furnishing this opinion in connection with the filing of the
Registration Statement with the Commission, and this opinion is not to be used,
circulated, quoted or otherwise referred to for any other purpose without our
express written permission. This opinion is expressed as of the date hereof, and
we disclaim any undertaking to advise you of any subsequent changes of the
matters stated, represented, or assumed herein or any subsequent changes in
applicable law, regulations or interpretations thereof.
<PAGE> 3
3
Notwithstanding the previous paragraph, we consent to the filing of this
opinion as Exhibit 8.2 to the Registration Statement and to the reference to
our firm name therein. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Act or the rules or regulations of the Commission promulgated thereunder.
Very truly yours,
Cravath, Swaine & Moore
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5490
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement
of Starwood Lodging Trust and Starwood Lodging Corporation on Form S-4 being
filed under the Securities Act of 1933, as amended, of our report dated February
21, 1997 appearing in the Annual Report on Form 10-K/A2 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/A
dated February 10, 1997, and of our report dated August 29, 1997 (except for
Note 9 for which the date is September 10, 1997) on our audit of the financial
statements of The Flatley Hotels for the year ended December 31, 1996, appearing
in the Company's Current Report on Form 8-K/A dated September 10, 1997. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
January 14, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 5 to
Registration Statement Nos. 333-39409 and 333-39409-01 of Starwood Hotels &
Resorts Trust and Starwood Hotels & Resorts Worldwide, Inc. (the "Companies") on
Form S-4 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".
DELOITTE & TOUCHE LLP
Los Angeles, California
January 14, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 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
New York, New York
January 14, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-4 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 Form S-4.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
January 14, 1998.
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-4 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, which appears in the Annual Report on
Form 10-K of ITT Corporation for the year ended December 31, 1996, and to all
references to our firm included in this Form S-4.
/s/ ARTHUR ANDERSEN LLP
New York, New York
January 14, 1998.
<PAGE> 1
EXHIBIT 23.12
CONSENT OF GOLDMAN, SACHS & CO.
We hereby consent to the use of our name under the caption "Special
Considerations; Involvement of Lazard Freres and Goldman Sachs" in the Joint
Proxy Statement/Prospectus forming part of the Registration Statement on Form
S-4 of Starwood Hotels & Resorts Trust and Starwood Hotels & Resorts Worldwide,
Inc. By giving such consent, we do not thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come within the category of persons whose
consent is required under, the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Goldman, Sachs & Co.
Dated: January 14, 1998
<PAGE> 1
PROXY
STARWOOD HOTELS & RESORTS TRUST
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
PROXY FOR SPECIAL MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS
TO BE HELD FEBRUARY 18, 1998
The undersigned shareholder of Starwood Hotels & Resorts Trust (the "Trust")
and stockholder of Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation (the "Corporation"), hereby acknowledges receipt of the Notice of
Special Meeting of Shareholders of the Trust and the Notice of Special Meeting
of Stockholders of the Corporation (the "Special Meetings") and the
accompanying Joint Proxy Statement/Prospectus relating to the Special Meetings,
and hereby appoints, with full power of substitution in each, each of the
following persons as attorneys and proxies of the undersigned: (a) with respect
to the undersigned's shares of the Trust, Ronald C. Brown and Sherwin L.
Samuels and (b) with respect to the undersigned's shares of the Corporation,
Barry S. Sternlicht and Jonathan D. Eilian. Any previously dated proxy is
hereby revoked.
Said proxies are hereby given authority, as appropriate, to represent and to
vote all shares of beneficial interest of the Trust and all shares of common
stock of the Corporation held of record by the undersigned and which the
undersigned may be entitled to vote at the Special Meetings to be held on
February 18, 1998 at the New York Ballroom of the Sheraton New York Hotel &
Towers, 811 Seventh Avenue, New York, New York, at 10:00 a.m. and 10:30 a.m.
(local time), respectively, and at any and all adjournments or postponements
thereof, on behalf of the undersigned on the following matters and in the manner
designated below:
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED SELF-ADDRESSED, POSTAGE PREPAID ENVELOPE
(Continued and To Be Signed on Other Side)
- ----------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 2
Please mark
your votes as
indicated in
this example. /X/
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND
4.
1. Approval by shareholders of the Trust of the Shares Issuance Proposal (as
defined in the Joint Proxy Statement/Prospectus).
FOR AGAINST ABSTAIN
/ / / / / /
2. Approval by shareholders of the Trust of the Trust Authorized Share
Amendment (as defined in the Joint Proxy Statement/Prospectus).
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval by shareholders of the Trust of the Trust Name Change Proposal
(as defined in the Joint Proxy Statement/Prospectus).
FOR AGAINST ABSTAIN
/ / / / / /
4. Approval by shareholders of the Trust of the Trust Redemption Amendment
(as defined in the Joint Proxy Statement/Prospectus).
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE FOR PROPOSALS 5, 6
AND 7.
5. Approval by stockholders of the Corporation of the Shares Issuance
Proposal (as defined in the Joint Proxy Statement/Prospectus).
FOR AGAINST ABSTAIN
/ / / / / /
6. Approval by stockholders of the Corporation of the Corporation Authorized
Share Amendment (as defined in the Joint Proxy Statement/Prospectus).
FOR AGAINST ABSTAIN
/ / / / / /
7. Approval by stockholders of the Corporation of the Corporation's Gaming
Provision Amendment.
FOR AGAINST ABSTAIN
/ / / / / /
8. In their discretion, the proxies are authorized to vote on such other
matters as may come before either of the Special Meetings.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE CORPORATION AND THE
BOARD OF TRUSTEES OF THE TRUST AND WHEN PROPERLY EXECUTED, THE SHARES
REPRESENTED HEREBY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE APPROVAL
OF THE SHARES ISSUANCE PROPOSAL, FOR THE APPROVAL OF THE AMENDMENTS TO THE
DECLARATION OF TRUST OF THE TRUST AND FOR THE APPROVAL OF THE AMENDMENTS TO THE
RESTATED ARTICLES OF INCORPORATION OF THE CORPORATION.
Signature ____________________ Signature if held jointly ___________________
Dated: ______________, 1998
Note: Please date and sign exactly as your name(s) appear on this proxy card. If
shares are registered in more than one name, all such persons should sign. A
corporation should sign in its full corporate name by a duly authorized officer,
stating his title. When signing as attorney, executor, administrator, trustee or
guardian, please sign in your official capacity and give your full title as
such. If a partnership, please sign in the partnership name by an authorized
person.
- -----------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 1
ITT CORPORATION
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 12,
[ITT LOGO] 1998.
The undersigned hereby constitutes and appoints Richard S. Ward and
Patrick L. Donnelly, and each of them, true and lawful agents and proxies
of the undersigned, with full power of substitution, to represent the
undersigned and to vote all shares of stock which the undersigned is
entitled to vote at the Special Meeting of Stockholders of ITT Corporation
(the "Company") to be held on February 12, 1998, and at any and all
adjournments and postponements thereof, on all matters before such
meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. HOWEVER, IF
NO VOTE IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF NOVEMBER 12, 1997, AMONG
STARWOOD LODGING CORPORATION, CHESS ACQUISITION CORP., STARWOOD LODGING
TRUST AND ITT CORPORATION WHICH IS MORE FULLY DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS DATED JANUARY 14, 1998, OF WHICH THE UNDERSIGNED
STOCKHOLDER ACKNOWLEDGES RECEIPT.
THIS PROXY GRANTS DISCRETIONARY AUTHORITY TO VOTE ON OTHER MATTERS
THAT MAY COME BEFORE THE MEETING IN ACCORDANCE WITH THE DISCRETION OF THE
NAMED PROXIES.
PLEASE VOTE, SIGN AND DATE THIS PROXY ON THE OTHER SIDE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF ITT
CORPORATION.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1.
<PAGE> 2
X Please mark your
vote as in this example ITT CORPORATION
A Special Meeting of Stockholders of ITT Corporation will be held at
11:30 a.m. on Monday, February 12, 1998, at the New York Ballroom of the
Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New York.
Stockholders of record at the close of business on December 19, 1997 will
be entitled to vote at the meeting and any postponement or adjournment
thereof. Stockholders of record who plan to attend the Special Meeting in
person may request an admission card by marking the box below.
Stockholders who hold their shares beneficially through bank or brokerage
accounts should bring with them proof of their ownership if they wish to
attend the meeting.
THE BOARD OF DIRECTORS OF ITT CORPORATION RECOMMENDS A VOTE FOR
PROPOSAL 1.
1. PROPOSAL TO APPROVE THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 12, 1997, AMONG STARWOOD LODGING CORPORATION, CHESS
ACQUISITION CORP., STARWOOD LODGING TRUST AND ITT CORPORATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] I PLAN TO ATTEND
Please sign this proxy exactly as your name appears hereon.
Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign,
and where more than one name appears, a majority should sign.
If a corporation, the signature should be that of an authorized
officer who should state his or her title.
Signature: _______________________________ Date: ______________
Signature: _______________________________ Date: ______________
Whether or not you plan to attend the meeting, you can assure that your
shares are represented by promptly completing, signing, dating and returning
the proxy card using the enclosed envelope.
[ITT LOGO]
<PAGE> 1
FORM OF ELECTION
(TO ACCOMPANY CERTIFICATES OR GUARANTEES OF DELIVERY FOR SHARES OF COMMON STOCK
OF ITT CORPORATION)
PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS CONTAINED BELOW
IMPORTANT: THIS FORM OF ELECTION, PROPERLY COMPLETED AND EXECUTED IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED BELOW, TOGETHER WITH YOUR
CERTIFICATE(S) FOR COMMON STOCK OF ITT CORPORATION OR A VALID GUARANTEE OF
DELIVERY THEREOF, MUST BE RECEIVED BY CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(THE "EXCHANGE AGENT") PRIOR TO THE CLOSE OF BUSINESS (5:00 P.M. NEW YORK CITY
TIME) ON FEBRUARY 11, 1998.
NOTWITHSTANDING THE ELECTIONS MADE BELOW, THE AMOUNT OF CASH AND THE NUMBER
OF PAIRED SHARES TO BE ISSUED IN THE MERGER IS SUBJECT TO PRORATION IN
ACCORDANCE WITH THE TERMS OF THE MERGER AGREEMENT.
EXCHANGE AGENT:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
If by Mail: If by Hand: If by Overnight Courier:
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop - Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>
Facsimile (for eligible institutions only): (201) 329-8936
Confirm facsimile by telephone ONLY: (201) 296-4860
This Form of Election, Certificates and any other required documents should
be sent by each holder of ITT Shares (as defined below) to the Exchange Agent at
one of the addresses set forth above. Delivery of this Form of Election to an
address other than as set forth above will not constitute a valid delivery. If
you have any questions regarding this Form of Election, please call D.F. King &
Co., Inc., the Information Agent, toll free at (800) 290-6428.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned, pursuant to the terms of an Amended and Restated Agreement
and Plan of Merger dated as of November 12, 1997 (the "Merger Agreement"), among
ITT Corporation ("ITT"), Starwood Hotels & Resorts Worldwide, Inc. ("Parent"),
Starwood Hotels & Resorts Trust (the "Trust" and, together with Parent,
"Starwood Lodging"), and Chess Acquisition Corp., a subsidiary of Parent ("Chess
Acquisition"), hereby deposits, has previously deposited with the Exchange Agent
or has agreed to deliver pursuant to the guaranteed delivery procedures set
forth below the stock certificates (the "Certificates") identified in Column 1
of Box A below representing the total number of shares of Common Stock, no par
value, of ITT (the "ITT Common Stock"), together with the associated rights to
purchase shares of Series A Participating Cumulative Preferred Stock, issued
pursuant to the Rights Agreement dated as of November 1, 1995, between ITT and
The Bank of New York, as Rights Agent (the "Rights," and, together with the ITT
Common Stock, the "ITT Shares"), set forth in Column 2 of Box A, of which the
total number of ITT Shares set forth in Column 3 of Box A are surrendered with
the request that (i) the total number of ITT Shares listed in Column 4 of Box A
be converted into cash upon consummation of the merger of Chess Acquisition with
and into ITT (the "Merger") at the rate of $85.00 per ITT Share, and (ii) the
total number of ITT Shares listed in Column 5 of Box A be converted into shares
of common stock, par value $.01 per share, of Parent ("Parent Common Stock") and
shares of beneficial interest, par value $.01 per share, of the Trust ("Trust
Shares" and, when paired with shares of Parent Common Stock pursuant to the
Pairing Agreement dated as of June 28, 1980, as amended from time to time,
between Parent and the Trust, "Paired Shares") at the Exchange Ratio (as defined
below). The "Exchange Ratio" shall be a number equal to the quotient, rounded to
the nearest thousandth, or if there shall not be a nearest thousandth, the next
higher thousandth, of (x) $85.00 divided by (y) the Market Price (as defined
below) of Paired Shares on the fifth New York Stock Exchange, Inc. ("NYSE")
trading day prior to February 12, 1998; provided, however, that in no event
shall the Exchange Ratio be (A) greater than an amount equal to $85.00 divided
by $53.263 or (B) less than an amount equal to $85.00 divided by $61.263. The
"Market Price" of a Paired Share on any date means the average of the Average
Prices (as defined below) for the 20 NYSE trading days (the "Averaging Period")
randomly selected by a neutral independent accounting firm appointed by mutual
agreement of the Trust and ITT from the 30 consecutive NYSE trading days
<PAGE> 2
immediately preceding such date. Each holder of ITT Shares will also be entitled
to receive for each ITT Share converted in the Merger additional cash
consideration in an amount equal to the interest that would accrue (without
compounding) on $85 at an annual rate of 7% during the period from and including
January 31, 1998 to but excluding the date of closing of the Merger. The
"Average Price" for any date means the average of the daily high and low prices
per Paired Share as reported on the NYSE Composite Transactions reporting
system. THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS RECEIVED THE JOINT PROXY
STATEMENT/PROSPECTUS AND UNDERSTANDS AND AGREES THAT, NOTWITHSTANDING THE
ELECTIONS MADE BELOW, THE AMOUNT OF CASH AND THE NUMBER OF PAIRED SHARES TO BE
ISSUED IN THE MERGER IS SUBJECT TO PRORATION IN ACCORDANCE WITH THE TERMS OF THE
MERGER AGREEMENT.
Capitalized terms used but not defined herein shall have the meanings set
forth in the Joint Proxy Statement/Prospectus.
NONE OF STARWOOD LODGING, ITT, THE ITT BOARD OF DIRECTORS OR THE STARWOOD
LODGING BOARD OF DIRECTORS OR TRUSTEES MAKES ANY RECOMMENDATION AS TO WHETHER
STOCKHOLDERS OF ITT SHOULD ELECT TO RECEIVE CASH OR PAIRED SHARES. EACH ITT
STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION WITH RESPECT TO SUCH ELECTION.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the Certificate(s) surrendered herewith or covered by
a guarantee of delivery, free and clear of any liens, claims, charges or
encumbrances whatsoever. The undersigned understands and acknowledges that the
method of delivery of the Certificate(s) and all other required documents is at
the option and risk of the undersigned and that the risk of loss of such
Certificate(s) shall pass only after the Exchange Agent has actually received
the Certificate(s). All questions as to the validity, form and eligibility of
any Election and surrender of Certificates hereunder shall be determined by
Starwood Lodging and ITT, and such determination shall be final and binding. The
undersigned, upon request, shall execute and deliver all additional documents
deemed by the Exchange Agent, Starwood Lodging or ITT to be necessary or
desirable to complete the conversion, cancellation and retirement of the ITT
Shares delivered herewith or covered by a guarantee of delivery. No authority
hereby conferred or agreed to be conferred hereby shall be affected by, and all
such authority shall survive, the death or incapacity of the undersigned. All
obligations of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
The undersigned understands that, in lieu of any fractional Paired Share,
Starwood Lodging will pay to each former stockholder of ITT who otherwise would
be entitled to receive a fractional Paired Share an amount in cash determined by
multiplying (i) the average of the per share closing prices on the NYSE of a
Paired Share during the five consecutive trading days ending on the trading day
immediately prior to the Effective Time by (ii) the fractional interest in a
Paired Share to which such holder would otherwise be entitled. Unless otherwise
indicated in the box entitled "Special Issuance and Payment Instructions,"
please issue any check and register any certificate for Paired Shares in the
name of the registered holder(s) of the ITT Shares appearing below. Similarly,
unless otherwise indicated in the box entitled "Special Delivery Instructions,"
please mail any check and any certificate for Paired Shares to the registered
holder(s) of the ITT Shares at the addresses of the registered holder(s)
appearing below under the box entitled "Election and Description of Shares
Deposited." In the event that the box entitled "Special Issuance and Payment
Instructions" and the box entitled "Special Delivery Instructions" both are
completed, please issue any check and any certificate for Paired Shares in the
name(s) of, and mail such check and such certificate to, the person(s) so
indicated.
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE ACCEPTANCE AND DELIVERY OF
ANY FORMS OF ELECTION BY OR TO THE EXCHANGE AGENT (OR ANY OTHER AUTHORIZED
PERSON) WILL NOT OF ITSELF CREATE ANY RIGHT TO RECEIVE CASH OR PAIRED SHARES IN
EXCHANGE FOR THE ITT SHARES LISTED ON THIS FORM OF ELECTION AND THAT SUCH RIGHT
WILL ARISE ONLY IF THE MERGER IS CONSUMMATED AND ONLY TO THE EXTENT PROVIDED IN
THE MERGER AGREEMENT. THE UNDERSIGNED FURTHER UNDERSTANDS AND AGREES THAT THE
ELECTION MADE ON THIS FORM SHALL BE IRREVOCABLE UNLESS IT IS PROPERLY REVISED OR
WITHDRAWN IN ACCORDANCE WITH INSTRUCTION E.1. OR E.2. OF THIS FORM.
<PAGE> 3
BOX A: ELECTION AND DESCRIPTION OF SHARES DEPOSITED
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF HOLDER OF RECORD AS SHOWN ON RECORDS OF ITT CORPORATION
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CERTIFICATE(S) DEPOSITED (ATTACH SEPARATE SCHEDULE IF NECESSARY)
------------------------------------------------------------------------------------------------------------------------
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4 COLUMN 5
CERTIFICATE
NUMBER(S)
- -----------------------
NUMBER OF SHARES NUMBER OF SHARES
REPRESENTED BY NUMBER OF SHARES FOR WHICH
CERTIFICATES IN NUMBER OF SHARES FOR WHICH PAIRED SHARES
DELIVERED HEREWITH COLUMN 1 SURRENDERED CASH IS ELECTED ARE ELECTED
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TOTALS
------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL ITT SHARES REPRESENTED BY CERTIFICATES LISTED IN COLUMN 1 WILL BE
DEEMED TO HAVE BEEN SURRENDERED UNLESS OTHERWISE INDICATED IN COLUMN 3. THE
TOTAL OF THE ITT SHARES LISTED IN COLUMN 4 AND COLUMN 5 SHOULD EQUAL THE NUMBER
OF ITT SHARES LISTED IN COLUMN 3. IF THE NUMBER OF ITT SHARES LISTED IN COLUMN 3
IS LESS THAN THE NUMBER OF ITT SHARES LISTED IN COLUMN 2, THE EXCESS ITT SHARES
WILL, UNLESS OTHERWISE REQUESTED IN WRITING, BE RETAINED BY THE EXCHANGE AGENT
AND DEEMED TO HAVE BEEN DELIVERED FOR CONVERSION PURSUANT TO THE MERGER
AGREEMENT UPON CONSUMMATION OF THE MERGER, AND SUCH SHARES WILL BE NON-ELECTING
SHARES FOR PURPOSES OF THE MERGER AGREEMENT.
BOX B:
SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS
To be completed ONLY if the check and/or the certificate(s) for the Paired
Shares are to be issued in the name of someone other than the person(s) in whose
name(s) the certificate(s) representing the ITT Shares listed on this Form of
Election are registered. (Unless otherwise indicated in Box C, the check and/or
certificate(s) will be mailed to the address indicated in this Box B.)
Issue check and/or certificate(s) for Paired Shares to:
Name:
- -------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security No.)
(See Substitute Form W-9)
BOX C:
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the following are to be mailed to an address other than
that indicated in Box A or Box B: (i) the check representing any cash issued for
any ITT Shares listed on this Form of Election and (ii) the certificate(s)
representing any Paired Shares issued for any ITT Shares listed on this Form of
Election.
Mail check and/or certificates(s) for Paired Shares to:
Name:
- -------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security No.)
(See Substitute Form W-9)
<PAGE> 4
BOX D: SIGN HERE
(Complete Substitute Form W-9 below)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Signature(s) of Owner(s)
--------------------------------------------------------------------------
Name(s) ------------------------------------------------------------------
--------------------------------------------------------------------------
(Please Print)
Capacity (full title) ----------------------------------------------------
Address ------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number -------------------------------------------
Taxpayer Identification or Social Security Number -----------------------
(See Substitute Form W-9)
Dated: ----------------------------------------------------------- , 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s)
on stock certificates(s) or on a security position listing or by the
person(s) authorized to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by an agent, attorney,
administrator, executor, guardian, trustee, officer of a corporation or
any other person acting in a fiduciary or representative capacity, please
set forth full title and see Instruction G.5.).
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS B AND G)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized Signature(s)
--------------------------------------------------------------------------
Name
--------------------------------------------------------------------------
Name of Firm
--------------------------------------------------------------------------
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
Dated:
--------------------------------------------------------------------------,
1998
- --------------------------------------------------------------------------------
<PAGE> 5
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
BOX E:
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
The undersigned, a firm described by the appropriate box checked below, guarantees delivery
to the Exchange Agent of the certificates of ITT Shares to which this Form of Election
relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of
ITT, no later than 5:00 P.M., New York City time, on February 16, 1998.
[ ] a member of a registered national securities
exchange
----------------------------------------
[ ] a member of the National Association of Securities
Dealers, Inc.
----------------------------------------
[ ] a bank, broker, dealer, credit union, savings
association or other entity that is a member in
good standing of the Security Transfer Agents
Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the
Stock Brokerage Medallion Program
----------------------------------------
- --------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
- ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT
FORM W-9 AND CERTIFY BY SIGNING AND DATING BELOW. TIN: -----------------------
Social Security Number
or Employer
Identification Number
-------------------------------------------------------------------------------------------
Department of the PART II--For Payees exempt from backup withholding, see the enclosed "Guidelines for
Treasury, Internal Certification of Taxpayer Identification Number on Substitute Form W-9" and complete as
Revenue Service instructed therein.
---------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER Certification--Under penalties of perjury, I certify that:
IDENTIFICATION NUMBER (1) The number shown on this form is my correct TIN (or I am waiting for a number
("TIN") AND CERTIFICATION to be issued to me); and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding.
---------------------------------------------------------------------------------------------
SIGNATURE: ________________________________________ DATE: ________________
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see the instructions in the
enclosed Guidelines.)
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have
mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social
Security Administration Officer or (2) I intend to mail or deliver an application in the near
future. I understand that if I do not provide a TIN by the time of payment, 31% of all payments
pursuant to the Merger made to me thereafter will be withheld until I provide a number.
Signature: ______________________________________________________ Date:
---------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
INSTRUCTIONS FOR COMPLETION OF FORM OF ELECTION
This Form of Election should be properly filled in, dated, signed and
delivered, together with the Certificates representing the ITT Shares currently
held by you (unless delivery is guaranteed in Box E in accordance with
Instruction B), to the Exchange Agent. Please read and follow carefully the
instructions regarding completion of this Form of Election set forth below.
This Form of Election and the Election you make herein are subject to the
terms and conditions set forth herein, in the Joint Proxy Statement/Prospectus
which has already been mailed to you and in the Merger Agreement which is
attached as Annex A to the Joint Proxy Statement/Prospectus. Copies of the Joint
Proxy Statement/Prospectus may be requested from the Information Agent. The
delivery of this Form of Election to the Exchange Agent constitutes
acknowledgment of the receipt of the Joint Proxy Statement/Prospectus.
EACH HOLDER OF ITT SHARES IS STRONGLY ENCOURAGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE CONTENTS THEREOF AND
THIS FORM OF ELECTION WITH HIS OR HER FINANCIAL AND TAX ADVISORS PRIOR TO
DECIDING UPON AN ELECTION.
A. ELECTIONS
This Form of Election provides for your Election as to the form of
consideration to be received by you upon the conversion of your ITT Shares in
the Merger. At your direction, subject to the terms and conditions set forth in
this Form of Election, in the Joint Proxy Statement/Prospectus and in the Merger
Agreement, each ITT Share will be converted into either:
- $85.00 in cash (the "Cash Consideration") pursuant to a "CASH ELECTION";
or
- Paired Shares at the Exchange Ratio pursuant to a "SHARE ELECTION."
You may make a Cash Election or a Share Election as to any ITT Share or
combination of ITT Shares that you hold.
NOTWITHSTANDING THE ELECTIONS MADE BELOW, THE AMOUNT OF CASH AND THE NUMBER
OF PAIRED SHARES TO BE ISSUED IN THE MERGER IS SUBJECT TO PRORATION IN
ACCORDANCE WITH THE TERMS OF THE MERGER AGREEMENT.
ITT stockholders making Cash Elections or Share Elections may not receive
the form of consideration they elect because the aggregate number of ITT Shares
to be converted into cash in the Merger is limited to 30% of the total number of
outstanding ITT Shares and the aggregate number of ITT Shares to be converted
into Paired Shares in the Merger is limited to 82% of the total number of
outstanding ITT Shares. ITT stockholders making Cash Elections may receive
Paired Shares instead of cash for some of the ITT Shares covered by such Cash
Election if Cash Elections are received for more than 30% of the outstanding ITT
Shares. Similarly, ITT stockholders making Share Elections may receive cash
instead of Paired Shares for some of the ITT Shares covered by such Share
Election if Share Elections are received for more than 82% of the outstanding
ITT Shares. If the Market Price is below $53.263, the combination of cash and
Paired Shares that ITT stockholders will receive in the Merger may have a value
of less than $85 per ITT Share. The Exchange Ratio will be determined five NYSE
trading days prior to February 12, 1998 and will be determined based on trading
prices during the preceding 30 NYSE trading days. Accordingly, it is possible
that the market price of the Paired Shares at the Effective Time will be higher
or lower than the Market Price, and if so, the value of the consideration to be
received by the ITT stockholders will be more or less than $85 per ITT Share
depending on the direction of the price movement. There can be no assurance that
the price of Paired Shares will not decline from the market prices used in the
calculation of the Exchange Ratio.
B. TIME IN WHICH TO MAKE AN ELECTION
In order for an Election to be effective, the Exchange Agent must receive a
properly completed Form of Election, accompanied by all stock certificates
representing ITT Shares currently held by you (or a proper guarantee of
delivery, as described below), NO LATER THAN 5:00 P.M., NEW YORK CITY TIME,
FEBRUARY 11, 1998 (the "Election Date"). If all other conditions set forth in
the Merger Agreement have been met or, if
<PAGE> 7
permissible, waived, the effective time of the Merger (the "Effective Time")
could occur on the same day approval of the Merger by stockholders of ITT is
obtained. As soon as the date on which the effective time of the Merger is
anticipated to occur is determined, Starwood Lodging and ITT will publicly
announce such date, although no assurance can be given that the Effective Time
will occur on such date. Persons whose stock certificates are not immediately
available may also make an Election by completing this Form of Election and
having Box E (Guarantee of Delivery) properly completed and duly executed by a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (subject to the condition
that the certificates, the delivery of which is thereby guaranteed, are in fact
delivered to the Exchange Agent no later than 5:00 p.m. New York City Time, on
the third NYSE trading day after the Election Date (the "Guaranteed Delivery
Deadline")).
IF THE EXCHANGE AGENT HAS NOT RECEIVED YOUR PROPERLY COMPLETED FORM OF
ELECTION, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DATE (UNLESS
BOX E (GUARANTEE OF DELIVERY) HAS BEEN PROPERLY COMPLETED AND SUCH CERTIFICATES
ARE RECEIVED BY THE EXCHANGE AGENT BY THE GUARANTEED DELIVERY DEADLINE), YOUR
ITT SHARES WILL BE TREATED AS NON-ELECTING SHARES.
C. FAILURE TO MAKE AN EFFECTIVE ELECTION
If you fail to make an effective Election, or if your Election is deemed by
Starwood Lodging or ITT to be defective in any way, any shares covered by this
Form of Election will be treated as Non-Electing Shares.
D. ITT SHARES AS TO WHICH AN ELECTION IS MADE
You may make a CASH ELECTION or a SHARE ELECTION with respect to all or any
portion of your ITT Shares by listing the number of shares with which you wish
to make a specific Election, in the appropriate column on the "Election and
Description of Shares Deposited" box above. If there is insufficient space to
list all your Certificates being submitted to the Exchange Agent or to respond
to any other request for information, please attach a separate sheet.
E. SPECIAL CONDITIONS
1. Change of Election
You may change any Election or revoke or change any other instruction in
this Form of Election by written notice, signed and dated by you, to the
Exchange Agent accompanied by a properly completed Form of Election. Such
written notice must identify the name of the holder of record of the ITT Shares
subject to such notice and the Certificate number(s) shown on the Certificate(s)
representing such ITT Shares. The written notice must be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Election Date.
Changes in Elections may be permitted after the Election Date at the sole
discretion of Starwood Lodging and ITT.
2. Withdrawal of Election
The holder of the ITT Shares listed on this Form of Election may at any
time prior to 5:00 p.m. New York City time on the Election Date withdraw his
election by written notice to the Exchange Agent or by withdrawal by written
request of any certificates representing any ITT Shares listed in connection
with the Election made on this Form of Election. Such holder shall again have
the right to withdraw by written request such certificates and thereby revoke
his or her election at any time after April 12, 1998 if the Merger shall not
have been consummated by that date. If the Merger is abandoned or if an election
is withdrawn, certificates representing ITT Shares will be mailed together with
this Form of Election to the person whose name appears in Box A at the address
shown therein.
3. Shares Held by Nominees, Trustees or Other Representatives Holders of Record
Shares held by nominees, trustees or other representatives holders of
record of ITT Shares who hold such ITT Shares as nominees, trustees or in other
representative or fiduciary capacities (each a "Representative") may submit one
or more Forms of Election covering the aggregate number of ITT Shares held by
such Representative for the beneficial owners for whom the Representative is
making an Election. Any Representative who makes an
<PAGE> 8
Election may be required to provide the Exchange Agent with such documents
and/or additional certifications, if requested, in order to satisfy the Exchange
Agent that such Representative holds such ITT Shares for a particular beneficial
owner of such shares.
F. NO FRACTIONAL ITT SHARES
The undersigned understands that in lieu of the issuance of any fractional
Paired Share in the Merger, Starwood Lodging will pay to each former stockholder
of ITT who otherwise would be entitled to receive a fractional Paired Share an
amount in cash determined by multiplying (i) the average of the per share
closing prices on the NYSE of a Paired Share during the five consecutive trading
days ending on the trading day immediately prior to the Effective Time by (ii)
the fractional interest in a Paired Share to which such holder would otherwise
be entitled.
G. GENERAL INSTRUCTIONS
1. Execution and Delivery.
This Form of Election, or a photocopy of it, should be properly completed,
dated and signed, and should be delivered, together with your Certificate(s)
representing your ITT Shares (or a properly completed Guarantee of Delivery) to
the Exchange Agent at the appropriate address set forth on the cover page to
this Form of Election.
THE METHOD OF DELIVERY OF THIS FORM OF ELECTION, THE CERTIFICATES FOR ITT
SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED FOR SUCH DOCUMENTS TO REACH THE EXCHANGE AGENT. EXCEPT AS
OTHERWISE PROVIDED, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE EXCHANGE AGENT. No alternative, conditional or contingent elections will be
accepted.
2. Signatures.
The signature (or signatures, in the case of Certificate(s) owned by two or
more joint holders) on this Form of Election must correspond exactly to the name
as written on the face of the Certificate(s) sent to the Exchange Agent, unless
the ITT Shares have been transferred by the holder of record. If there has been
any such transfer, the signatures on this Form of Election should be signed in
exactly the same form as the name of the last transferee indicated on the
accompanying stock powers attached to or endorsed on the Certificate(s) (see
General Instruction 4 below).
If ITT Shares are registered in different names on several Certificates, it
will be necessary to complete, sign and submit a separate Form of Election for
each different registration of Certificates. For example, if some Certificates
are registered solely in your name, some are registered solely in your spouse's
name and some are registered jointly in the name of you and your spouse, three
separate Forms of Election should be submitted.
3. Checks and/or Certificates in Same Name.
If checks in payment of any cash and/or any new share certificates are to
be payable to the order of and/or registered in exactly the same name as
inscribed on the surrendered Certificate(s) (representing ITT Shares), you will
not be required to endorse the surrendered Certificates or make payment for
transfer taxes or have your signature guaranteed. For corrections in name or
changes in name not involving changes in ownership, see General Instruction 4(d)
below.
<PAGE> 9
4. Checks and/or Certificates in Different Names.
(IGNORE THIS INSTRUCTION 4 IF THE FIRST SENTENCE OF INSTRUCTION 3 APPLIES)
If checks in payment of any cash and/or any new share certificates are to
be payable to the order and/or registered in a different name from exactly the
registered name inscribed on the surrendered Certificate(s) (representing ITT
Shares) or delivered to a different address, please follow these instructions:
(a) Registered Holders Completing Box B or Box C. If registered holder
of Certificate(s) signs the Form of Election, the registered holder should
complete Box B and/or Box C and have signature(s) guaranteed on this Form
of Election. No endorsements or signature guarantees on Certificate(s) or
stock powers are required in this case.
(b) If Form of Election is Signed by Person Other than Registered
Holder -- Endorsement and Stock Transfer Guarantee. The Certificate(s)
surrendered must be properly endorsed or accompanied by appropriate stock
power(s) properly executed by the record holder of such Certificate(s) to
the person who is to receive the check or certificate representing Paired
Shares. The signature of the record holder on the endorsement(s) or stock
power(s) must correspond with the name that appears on the face of the
Certificate(s) in every particular and must be guaranteed by an Eligible
Institution (as defined below). If this General Instruction 4 applies,
please check with your financial institution or brokerage firm immediately
to determine whether it is an Eligible Institution or will need to help you
locate an Eligible Institution. NOTARIES PUBLIC CANNOT EXECUTE ACCEPTABLE
GUARANTEES OF SIGNATURES.
An "Eligible Institution" means:
(i) Banks (as that term is defined in Section 3(a) of the Federal
Deposit Insurance Act);
(ii) Brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, and government
securities brokers, (as those terms are defined under the Securities
Exchange Act of 1934);
(iii) Credit unions (as that term is defined in Section 19(b)(1)(A)
of the Federal Reserve Act);
(iv) National securities exchanges, registered securities
associations, clearing agencies, as those terms are used under the
Securities Exchange Act of 1934); and
(v) Savings associations (as that term is defined in Section 3(b)
of the Federal Deposit Insurance Act).
(c) Transferee's Signature. If a certificate has previously been
properly transferred but the transfer has not yet been recorded on the
books of ITT, this Form of Election must be signed by the transferee or by
his agent and should not be signed by the transferor. The signature of such
transferee or agent on this Form of Election must be guaranteed by an
Eligible Institution if the transferee has completed Box B or C.
(d) Transfer Taxes. In the event that any transfer or other tax
becomes payable by reason of the issuance of a check in payment of any Cash
Consideration and/or the issuance of any share certificates representing
Paired Shares in any name other than that of the record holder, the
transferee or assignee must pay such tax to the Exchange Agent or must
establish to the satisfaction of the Exchange Agent that such tax has been
paid. You should consult your own tax advisor as to any possible tax
consequences resulting from the issuance of shares or cash in a name
different from that of the holder of record of the surrendered Certificate.
(e) Correction of or Change in Name. For a correction in name which
does not involve a change in ownership, the surrendered Certificate(s)
should be appropriately endorsed; for example, "John A. Doe, incorrectly
inscribed as John B. Doe," with the signature guaranteed by an Eligible
Institution. For a change in name by marriage, etc., the surrendered
Certificate(s) should be appropriately endorsed; for example, "Mary Doe,
now by marriage Mrs. Mary Jones," with the signature guaranteed by an
Eligible Institution.
5. Supporting Evidence.
In case any Form of Election, certificate, endorsement or stock power is
executed by an agent, attorney, administrator, executor, guardian, trustee or
any person in any other fiduciary or representative capacity, or by an officer
of a corporation on behalf of the corporation, there must be submitted (with the
Form of Election,
<PAGE> 10
surrendered certificate(s), and/or stock powers) documentary evidence of
appointment and authority to act in such capacity (including court orders and
corporate resolutions when necessary), as well as evidence of the authority of
the person making such execution to assign, sell or transfer the certificate(s).
Such documentary evidence of authority must be in form satisfactory to the
Exchange Agent.
6. Notice of Defects; Resolution of Disputes.
NONE OF STARWOOD, ITT AND THE EXCHANGE AGENT WILL BE UNDER ANY OBLIGATION
TO NOTIFY YOU OR ANYONE ELSE THAT THE EXCHANGE AGENT HAS NOT RECEIVED A PROPERLY
COMPLETED FORM OF ELECTION OR THAT THE FORM OF ELECTION SUBMITTED BY YOU IS
DEFECTIVE IN ANY WAY.
Any and all disputes with respect to Forms of Elections and Elections made
in respect of ITT Shares (including but not limited to matters relating to the
Election Date, time limits, defects or irregularities in the surrender of any
Certificate and effectiveness of any Election) will be resolved by Starwood
Lodging and ITT and its decision will be final and binding on all parties
concerned. Starwood Lodging and ITT will have the absolute right in their sole
discretion to reject any and all Forms of Election and surrenders of
Certificates which are deemed by them to be not in proper form or to waive any
immaterial irregularities in any Form of Election or in the surrender of any
Certificate. Surrenders of Certificates will not be deemed to have been made
until all defects or irregularities that have not been waived have been cured.
7. Federal Tax Withholding/Substitute Form W-9.
Under federal income tax law, the Exchange Agent is required to file a
report with the Internal Revenue Service (IRS) disclosing the cash payments
being made to you as an exchanging stockholder. Federal law also requires each
stockholder to provide the Exchange Agent with such stockholder's current
Taxpayer Identification Number ("TIN") on a Substitute Form W-9 set forth above.
If such stockholder is an individual, the TIN is his social security number. If
the Exchange Agent is not provided with the correct TIN, the stockholder or
other payee may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, cash payments that are made to such stockholder or other
payee with respect to ITT Shares acquired pursuant to the Merger may be subject
to 31% backup withholding. Payments of Paired Shares would be subject to backup
withholding in the amount of 31% of the Paired Shares issued to such
shareholder.
Certain stockholders (including, among others, tax-exempt organizations and
certain foreign persons) are not subject to these backup withholding and
reporting requirements. In order for a foreign person to qualify as an exempt
recipient, that stockholder must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8, signed under penalties of perjury,
attesting to that person's exempt status. A Form W-8 can be obtained from the
Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any cash payment made to the stockholder or other payee. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
If the Exchange Agent is not provided with a TIN by the time of payment the
Exchange Agent will withhold 31% on all such cash payments to be made to you
until a TIN is provided to the Exchange Agent. You must also complete the
Certificate of Awaiting Taxpayer Identification Number.
The stockholder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the record owner of
the ITT Shares. If the ITT Shares are registered in more than one name or are
not registered in the name of the actual owner, consult the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9," for
additional guidance on which number to report.
8. Special Payment and Delivery Instructions.
Any checks representing cash consideration and any certificates
representing Paired Shares will be mailed to the address of the holder of record
as indicated in Box A or to the person identified in Box B (if completed),
unless instructions to the contrary are given in Box C.
<PAGE> 11
9. Lost Stock Certificates.
If you are unable to locate the Certificate(s) representing your ITT
Shares, contact ITT's Transfer Agent, the Bank of New York, at 1-800-254-2823.
The Transfer Agent will instruct you on the procedures to follow. In order to
make an effective Election with respect to the lost Certificate(s) and receive
the cash consideration or the share consideration, you will be required to
complete certain additional documentation and pay for an indemnity bond covering
the lost Certificate(s). The cost of the bond will be based on the value of the
ITT Shares represented by the lost Certificates.
10. Miscellaneous.
As soon as practicable after the Effective Date, the Exchange Agent will
begin mailing and delivering checks and share certificates for Paired Shares in
exchange for Certificates representing ITT Shares that have been received by the
Exchange Agent. There will be a delay, however, if backup withholding pursuant
to General Instruction 7 applies.
Requests for assistance may be directed to the Information Agent at the
address and telephone number as set forth on this Form of Election. Additional
copies of the Joint Proxy Statement/Prospectus or this Form of Election may be
obtained from the Information Agent at the address set forth below. IMPORTANT:
THIS FORM OF ELECTION, TOGETHER WITH CERTIFICATES (OR THE ATTACHED GUARANTEE OF
DELIVERY, OR A FACSIMILE THEREOF), MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE ELECTION DATE.
DO NOT ENCLOSE YOUR PROXY CARD RELATING TO THE SPECIAL MEETING WITH THIS
FORM OF ELECTION; YOUR PROXY CARD SHOULD BE RETURNED IN THE POSTAGE PAID
ENVELOPE ENCLOSED WITH THE JOINT PROXY STATEMENT/PROSPECTUS FOR THAT PURPOSE.
The Information Agent is:
D. F. KING & CO., INC.
77 Water Street
New York, New York 10005
TOLL FREE (800) 290-6428
<PAGE> 12
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the Payer.
<TABLE>
<CAPTION>
- -------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF SOCIAL SECURITY
ACCOUNT: NUMBER OF--
- -------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more The actual owner of the
individuals account or, if combined
(joint account) funds, the first
individual on the
account(1)
3. Custodian account The minor(2)
of a minor (Uniform
Gift to Minors Act)
4. a. The usual The grantor-trustee(1)
revocable
savings trust
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is
not a legal or
valid trust
under State law
5. Sole proprietorship The owner(3)
6. Sole proprietorship The owner(3)
account
<CAPTION>
- -------------------------------------------------
GIVE THE NAME AND
EMPLOYER
FOR THIS TYPE OF IDENTIFICATION
ACCOUNT: NUMBER OF--
- -------------------------------------------------
<S> <C>
7. A valid trust, The legal entity (Do
estate, or pension not furnish the
trust identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(4)
8. Corporate The corporation
9. Association, club, The organization
religious,
charitable,
educational, or
other tax-exempt
organization
10. Partnership The partnership
11. A broker or The broker or nominee
registered nominee
12. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or
prison) that
receives
agricultural
program payments.
</TABLE>
============================================================
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number (for businesses and all other
entities), or Form W-7, Application for IRS Individual Taxpayer Identification
Number (for alien individuals required to file U.S. tax returns), at an office
of the Social Security Administration or the Internal Revenue Service.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - An organization exempt from tax under Section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7), if the
account satisfies the requirements of Section 401(f)(2).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
political subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
Payees that may be exempt from backup withholding, including, among others:
- - A corporation.
- - A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A foreign central bank of issue.
- - A financial institution.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident alien partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include
the following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
Exempt payees described above should complete a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends
that are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N, and their regulations.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
Exhibit 99.4
<TABLE>
<CAPTION>
<S> <C>
INTERNAL REVENUE SERVICE Department of the Treasury
Internal Revenue Service
300 North Los Angeles St.
District Director Rm 2058
Los Angeles, Ca. 90012-3363
Person to Contact:
Hotel Investors Trust Brian Casaly
11845 West Olympic Boulevard, Suite 550 Telephone Number:
Los Angeles, CA 90064 213-894-4389
Attention: Jeffrey C. Lapin, President Refer Reply To:
E:QMS:TC
RE: Taxable Years 1991-1995 Date:
EIN: 52-0901263
Aug 16 1994
</TABLE>
Dear Mr. Lapin:
On July 27, 1994, we met with your representatives to discuss Hotel
Investors Trusts's (the Trust's) qualification to be taxed as a real estate
investment trust ("REIT"), including its failure to send the shareholder demand
letters required by Treas. Reg. Section 1.857-8(d) for its taxable years ended
December 31, 1991 and December 31, 1992. This failure terminated the Trust's
election to be taxed as a REIT for its taxable year ended December 31, 1991.
The Internal Revenue Service has determined that the conditions set forth
in Section 856(g)(4) of the Internal Revenue Code and Treas. Reg. Section
1.856-8(d) have been met and hereby waives the application of Section 856(g)(3)
of the Internal Revenue Code and grants the Trust permission to re-elect to be
taxed as a REIT for its taxable year ending December 31, 1995. The Trust is
hereby directed to file amended federal income tax returns as a C corporation
for its taxable years ended December 31, 1991 and December 31, 1992 and to file
its federal income tax returns as a C Corporation for its taxable years ended
December 31, 1993 and December 31, 1994.
A copy of this letter should be attached to the Trust's Form 1120-REIT for
its taxable year ending December 31, 1995.
Sincerely,
/s/ John M. Daley, Sr.
ACTING District Director
