<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 1998
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[STARWOOD LOGO]
RESTRUCTURING PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Trustees of Starwood Hotels & Resorts (the "Trust") and the Board
of Directors of Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation"
and, together with the Trust, "Starwood Hotels") have approved a restructuring
of the two companies in response to recently enacted federal tax legislation and
are seeking your vote on this important transaction. As a result of the
restructuring, the Trust would become a subsidiary of the Corporation.
Each Paired Share of Starwood Hotels currently consists of one share of common
stock of the Corporation (a "Corporation Share") paired with one share of
beneficial interest in the Trust (a "Trust Share" and, as so paired, a "Paired
Share"). If the restructuring were completed, each holder of Paired Shares would
receive one share of the new Class B shares of beneficial interest in the Trust
for each Trust Share held and all the outstanding Trust Shares would be
canceled. The Corporation Shares would be unaffected. The Class B Shares would
trade in units consisting of one Class B Share and one Corporation Share in the
same way that the Trust Shares currently do. All of the new Class A shares of
beneficial interest in the Trust would be held by the Corporation. Subject to
certain conditions, the new Class B Shares would be entitled to receive a
non-cumulative annual dividend at an initial annual rate of $.60 per share to
the extent the dividend is authorized by the Board of Trustees of the Trust. The
dividend may increase after 1999 pursuant to a formula, and may not be paid
under certain circumstances. Holders of the Class B Shares would not be entitled
to vote, except upon matters materially and adversely affecting the rights of
holders of Class B Shares disproportionately to the effect on holders of the new
Class A Shares of the Trust.
The restructuring cannot be completed unless (a) the shareholders of the Trust
approve and adopt (i) the agreement and plan of restructuring that provides for
the restructuring, (ii) an amendment and restatement of the Declaration of Trust
of the Trust to classify the Class A Shares and the Class B Shares and to set
forth the terms thereof and (iii) an amendment and restatement of the pairing
agreement by which the Corporation Shares are currently paired with the Trust
Shares to attach the Class B Shares, rather than the Trust Shares, to the
Corporation Shares and to provide for the right of the Corporation to exchange
the Class B Shares in certain circumstances, and (b) the stockholders of the
Corporation approve the amendment and restatement of the pairing agreement.
These proposals will be considered at the 1998 annual meetings of the
shareholders of the Trust and the stockholders of the Corporation to be held on
January 6, 1999. YOUR VOTE IS VERY IMPORTANT.
At the annual meetings, shareholders of the Trust will also be asked to elect
Trustees and to approve the amendment and restatement of the Trust's long-term
incentive plan and stockholders of the Corporation will also be asked to elect
Directors
SEE "RISK FACTORS" STARTING ON PAGE 16 FOR A DESCRIPTION OF CERTAIN MATERIAL
RISKS AND
UNCERTAINTIES THAT STOCKHOLDERS AND SHAREHOLDERS OF STARWOOD HOTELS SHOULD
CONSIDER IN
DETERMINING WHETHER TO APPROVE THE PROPOSED RESTRUCTURING.
<PAGE> 3
and to approve the amendment and restatement of the Corporation's long-term
incentive plan.
Whether or not you plan to attend the meetings, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the proposals submitted at the meetings. If you
fail to return the card, the effect will be a vote against the restructuring
proposal, unless you attend the meetings and vote in favor of such proposals.
Your failure to return the card, however, will have no effect on the outcome of
the vote on the election of Trustees or Directors and will have no effect on the
outcome of the vote on the amendment and restatement of the long-term incentive
plans, unless fewer than 50% in interest of all securities entitled to vote on
such proposals cast votes, in which event your failure to return the card will
have the same effect as a vote against the amendment and restatement.
The dates, times and places of the meetings are as follows:
For the Trust Meeting:
January 6, 1999
10:00 a.m.
Caribbean Ballroom of
the Sheraton Bal Harbour
9701 Collins Avenue
Bal Harbour, Florida
For the Corporation Meeting:
January 6, 1999
immediately following the Trust Meeting
Caribbean Ballroom of
the Sheraton Bal Harbour
9701 Collins Avenue
Bal Harbour, Florida
This Joint Proxy Statement provides you with detailed information about the
proposed restructuring. In addition, you may obtain information about Starwood
Hotels from documents that we have filed with the Securities and Exchange
Commission (the "SEC"). We encourage you to read this entire document carefully.
If you have any questions or need assistance in voting your shares, please call
our proxy solicitor, D.F. King & Co., Inc., toll free at 1-800-488-8035.
<TABLE>
<S> <C>
/s/ Barry S. Sternlicht /s/ Richard D. Nanula
- -------------------------------------------- --------------------------------------------
Barry S. Sternlicht Richard D. Nanula
Chairman and Chief Executive Officer President and Chief Executive Officer
Starwood Hotels & Resorts Starwood Hotels & Resorts Worldwide, Inc.
</TABLE>
THE CLASS B SHARES TO BE ISSUED PURSUANT TO THE RESTRUCTURING DESCRIBED IN THIS
JOINT PROXY STATEMENT HAVE NOT BEEN APPROVED BY THE SEC, ANY STATE SECURITIES
COMMISSION, THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
THE NEW JERSEY CASINO CONTROL COMMISSION, THE MISSISSIPPI GAMING COMMISSION OR
THE INDIANA GAMING COMMISSION. NONE OF THESE ORGANIZATIONS HAS DETERMINED IF
THIS JOINT PROXY STATEMENT IS ACCURATE, COMPLETE OR ADEQUATE, OR HAS PASSED UPON
THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement dated December 3, 1998, and first mailed to shareholders
and stockholders on
or about December 5, 1998.
<PAGE> 4
[STARWOOD LOGO]
------------------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Starwood Hotels & Resorts:
Notice is hereby given that the 1998 Annual Meeting of Shareholders of
Starwood Hotels & Resorts, a Maryland real estate investment trust (the
"Trust"), will be held at the Caribbean Ballroom of the Sheraton Bal Harbour,
9701 Collins Avenue, Bal Harbour, Florida, on January 6, 1999 at 10:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve the restructuring
of the Trust and Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation (the "Corporation"), pursuant to the Agreement and Plan of
Restructuring (as amended) attached as Annex A to the accompanying Joint
Proxy Statement, and pursuant to which proposal, among other things, (i) a
newly organized, wholly owned subsidiary of the Corporation will merge into
the Trust, with the Trust surviving as a subsidiary of the Corporation,
which will hold all outstanding shares of the new Class A shares of
beneficial interest in the Trust having the terms described under the
caption "Description of Class A Shares" in the accompanying Joint Proxy
Statement; (ii) each outstanding common share of beneficial interest in the
Trust (a "Trust Share") will be converted into one share of the new Class B
shares of beneficial interest in the Trust having the terms described under
the caption "Description of Class B Shares" in the accompanying Joint Proxy
Statement; (iii) the Declaration of Trust of the Trust will be amended and
restated as set forth in Annex B to the accompanying Joint Proxy Statement;
and (iv) the Pairing Agreement between the Trust and the Corporation will
be amended and restated to read as set forth in Annex C to the accompanying
Joint Proxy Statement;
2. To elect three Trustees to the Board of Trustees of the Trust;
3. To consider and vote upon a proposal to approve the amendment and
restatement of the Trust's 1995 Long-Term Incentive Plan; and
4. To transact such other business as may properly come before the
meeting.
Only holders of record of Trust Shares, Class A Exchangeable Preferred
Shares and Class B Exchangeable Preferred Shares of the Trust at the close of
business on November 20, 1998 are entitled to receive notice of, and to vote at,
the 1998 Annual Meeting or at any adjournment or postponement thereof.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE
ACCOMPANYING JOINT PROXY STATEMENT 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 MEETING, AND YOUR PROMPTNESS
WILL ASSIST US IN AVOIDING ADDITIONAL
<PAGE> 5
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
December 5, 1998
White Plains, New York
<PAGE> 6
[STARWOOD LOGO]
------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Starwood Hotels & Resorts Worldwide, Inc.:
Notice is hereby given that the 1998 Annual Meeting of Stockholders of
Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the
"Corporation"), will be held at the Caribbean Ballroom of the Sheraton Bal
Harbour, 9701 Collins Avenue, Bal Harbour, Florida, on January 6, 1999,
immediately following the Annual Meeting of Shareholders of Starwood Hotels &
Resorts, a Maryland real estate investment trust (the "Trust"), for the
following purposes:
1. To consider and vote upon a proposal to approve the restructuring
of the Corporation and the Trust, pursuant to the Agreement and Plan of
Restructuring (as amended) attached as Annex A to the accompanying Joint
Proxy Statement, and pursuant to which proposal, among other things, the
Pairing Agreement between the Trust and the Corporation will be amended and
restated to read as set forth in Annex C to the accompanying Joint Proxy
Statement;
2. To elect four Directors to the Board of Directors of the
Corporation;
3. To consider and vote upon a proposal to approve the amendment and
restatement of the Corporation's 1995 Long-Term Incentive Plan; and
4. To transact such other business as may properly come before the
meeting.
Only holders of record of shares of common stock of the Corporation at the
close of business on November 20, 1998 are entitled to receive notice of, and to
vote at, the 1998 Annual Meeting or at any adjournment or postponement thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE
ACCOMPANYING JOINT PROXY STATEMENT 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 MEETING, AND YOUR PROMPTNESS
WILL ASSIST US IN AVOIDING ADDITIONAL SOLICITATION COSTS. IF YOU RECEIVE MORE
THAN ONE PROXY CARD BECAUSE YOU
<PAGE> 7
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/ Thomas C. Janson,Jr.
Thomas C. Janson, Jr.
Secretary
December 5, 1998
White Plains, New York
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
RESTRUCTURING....................... 1
WHO CAN HELP ANSWER YOUR QUESTIONS.... 4
SUMMARY............................... 5
Starwood Hotels....................... 5
Our Reasons for the Restructuring..... 5
Our Recommendations................... 6
Considerations Relating to the
Restructuring....................... 6
Risk Factors.......................... 7
The Restructuring..................... 7
Material Differences in Rights of
Holders of Trust Shares and Class B
Shares.............................. 9
Structure of Starwood Hotels Prior to
the Restructuring................... 10
Structure of Starwood Hotels After the
Restructuring....................... 11
Other Matters to be Voted upon at the
Meetings............................ 12
The Annual Meetings................... 12
Starwood Hotels Summary Selected
Financial Data...................... 13
RISK FACTORS.......................... 16
Retention of Capital.................. 16
Adoption of Additional Legislation,
Regulations or Interpretations...... 16
Change in Nature of Investment in the
Trust............................... 17
Possibility of Future Amendments to
the Pairing Agreement............... 17
THE ANNUAL MEETINGS................... 18
Date, Time and Place.................. 18
Matters to be Considered.............. 18
Voting Rights; Vote Required.......... 18
Proxies............................... 20
Solicitation of Proxies............... 21
Independent Accountants............... 21
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC. SELECTED FINANCIAL
INFORMATION......................... 22
THE RESTRUCTURING..................... 30
Background of the Restructuring....... 30
Recommendation of the Trust Board and
the Corporation Board; Reasons for
the Restructuring................... 33
Interests of Certain Persons in the
Restructuring....................... 34
Trust Board After the Restructuring... 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment.................. 35
Certain Forward Looking Statements.... 35
Regulatory Approvals.................. 36
No Dissenters' Rights................. 36
Certain Federal Securities Laws
Consequences........................ 36
THE RESTRUCTURING AGREEMENT........... 37
General............................... 37
Closing and Effective Time............ 37
Conversion of Shares.................. 37
Exchange of Certificates.............. 38
Dividends............................. 38
Starwood Options...................... 38
Representations and Warranties........ 39
Business of Starwood Hotels Pending
the Restructuring................... 39
Indemnification....................... 39
Conditions to the Consummation of the
Restructuring....................... 39
Termination........................... 40
Waiver................................ 40
AMENDMENT AND RESTATEMENT OF THE
DECLARATION OF TRUST OF THE TRUST... 41
Current Provisions.................... 41
Proposed Amendments................... 42
Purpose and Effect of Proposed
Amendments.......................... 42
Effective Time of the Amendment and
Restatement......................... 43
AMENDMENT AND RESTATEMENT OF THE
PAIRING AGREEMENT................... 43
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES........................ 44
Federal Income Tax Consequences of the
Restructuring....................... 45
Federal Income Taxation of the Trust
After the Restructuring............. 46
Federal Income Taxation of the
Corporation......................... 55
Federal Income Taxation of Holders of
Units............................... 56
Information Reporting Requirements and
Backup Withholding.................. 59
Federal Income Tax Aspects of the
Partnerships and the Subsidiary
Entities............................ 59
Other Tax Consequences................ 60
DESCRIPTION OF CLASS B SHARES......... 60
Dividend Rights....................... 60
Liquidation Rights.................... 61
</TABLE>
i
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Voting Rights......................... 62
Redemption Rights..................... 62
Exchange Rights....................... 62
Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption
of Class B Shares................... 64
DESCRIPTION OF CLASS A SHARES......... 67
Dividend Rights....................... 67
Liquidation Rights.................... 67
Voting Rights......................... 67
Redemption Rights..................... 68
TRUST PREFERRED SHARES................ 68
Class A EPS........................... 68
Class B EPS........................... 70
Ownership Limits; Restrictions on
Transfer; Repurchase and Redemption
of Trust Preferred Shares........... 72
COMPARISON OF RIGHTS OF HOLDERS OF
TRUST SHARES AND HOLDERS OF CLASS B
SHARES.............................. 73
Dividend Rights....................... 73
Liquidation Rights.................... 73
Voting Rights......................... 73
Exchange Rights....................... 74
Authorized Capital.................... 74
ELECTION OF TRUSTEES OF THE TRUST..... 74
Trustees Nominated This Year for Terms
Expiring in 2001.................... 74
Trustees with Terms Expiring in
1999................................ 75
Trustees with Terms Expiring in
2000................................ 75
ELECTION OF DIRECTORS OF THE
CORPORATION......................... 76
Directors Nominated This Year for
Terms Expiring in 2001.............. 77
Directors with Terms Expiring in
1999................................ 77
Directors with Terms Expiring in
2000................................ 78
Board Meetings and Committees......... 79
Compensation of Trustees and
Directors........................... 80
Section 16(a) Beneficial Ownership
Reporting Compliance................ 80
AMENDMENT AND RESTATEMENT OF THE
LONG-TERM INCENTIVE PLANS........... 81
Proposed Amendments................... 81
Description of the Plans.............. 82
Awards Granted Under the
Incentive Plans..................... 85
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Income Tax Consequences....... 86
Recommendations....................... 86
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.... 87
Certain Beneficial Owners............. 87
Trustees and Executive Officers of the
Trust............................... 88
Directors and Executive Officers of
the Corporation..................... 90
EXECUTIVE COMPENSATION................ 92
Summary of Cash and Certain Other
Compensation........................ 92
Option Grants......................... 94
Option Exercises and Holdings......... 95
Employment and Compensation Agreements
with Executive Officers............. 95
Compensation Committee Interlocks and
Insider Participation............... 99
Report on Executive Compensation...... 103
SHAREHOLDER RETURN PERFORMANCE........ 105
PRICE RANGES OF PAIRED SHARES;
DISTRIBUTIONS....................... 106
Market Information.................... 106
Distributions Made/Declared........... 106
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 107
Starwood Capital...................... 107
Other................................. 107
LEGAL MATTERS......................... 107
EXPERTS............................... 108
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL
MEETINGS............................ 108
WHERE YOU CAN FIND MORE INFORMATION... 109
LIST OF ANNEXES
Annex A -- Agreement and Plan of
Restructuring
Annex B -- Amended and Restated Declaration
of Trust
Annex C -- Amended and Restated Intercompany
Agreement
Annex D -- Starwood Hotels & Resorts 1995
Long-Term Incentive Plan
Annex E -- Starwood Hotels & Resorts
Worldwide, Inc. 1995 Long-Term
Incentive Plan
Annex F -- Opinion of Sidley & Austin
</TABLE>
ii
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING
Q: Why is Starwood Hotels proposing the restructuring? How will Starwood Hotels
and its shareholders benefit?
A: Starwood Hotels is currently a "paired share REIT" (i.e., the Trust Shares
and Corporation Shares trade together as a unit on The New York Stock Exchange
as Paired Shares). Starwood Hotels is also currently a "stapled entity," as
defined by the Internal Revenue Code, because more than 50 percent (by value) of
the shares of the Trust trade together as a unit with the Corporation Shares.
The "stapled entity" provisions of the Internal Revenue Code would ordinarily
treat two entities (e.g., the Trust and the Corporation) as one entity for
purposes of determining whether either entity (e.g., the Trust) qualified as a
REIT. If these provisions applied to Starwood Hotels, then the Trust would not
qualify as a REIT. However, Starwood Hotels is one of five remaining paired
share REITs that were "grandfathered" when these "stapled entity" provisions
were enacted in 1984. In other words, Starwood Hotels is currently a
"grandfathered paired share REIT" and is not subject to the "stapled entity"
provisions.
Recently, however, Congress enacted legislation that has the effect of
eliminating this grandfathering for most interests in real property acquired
after March 26, 1998. In general, with respect to interests in real property
acquired after March 26, 1998, this new legislation treats grandfathered paired
share REITs as one entity (i.e., as a "stapled entity") for REIT qualification
purposes. Thus, if Starwood Hotels retained its status as a grandfathered paired
share REIT, income and assets of the Corporation attributable to most interests
in real property acquired after March 26, 1998 would be considered income and
assets of the Trust and would likely prevent the Trust from qualifying as a
REIT. Accordingly, unless Starwood Hotels restructures its operations, the
restrictions imposed by the new legislation would significantly hamper Starwood
Hotels' objectives to expand, diversify and improve its hotel portfolio while
maintaining the Trust's REIT status.
After completion of the proposed restructuring, although each Class B Share of
the Trust will be traded only as a unit with an attached Corporation Share (and
vice versa), Starwood Hotels would no longer be a "stapled entity" under the
Internal Revenue Code because less than 50 percent (by value) of the shares of
the Trust would trade together with the Corporation Shares. Since Starwood
Hotels would no longer be a "stapled entity," it would not be subject to the
"stapled entity" provisions of the Internal Revenue Code, and the Trust and the
Corporation would not be treated as one entity for purposes of determining
whether the Trust qualifies as a REIT. In addition, Starwood Hotels would no
longer qualify as a grandfathered paired share REIT. Therefore, since the
recently enacted legislation affects only grandfathered paired share REITs,
Starwood Hotels would no longer be affected by this legislation after the
restructuring.
The restructuring proposal would thus allow Starwood Hotels to be able to
continue to expand, diversify and improve its hotel portfolio while maintaining
the Trust's REIT status. Starwood Hotels believes that the benefits expected to
be obtained by retaining its ability to expand, diversify and improve its hotel
portfolio outweigh the benefits of retaining its status as a grandfathered
paired share REIT. To review the background of and the reasons for the
restructuring in greater detail, and related uncertainties, see pages 30 through
33 and pages 16 and 17.
Q: Why is the Trust issuing Class B Shares to trade together with the
Corporation Shares?
A: Starwood Hotels decided that maintaining the beneficial tax attributes of the
Trust's status as a REIT under the tax laws was more beneficial to Starwood
Hotels and its shareholders and stockholders than for the Trust to cease to
qualify as a REIT. In order to maintain the Trust's status as a REIT, the Trust
must have at least 100 shareholders. Issuing the new Class B Shares is one
method of ensuring that we have the necessary number of shareholders. The new
Class B Shares would also permit you, our shareholders, to continue to have a
direct equity interest in the Trust after the restructuring and to receive
dividends at an annual rate initially fixed at $.60 per share directly from the
Trust. In addition, as described in detail under "The
Restructuring -- Background of the Restructuring" starting on page 30, the
restructuring will enable
1
<PAGE> 11
Starwood Hotels to avoid potential conflicts of interest inherent in other
alternative structures that we considered.
Q: What are the terms of the Class B Shares?
A: Subject to certain conditions, holders of Class B Shares would be entitled to
receive a non-cumulative annual dividend at an annual rate initially fixed at
$.60 per share to the extent the dividend is authorized by the Board of Trustees
of the Trust. The dividend may increase after 1999 pursuant to a formula, and
may not be paid under certain circumstances, as described in "Description of
Class B Shares" starting on page 60. Unless dividends for the then current
quarterly dividend period have been paid on the Class B Shares, the Trust would
generally not be permitted to pay a dividend on the new Class A shares of
beneficial interest in the Trust ("Class A Shares"), all of which would
initially be held by the Corporation. The Class B Shares would not be entitled
to vote, except upon matters materially and adversely affecting the rights of
holders of Class B Shares disproportionately to the effect on holders of Class A
Shares. Upon liquidation of the Trust, assets of the Trust remaining after all
liabilities of the Trust had been satisfied and after the liquidation
preferences of any preferred shares of beneficial interest in the Trust had been
paid in full would be distributed as follows: first, the holders of the Class A
Shares would be entitled to receive the aggregate book value of the total equity
of the Trust on December 31, 1998, as shown on the balance sheet of the Trust
filed with the SEC, less the amount of such book value represented by the Class
A EPS and the Class B EPS (at September 30, 1998, such amount was approximately
$7.0 billion); second, the holders of Class B Shares (together with the holders
of the Class A Exchangeable Preferred Shares of the Trust ("Class A EPS") and
Class B Exchangeable Preferred Shares of the Trust ("Class B EPS")) would be
entitled to receive 10% of any remaining assets of the Trust; and third, the
holders of the Class A Shares would be entitled to receive the remaining 90%.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, sign it and mail it in
the enclosed return envelope. You may attend the annual meetings, which will
take place one promptly after the other on January 6, 1999, rather than
returning your proxy card. In addition, you may revoke your proxy before it is
exercised at the annual meetings by following the directions starting on page
20, and either change your vote or attend the meetings and vote in person.
Q: Who can vote on the restructuring? What vote is required to approve the
restructuring?
A: Holders of Trust Shares, Class A EPS or Class B EPS at the close of business
on November 20, 1998 can vote at the Trust's annual meeting. Holders of
Corporation Shares at the close of business on November 20, 1998 can vote at the
Corporation's annual meeting. The restructuring must be approved by both
- - the holders of a majority of the outstanding Trust Shares, Class A EPS and
Class B EPS (voting together as a single class) and
- - the holders of a majority of the outstanding Corporation Shares.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares with respect to the restructuring proposal
only if you provide instructions on how to vote. You should instruct your broker
to vote your shares, following the directions provided by your broker.
Q: Should I send in my stock certificates now?
A: No. After the restructuring is completed, we will send you instructions for
exchanging your stock certificates.
Q: Would holders of Class A EPS and Class B EPS receive anything in the
restructuring?
A: No. Shares of Class A EPS and Class B EPS would continue to remain
outstanding after the restructuring and holders of Class A EPS and Class B EPS
would continue to have the same rights as before, except that, pursuant to their
terms, (i) each Class A EPS would be exchangeable for one Corporation Share and
one Class B Share instead of one Paired Share and (ii) holders of the Class A
EPS and Class B EPS would be entitled to vote upon only those matters upon which
the Class B Shares have the right to vote (as described above), instead of upon
those matters upon which holders of Trust Shares currently have the right to
vote. Accordingly, holders of Class A EPS and Class B EPS would no longer have
the right to vote in the election of
2
<PAGE> 12
Trustees (or other matters submitted generally to the shareholders of the
Trust). The special voting rights of the holders of Class A EPS and Class B EPS
and the rights of the holders of Class B EPS to elect trustees in certain
circumstances, all as described under the captions "Trust Preferred
Shares -- Class A EPS -- Voting Rights" on page 70 and "-- Class B EPS -- Voting
Rights" on page 72, would be unaffected.
Q: Would I receive any dividends?
A: If the restructuring were completed, you would receive dividends when, as and
if authorized on the Class B Shares of the Trust as described above. The
Corporation does not anticipate paying any dividends in the foreseeable future.
As a result, if the restructuring is completed, shareholders of Starwood Hotels
will receive dividends only on the Class B Shares (at an annual rate of
approximately $.60 per share for 1999). This is significantly less than the
current annual dividend rate of $2.08 per Trust Share (based on the first three
quarters of 1998).
Q: When do you expect the restructuring to be completed?
A: We are working to complete the restructuring during January 1999.
Q: What would be the tax consequences to holders of Paired Shares of the
restructuring?
A: The exchange of Trust Shares for Class B Shares would be tax-free for federal
income tax purposes and holders of Paired Shares would not recognize any gain or
loss as a result of the restructuring. To review the federal income tax
consequences in greater detail, see page 44.
Q: Would I be entitled to appraisal rights?
A: No. You would not be entitled to appraisal rights with respect to your Trust
Shares because the Trust Shares are traded on The New York Stock Exchange or
with respect to your Corporation Shares because the Corporation is not a
constituent corporation in the merger. Holders of Class A EPS and Class B EPS
would not be entitled to appraisal rights because their shares would continue to
be shares of the Trust, which would be the successor in the merger, after the
restructuring.
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the restructuring, you should contact:
STARWOOD HOTELS & RESORTS
777 Westchester Avenue
White Plains, New York 10604
Attention: Shareholder Relations
Phone Number: (914) 640-8100
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
777 Westchester Avenue
White Plains, New York 10604
Attention: Shareholder Relations
Phone Number: (914) 640-8100
If you would like additional copies of this Joint Proxy Statement,
or if you have questions about the restructuring, you should contact:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Phone Number: (800) 488-8035 (toll free)
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SUMMARY
This summary highlights selected information from this Joint Proxy
Statement and may not contain all the information that is important to you. To
understand the restructuring fully and for a more complete description of the
legal terms of the restructuring, you should read carefully this entire
document, including the Annexes, and the documents to which we have referred
you. See "Where You Can Find More Information" starting on page 109.
STARWOOD HOTELS & RESORTS
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
777 WESTCHESTER AVENUE
WHITE PLAINS, NEW YORK 10604
(914) 640-8100
Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation") and Starwood
Hotels & Resorts (the "Trust" and, together with the Corporation, "Starwood
Hotels") are, together with their subsidiaries, one of the world's leading hotel
operating companies and one of the largest real estate investment trusts in the
United States, respectively. The Corporation conducts its hotel business through
its subsidiaries, including ITT Sheraton Corporation ("Sheraton") and Ciga,
S.P.A., and engages in the gaming business through its subsidiary Caesars World,
Inc. Through the Sheraton, Westin, The Luxury Collection, St. Regis, W, Ciga,
Four Points Hotels and Caesars brand names, Starwood Hotels is represented in
most major markets of the world.
The Trust owns fee, ground leasehold and mortgage loan interests in hotel
properties located throughout the United States and in Mexico and Scotland. The
Corporation leases properties from the Trust and operates them directly or
through third-party management companies. As of September 30, 1998, Starwood
Hotels owned equity interests in approximately 215 hotel properties, held
mortgage interests in eight hotel properties, operated approximately 205 hotel
properties on behalf of third-party owners and earned franchise fees by
licensing one of its brand names to approximately 235 hotel properties. Gaming
operations generally are marketed under either the Caesars or Sheraton brand
names and service marks and are currently represented in, among other areas, Las
Vegas, Atlantic City, Tunica County, Mississippi and Harrison County, Indiana,
in five foreign countries and on two cruise ships that operate in international
waters.
The common shares of beneficial interest in the Trust ("Trust Shares") and
the shares of common stock of the Corporation ("Corporation Shares") are
"paired" pursuant to a Pairing Agreement between the Trust and the Corporation
(the "Pairing Agreement") and may be held and transferred only in combined units
consisting of one Trust Share and one Corporation Share (a "Paired Share").
OUR REASONS FOR THE RESTRUCTURING
We believe the restructuring will alleviate the adverse effects of new
federal tax legislation on the operations, financial condition and competitive
position of Starwood Hotels by giving up our status as a "grandfathered paired
share REIT" to avoid restrictions on our operations imposed by the legislation.
Those restrictions as a practical matter prevent the Corporation from operating
hotels acquired in the future by either the Trust or the Corporation. We believe
those restrictions would, over time, adversely affect our competitive position
and financial condition. We also believe that of the various restructuring
alternatives considered, the proposed restructuring is the best alternative for
Starwood Hotels in light of this recent legislation.
Other alternatives we considered included:
- - modifying or terminating the pairing arrangement such that some or all of the
Trust Shares and Corporation Shares could be sold separately;
- - retaining the paired structure but leasing all newly acquired hotel properties
to a third party not affiliated with Starwood Hotels; and
- - merging the Trust and Corporation and abandoning the Trust's REIT status.
We rejected the first two alternatives mainly because of the inherent conflicts
of interest they could present due to diverging ownership interests. We rejected
the third alternative because it is less financially advantageous for holders of
Paired Shares than our proposed restructuring. These
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<PAGE> 15
alternatives, and the reasons we are recommending that you approve the
restructuring proposal, are discussed in detail under "The Restructuring --
Background of the Restructuring" starting on page 30.
OUR RECOMMENDATIONS
The Board of Trustees of the Trust (the "Trust Board") and the Board of
Directors of the Corporation (the "Corporation Board" and, together with the
Trust Board, the "Boards") believe that the restructuring is in your best
interest and unanimously recommend that you vote FOR the proposal to restructure
Starwood Hotels pursuant to the Agreement and Plan of Restructuring (as amended,
the "Restructuring Agreement"), a copy of which is attached to this Joint Proxy
Statement as Annex A, and such that:
- - the Trust will become a subsidiary of the Corporation, which will hold all
outstanding shares of the new Class A shares of beneficial interest in the
Trust having the terms described under "Description of Class A Shares"
starting on page 67 ("Class A Shares");
- - each outstanding Trust Share will be converted into one share of the new Class
B shares of beneficial interest in the Trust having the terms described under
"Description of Class B Shares" starting on page 60 (the "Class B Shares");
- - the Declaration of Trust of the Trust will be amended and restated as set
forth in Annex B hereto (which is marked to show the proposed amendments); and
- - the Pairing Agreement will be amended and restated to read as set forth in
Annex C hereto. The amended and restated Pairing Agreement will be renamed the
"Intercompany Agreement" and will provide, among other things, for the trading
of each Class B Share only as a unit with an attached Corporation Share (and
vice versa) and for the right of the Corporation to exchange for all or any
portion of the Class B Shares cash, Corporation Shares or other property in
certain circumstances.
CONSIDERATIONS RELATING TO THE RESTRUCTURING
The Boards believe that the restructuring will benefit shareholders and
stockholders by continuing to align their ownership interests in the Corporation
and the Trust, and allowing them to continue to participate in both the
ownership and operations aspects of the hotel business. The restructuring will
permit Starwood Hotels to continue its policy of expanding and diversifying its
hotel portfolio, without the adverse effects of recent tax legislation that
would limit the ability of Starwood Hotels in its current form to both own and
operate newly acquired hotels. See "The Restructuring -- Background of the
Restructuring" starting on page 30 and "-- Recommendation of the Trust Board and
the Corporation Board; Reasons for the Restructuring" starting on page 33.
As a result of the restructuring, Starwood Hotels will pay significantly
more in federal income taxes, will pay a smaller dividend, and will have the
ability to retain significantly more earnings than currently. While the Boards
believe that Starwood Hotels should be able to earn a higher after-tax return on
retained capital than the average shareholder would be able to earn if that
capital were returned to the shareholders and that, accordingly, such
shareholders would be better off financially as a result of the restructuring,
there can be no assurance of this. In addition, it is possible that there will
be new legal interpretations with respect to the restructuring that could have a
material adverse effect on Starwood Hotels. See "Risk Factors" starting on page
16.
Certain members of management and the Boards may have interests in the
restructuring that are different from the interests of holders of Paired Shares,
Class A EPS or Class B EPS generally. Holders of Class A EPS and Class B EPS
will not have any vote in elections for Trustees of the Trust or Directors of
the Corporation after the restructuring. Starwood Capital Group, L.L.C. (which
is an affiliate of Barry S. Sternlicht, the Chairman and Chief Executive Officer
of the Trust and the Chairman of the Board of the Corporation, Madison F. Grose,
a Trustee of the Trust, and Jonathan D. Eilian, a Director of the Corporation),
Goldman, Sachs & Co. (which is an affiliate of Stuart M. Rothenberg, a Trustee
of the Trust, and Barry S. Volpert, a Director of the Corporation) and certain
of their respective affiliates are significant holders of Class A EPS and Class
B EPS.
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<PAGE> 16
RISK FACTORS
Shareholders and stockholders should consider, in addition to all the other
information in this Joint Proxy Statement, the specific risk factors associated
with the restructuring discussed in the section entitled "Risk Factors" starting
on page 16. These risk factors include: the increased retention of capital by
Starwood Hotels, the increased federal income taxes that Starwood Hotels will
pay, the different rights of the holders of Class B Shares as compared to the
holders of Trust Shares, the possibility of future amendments to the Pairing
Agreement without shareholder approval, and the possibility of new or changed
legal interpretations relating to the structure to be adopted in the
restructuring that could adversely affect Starwood Hotels.
THE RESTRUCTURING
In the restructuring, a newly organized, wholly owned subsidiary of the
Corporation will merge into the Trust with the result that, among other things,
(i) each Trust Share will be converted into one Class B Share and (ii) each
outstanding common share of beneficial interest in such subsidiary (all of which
will be owned by the Corporation) will be converted into one Class A Share of
the Trust (with the result that the Trust will become a subsidiary of the
Corporation). Subject to certain conditions, holders of Class B Shares will be
entitled to receive a non-cumulative annual dividend, at an initial annual rate
of $.60 per share, to the extent the dividend is authorized by the Board of
Trustees of the Trust. The dividend may increase after 1999 pursuant to a
formula, and may not be paid under certain circumstances, as described in
"Description of Class B Shares" starting on page 60. Unless dividends for the
then current quarterly dividend period have been paid on the Class B Shares, the
Trust will not be permitted to pay a dividend on the Class A Shares (except in
certain circumstances described in "Description of Class B Shares" starting on
page 60), all of which will be initially held by the Corporation. The holders of
Class B Shares would not be entitled to vote, except upon matters materially and
adversely affecting the rights of holders of Class B Shares disproportionately
to the effect on holders of Class A Shares. Upon liquidation of the Trust,
assets of the Trust remaining after all liabilities of the Trust have been
satisfied and after the liquidation preferences of any preferred shares of
beneficial interest in the Trust have been paid in full will be distributed as
follows: first, the holders of the Class A Shares will be entitled to receive
the aggregate book value of the total equity of the Trust on December 31, 1998,
as shown on the balance sheet of the Trust filed with the SEC, less the amount
of such book value represented by the Class A EPS and the Class B EPS (at
September 30, 1998, such amount was approximately $7.0 billion); second, the
holders of Class B Shares (together with the holders of the Class A EPS and
Class B EPS) will have the right to receive 10% of any remaining assets of the
Trust; and third, the holders of the Class A Shares will have the right to
receive the remaining 90%. Each Class B Share will be attached to and trade as a
unit with the Corporation Share that had been paired with the Trust Share
converted into the Class B Share. The Corporation Shares will be unaffected by
the restructuring.
The Restructuring Agreement is attached as Annex A to this Joint Proxy
Statement. We encourage you to read the Restructuring Agreement, because it is
the legal document that governs the restructuring.
Holders of Paired Shares should not send in their stock certificates for
exchange until instructed to do so after the restructuring is completed. Even
though the Corporation Shares are unaffected by the restructuring, the
certificates representing Paired Shares are "back-to-back" certificates: the
certificate representing Corporation Shares is printed on the back of the
certificate representing the Trust Shares. Accordingly, after the restructuring,
the entire certificate must be submitted for exchange and a new "back-to-back"
certificate representing Corporation Shares and Class B Shares will be issued.
Class A EPS and Class B EPS
Holders of the Trust's Class A EPS and Class B EPS will continue to hold
their existing shares, which will remain outstanding securities of the Trust
after the restructuring. As a result of the restructuring, the Class A EPS will
become exchangeable pursuant to its terms into units consisting of one
Corporation Share and one Class B Share. The Class B EPS will continue to be
convertible into Class A EPS. In addition,
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<PAGE> 17
holders of Class A EPS and Class B EPS will be entitled to vote upon only those
matters upon which the holders of Class B Shares have the right to vote (as
described above), instead of upon those matters upon which holders of Trust
Shares currently have the right to vote. Accordingly, holders of Class A EPS and
Class B EPS will no longer have the right to vote in the election of Trustees
(or other matters submitted generally to the shareholders of the Trust). The
special voting rights of the holders of Class A EPS and Class B EPS and the
rights of the holders of Class B EPS to elect trustees in certain circumstances,
as described under the captions "Trust Preferred Shares -- Class A EPS -- Voting
Rights" on page 70 and "-- Class B EPS -- Voting Rights" on page 72, will be
unaffected.
Conditions to the Restructuring
We will complete the restructuring only if certain conditions are satisfied
or (in some cases) waived, including the following:
- - the restructuring proposal is approved by the shareholders of the Trust and
the stockholders of the Corporation;
- - there is no law, rule, regulation, executive order, decree, injunction or
other order that restrains, enjoins or otherwise prohibits consummation of the
restructuring, and no governmental authority institutes any proceeding for any
of the foregoing;
- - the relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), expires or is terminated; and
- - any material consents, approvals, orders or authorizations of or
registrations, declarations or filings with any governmental entity are
obtained, made or have occurred and are in full force and effect.
Regulatory Approvals
The Trust and the Corporation have made certain filings and taken other
actions necessary to obtain approvals from certain U.S. regulatory authorities
in connection with the Restructuring, including U.S. competition authorities.
The waiting period under the HSR Act for the restructuring will expire on
December 25, 1998, unless the Department of Justice or the Federal Trade
Commission issues a request for additional information or other documentary
materials. In addition, Starwood Hotels has made certain filings with, and taken
such other necessary actions with respect to, all relevant casino gaming
regulatory agencies in connection with the restructuring. See "The
Restructuring -- Regulatory Approvals" on page 36.
Material Federal Income Tax Consequences
Sidley & Austin, special tax counsel to Starwood Hotels, is opining that,
based on certain assumptions, statements, and factual representations, none of
the Trust, the Corporation, or our shareholders will recognize any gain or loss
for federal income tax purposes in the restructuring and that, after the
restructuring, the Trust's proposed method of operation will enable it to
continue to comply with the requirements for taxation as a REIT. See "Material
Federal Income Tax Consequences" starting on page 44 for more details.
Accounting Treatment
The restructuring will be accounted for as a reorganization of two
companies under common control. There will be no revaluation of the assets and
liabilities of the combining companies. Starwood Hotels will, however, take a
one-time charge of approximately $1 billion, primarily related to a deferred tax
liability that will result from the reorganization, as required by Statement of
Financial Accounting Standards (SFAS) No. 109.
After the restructuring, Starwood Hotels' financial statements will be
presented on a consolidated basis representing the operations of the Corporation
and its subsidiaries, including the Trust. Because the Class B Shares will be
registered under the Securities Exchange Act of 1934, as amended, it is
anticipated that separate financial statements of the Trust will continue to be
presented and filed in Starwood Hotels' annual and quarterly reports to the SEC.
No Dissenters' Rights
Under Maryland law, holders of Paired Shares, Class A EPS and Class B EPS
are not entitled to exercise appraisal rights in connection with the
restructuring, because the Paired Shares are traded on The New York Stock
Exchange and
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<PAGE> 18
because the Class A EPS and Class B EPS will continue to be shares of the Trust,
which will be the successor in the merger, after the restructuring.
Listing and Trading of Class B Shares
The Class B Shares will be listed on The New York Stock Exchange and traded
together as a unit with the Corporation Shares in the same way that the Trust
Shares and Corporation Shares are now listed and traded.
Termination of the Restructuring Agreement
The Restructuring Agreement may be terminated at any time prior to the
completion of the restructuring, whether before or after any approval of the
matters presented in connection with the restructuring by the shareholders of
the Trust or the stockholders of the Corporation, (i) by mutual written consent
of the Trust and the Corporation; (ii) by either the Trust or the Corporation if
there has been a material breach of the representations and warranties,
covenants and agreements on the part of the other set forth in the Restructuring
Agreement, which breach has not been cured within twenty business days following
receipt by the breaching party of notice of such breach from the non-breaching
party; (iii) by either the Trust or the Corporation if any court or other
governmental entity shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other order or
taken any other action permanently enjoining, restraining or otherwise
prohibiting or making illegal the restructuring and such law, rule, regulation,
executive order, decree, injunction or other order or other action shall have
become final and nonappealable; (iv) by either the Trust or the Corporation if
the restructuring has not been consummated before June 30, 1999, unless the
failure to consummate the restructuring is the result of a material breach of
the Restructuring Agreement by the party seeking to terminate the Restructuring
Agreement; (v) by either the Trust or the Corporation if the shareholders of the
Trust do not approve the restructuring proposal at the Trust Meeting; or (vi) by
either the Trust or the Corporation if the stockholders of the Corporation do
not approve the restructuring proposal at the Corporation Meeting.
MATERIAL DIFFERENCES IN RIGHTS OF HOLDERS OF TRUST SHARES AND CLASS B SHARES
Holders of Class B Shares will be entitled to receive a non-cumulative
annual dividend initially fixed at $.60 per share, as described above, to the
extent authorized by the Trust Board and subject to certain conditions and the
rights of the holders of Class A EPS and Class B EPS (whose dividend rights will
not change, except that they will have the right to participate in dividends
authorized on the Class B Shares, rather than in dividends authorized on the
Trust Shares), while holders of Trust Shares are entitled to receive, subject to
the rights of the holders of Class A EPS and Class B EPS, dividends in any
amount authorized by the Trust Board. The new dividend may increase after 1999
pursuant to a formula, and may not be paid under certain circumstances. After
the restructuring, upon liquidation of the Trust, assets of the Trust remaining
after all liabilities of the Trust have been satisfied and after the liquidation
preferences of any preferred shares of beneficial interest in the Trust have
been paid in full would be distributed as follows: first, the holders of the
Class A Shares will be entitled to receive the aggregate book value of the total
equity of the Trust on December 31, 1998, as shown on the balance sheet of the
Trust filed with the SEC, less the amount of such book value represented by the
Class A EPS and the Class B EPS (at September 30, 1998, such amount was
approximately $7.0 billion); second, the holders of Class B Shares (together
with holders of Class A EPS and Class B EPS) will be entitled to receive 10% of
any remaining assets of the Trust; and third, the holders of the Class A Shares
will be entitled to receive the remaining 90%. Holders of Trust Shares (together
with holders of Class A EPS and Class B EPS) are currently entitled to receive
all assets legally available for distribution on liquidation of the Trust, after
the payment of preferences to holders of Class A EPS and Class B EPS. Holders of
Class B Shares will not be entitled to vote, including to vote in the election
of Trustees, except upon matters materially and adversely affecting the rights
of holders of Class B Shares disproportionately to the effect on holders of
Class A Shares, while holders of Trust Shares currently have the right to vote
on all matters submitted generally to the shareholders at meet-
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<PAGE> 19
ings of the shareholders of the Trust, including in the election of Trustees.
The Corporation will also have the right to exchange the Class B Shares
upon certain conditions, while currently the Corporation and the Trust have no
right to exchange, redeem or convert any Trust Shares (except with regard to the
Ownership Limit and gaming licenses, as described below).
STRUCTURE OF STARWOOD HOTELS PRIOR TO THE RESTRUCTURING
Currently, the structure of Starwood Hotels is as follows:
[CHART: Structure of Starwood Hotels Prior to the Restructuring]
Starwood Hotels 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 they trade as a single unit. The Class A EPS, the Class B EPS and
the limited partnership units (the "Partnership Units") of SLT Realty Limited
Partnership (the "Realty Partnership") and SLC Operating Limited Partnership
(the "Operating Partnership" and, together with the Realty Partnership, the
"Partnerships") are (subject to the ownership limitation provisions of the Trust
and the Corporation) exchangeable (directly or indirectly) for, at the option of
the Trust and the Corporation, either cash, Paired Shares representing up to
approximately 11% of the outstanding Paired Shares after such exchange, or a
combination of cash and Paired Shares.
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<PAGE> 20
STRUCTURE OF STARWOOD HOTELS AFTER THE RESTRUCTURING
In the restructuring, a newly organized, wholly owned subsidiary of the
Corporation will merge into the Trust (the "Merger") with the result that:
- the Trust will be the surviving entity;
- the Corporation will own all the newly created outstanding Class A Shares
of the Trust; and
- the current holders of Paired Shares will own all the newly created
outstanding Class B Shares of the Trust.
Each Class B Share will be attached to and trade as a unit (a "Unit") with the
Corporation Share that had been paired with the Trust Share converted into the
Class B Share.
After the restructuring, the structure of Starwood Hotels will be as
follows:
[CHART: Structure of Starwood Hotels After the Restructuring]
Because the Class B Shares will not have voting rights (except to the
limited extent described in "Description of Class B Shares" below), the
Corporation will have 100% voting control over the Trust through its ownership
of the Class A Shares. The Class A EPS and Class B EPS will remain outstanding,
but will be entitled to vote upon all matters upon which the Class B Shares will
have the right to vote, instead of upon all matters upon which Trust Shares
currently have the right to vote. Accordingly, holders of Class A EPS and Class
B EPS will no longer have the right to vote in the election of Trustees (or
other matters submitted generally to the shareholders of the Trust). The special
voting rights of the holders of Class A EPS and Class B EPS and the rights of
the holders of Class B EPS to elect trustees in certain circumstances, all as
described under the captions "Trust Preferred Shares -- Class A EPS -- Voting
Rights" and "-- Class B EPS -- Voting Rights," would be unaffected.
The Class A EPS, the Class B EPS and the Partnership Units will be (subject
to the ownership limitation provisions of the Trust and the Corporation)
exchangeable (directly or indirectly) for, at the option of the Trust and the
Corporation, either cash, Units representing up to approximately 11% of the
outstanding Units after such exchange, or a combination of cash and Units.
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<PAGE> 21
OTHER MATTERS TO BE VOTED UPON
AT THE MEETINGS
At the Trust Meeting, in addition to the restructuring proposal,
shareholders of the Trust will consider and vote upon the proposed amendment and
restatement ("the Trust LTIP Amendment and Restatement") of the 1995 Long-Term
Incentive Plan of the Trust, and the election of three Trustees to the Trust
Board. At the Corporation Meeting, in addition to the restructuring proposal,
stockholders of the Corporation will consider and vote upon the proposed
amendment and restatement ("the Corporation LTIP Amendment and Restatement") of
the 1995 Long-Term Incentive Plan of the Corporation, and the election of four
Directors to the Corporation Board. Both the Trust LTIP Amendment and
Restatement and the Corporation LTIP Amendment and Restatement will change the
periods during which awards under the respective plan may be exercised after
termination of employment. In addition, the Corporation LTIP Amendment and
Restatement will include under the Corporation plan certain grants of options
made to Richard D. Nanula in connection with the commencement of his employment
by the Corporation.
The Trust Board unanimously recommends that you vote FOR the Trust LTIP
Amendment and Restatement and FOR each of the nominees for Trustee named under
"Election of Trustees." The Corporation Board also unanimously recommends that
you vote FOR the Corporation LTIP Amendment and Restatement and FOR each of the
nominees for Director named under "Election of Directors."
THE ANNUAL MEETINGS
Record Date
You are entitled to vote at the Trust's 1998 Annual Meeting of Shareholders
(the "Trust Meeting") if you owned Trust Shares, Class A EPS or Class B EPS at
the close of business on November 20, 1998 (the "Record Date"). You will have
one vote for each Trust Share, share of Class A EPS or share of Class B EPS you
owned on the Record Date for the restructuring proposal, the Trust LTIP
Amendment and Restatement and for each of the three nominees for election as
Trustees.
You are entitled to vote at the Corporation's 1998 Annual Meeting of
Stockholders (the "Corporation Meeting") if you owned Corporation Shares at the
close of business on the Record Date. You will have one vote for each
Corporation Share you owned on the Record Date for the restructuring proposal,
the Corporation LTIP Amendment and Restatement and for each of the four nominees
for election as Directors.
On the Record Date, there were 175,521,662 Trust Shares and Corporation
Shares (which trade together as Paired Shares), 4,376,000 Class A EPS and
3,860,757 Class B EPS outstanding.
Votes Required
The favorable vote of the holders of a majority of the outstanding Trust
Shares, Class A EPS and Class B EPS (voting together as a single class) and of a
majority of the Corporation Shares is required to approve the restructuring
proposal.
The favorable vote of a majority of the Trust Shares, Class A EPS and Class
B EPS voted at the Trust Meeting is required to approve the Trust LTIP Amendment
and Restatement, provided that the total vote cast on such proposal represents
over 50% in interest of all securities entitled to vote on such proposal. The
favorable vote of a majority of the Corporation Shares voted at the Corporation
Meeting is required to approve the Corporation LTIP Amendment and Restatement,
provided that the total vote cast on such proposal represents over 50% in
interest of all securities entitled to vote on such proposal.
Trustees and Directors are elected by a plurality of the votes cast at the
applicable meeting.
Share Ownership of Management
On the Record Date, Trustees and executive officers of the Trust owned and
were entitled to vote 191,073 Trust Shares, 1,749 Class A EPS and 1,474 Class B
EPS, and Mr. Sternlicht had voting control over entities owning 377,069 Trust
Shares, 2,179,187 Class A EPS and 1,835,622 Class B EPS, collectively
representing approximately 2.5% of the voting power of the outstanding shares of
the Trust on the Record Date. On the Record Date, Directors and executive
officers of the Corporation owned and were entitled to vote 815,801 Corporation
Shares, and Mr. Sternlicht had voting control over entities owning 377,069
Corporation Shares, collectively representing approximately 0.7% of the shares
of common stock of the Corporation outstanding on the Record Date.
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STARWOOD HOTELS SUMMARY SELECTED FINANCIAL DATA
We are providing the following summary selected historical and pro forma
financial information to aid you in your analysis of the financial aspects of
the restructuring. The following tables set forth selected consolidated combined
historical and consolidated pro forma financial information for Starwood Hotels.
After the restructuring, the Corporation will hold all of the outstanding shares
of the new Class A Shares. As a result, the Corporation will have a controlling
interest in the Trust and significant influence over its operations. As such,
the consolidated financial statements for Starwood Hotels will include the
accounts of the Trust, as presented herein.
The following information should be read in conjunction with (i) the
historical financial statements and notes thereto for Starwood Hotels and
Management's Discussion and Analysis of Combined Financial Condition and Results
of Operations, which are included in Starwood Hotels' Joint Annual Report on
Form 10-K for the year ended December 31, 1997 (the "1997 10-K") and Starwood
Hotels' Joint Quarterly Reports on Form 10-Q for the periods ended March 31,
1998, June 30, 1998 and September 30, 1998 (the "1998 Quarterly Reports"), (ii)
Starwood Hotels' Joint Current Report on Form 8-K dated February 23, 1998 (the
"February 23 8-K"), (iii) the financial statements and notes thereto for ITT
Corporation ("ITT") and Management's Discussion and Analysis of Financial
Condition and Results of Operations which are included in ITT's Annual Reports
on Form 10-K for the years ended December 31, 1996, 1995, 1994 and 1993 and (iv)
the financial statements and notes thereto for ITT that are included in the
February 23 8-K. Pro forma financial information relating to Starwood Hotels'
acquisitions of ITT and Westin Hotels & Resorts Worldwide, Inc. ("Westin
Worldwide") and certain affiliated entities (the "Westin Subsidiaries" and,
together with Westin Worldwide, "Westin") is contained herein and in the
February 23 8-K. Because the acquisition of ITT (the "ITT Merger") was accounted
for using reverse purchase accounting, the historical financial information of
Starwood Hotels as of December 31, 1997, 1996, 1995, 1994 and 1993 and for the
years then ended is the historical financial information of ITT. For further
discussion of the ITT Merger, see "ITT Merger Accounting Treatment" below. The
historical financial information as of September 30, 1998 and for the nine
months then ended is the historical financial information of ITT for the nine
months ended September 30, 1998, and of the Trust and the Corporation, including
Westin, for the period from the ITT Merger (February 23, 1998) to September 30,
1998. The historical financial information as of September 30, 1997 and for the
nine months ended September 30, 1997 is the historical financial results of ITT
as a result of the reverse purchase accounting for the ITT Merger. The
historical financial information described above has been derived from the
audited financial statements for the years ended December 31, 1997, 1996, 1995,
1994 and 1993 and the unaudited financial statements for the nine months ended
September 30, 1997 that are incorporated by reference herein. In the opinion of
management of Starwood Hotels, the financial data as of September 30, 1998 and
1997 and for the nine months ended September 30, 1998 and 1997 include all
adjustments necessary to present fairly the information set forth therein.
The pro forma operating and other data for the nine months ended September
30, 1998 and for the year ended December 31, 1997 have been prepared as if the
ITT Merger, the acquisition of Westin (the "Westin Acquisition") and the
Restructuring had been completed on January 1, 1997. The pro forma financial
information is not necessarily indicative of what the actual financial position
and results of operations of Starwood Hotels would have been as of and for the
periods indicated, nor does it purport to represent Starwood Hotels' future
financial position and results of operations. See "Selected Financial
Information" and "Where You Can Find More Information."
ITT MERGER ACCOUNTING TREATMENT
Starwood Hotels accounted for the ITT Merger as a reverse purchase in
accordance with Accounting Principles Board Opinion No. 16. Purchase accounting
for a combination is similar to the accounting treatment used in the acquisition
of any asset group. Although the Trust and the Corporation issued Paired Shares
to ITT stockholders and survived the ITT Merger, the Trust and the Corporation
are considered the acquired companies for accounting purposes since the prior
ITT stockholders held a majority of the outstanding Paired Shares after the ITT
Merger was consummated. The fair market value of the Paired
13
<PAGE> 23
Shares outstanding and available upon conversion of the Partnership Units held
by the Starwood Hotels' stockholders prior to the ITT Merger and the Partnership
Unit holders, respectively (using the stock price of $54.31 per Paired Share,
based on the average of the high and low prices per Paired Share of Starwood
Hotels as reported on The New York Stock Exchange ("NYSE") on November 12,
1997), is used as the valuation basis for the combination. The fair market value
of the Paired Shares outstanding of Starwood Hotels at February 23, 1998 (the
ITT Merger closing date) in excess of the net book value of the assets and
liabilities of Starwood Hotels is allocated to plant, property and equipment and
goodwill on a preliminary basis. The goodwill is being amortized over a 40-year
period. The allocation of the excess of fair market value of the assets and
liabilities will be finalized when Starwood Hotels completes its evaluation of
the assets acquired and liabilities assumed. The calculation of the excess of
the fair market value of the Paired Shares over the book value of Starwood
Hotels' assets and liabilities at February 23, 1998 is as follows (in millions):
<TABLE>
<S> <C>
Total Paired Shares and Partnership Units outstanding prior
to the ITT Merger......................................... 80
Fair market value of Starwood Hotels' stock using the stock
price of $54.31 (based on the average of the high and low
prices per Paired Share of Starwood Hotels as reported on
the NYSE on November 12, 1997)............................ $ 4,350
Book value of Starwood Hotels' combined consolidated
equity.................................................... (1,775)
Transaction-related fees.................................... 37
Minority interest related to the Partnerships............... (152)
-------
Excess of fair market value of Paired Shares over the book
value of net assets....................................... $ 2,460
=======
</TABLE>
Because the acquisition of ITT is treated as a reverse purchase for
financial accounting purposes, the statements of income, comprehensive income
and cash flows for the nine months ended September 30, 1998 include the accounts
of the Trust and the Corporation for the period from the closing of the ITT
Merger on February 23, 1998 through September 30, 1998 and the accounts of ITT
for the nine months ending September 30, 1998. Historical stockholders' equity
of Starwood Hotels prior to the ITT Merger is retroactively restated for the
equivalent number of shares received in the ITT Merger after giving effect to
the difference in par value between Starwood Hotels' and ITT's stock. Unless
otherwise indicated, all references herein to the number of Paired Shares and
per share amounts have been restated to reflect the impact of the reverse
acquisition at the conversion factor of 1.543.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues........................ $6,646 $6,296 $4,237 $7,134 $5,899 $5,718 $5,396 $3,876 $3,184
Income (Loss) from continuing
operations.................... $ (48) $ (3) $ 321 $ (283) $ (270) $ 226 $ 161 $ 44 $ (38)
Income (Loss) from continuing
operations per Paired Share... $ (.28) $ (.10) $ 2.55 $(1.52) $(2.13) $ 1.81 $ 1.27 $ .35 $ (.30)
</TABLE>
14
<PAGE> 24
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------
PRO AS OF DECEMBER 31,
FORMA ------------------------------------------
1998 1998 1997 1997 1996 1995 1994 1993
------- ------- ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets.......................... $15,763 $16,227 $8,592 $8,525 $8,922 $8,225 $4,873 $3,629
Total Debt, including capital
leases.............................. $ 7,683 $ 8,418 $1,749 $1,968 $2,331 $2,011 $ 744 $ 297
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
--------------- -----------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ----- ----- ----- ------- ------- -----
(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..... $ 28 $ 183 $ 146 $ 420 $ 444 $ 164 $ 67
Net cash provided by (used in) investing
activities.................................. $ 1,917 $ 602 $ 288 $(595) $(2,606) $(1,450) $(332)
Net cash provided by (used in) financing
activities.................................. $(1,886) $(552) $(426) $ 250 $ 2,024 $ 610 $ 392
Cash distributions per share.................. $ 1.56 $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
15
<PAGE> 25
RISK FACTORS
Stockholders and shareholders of Starwood Hotels, in considering whether to
approve the restructuring proposal, should consider, in addition to the other
information in this Joint Proxy Statement, the matters discussed in this
Section.
This Joint Proxy Statement contains or incorporates statements that
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements appear in a number of
places in this Joint Proxy Statement, including, without limitation, under
"Summary," "Risk Factors," "Starwood Hotels & Resorts Worldwide Inc. Selected
Financial Information" and "The Restructuring," and may include, among others,
statements regarding the intent, belief or current expectations of Starwood
Hotels or its Directors, Trustees or officers with respect to the matters
discussed in this Joint Proxy Statement. Shareholders and stockholders 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, 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
below and in the annual, quarterly and current reports of Starwood Hotels
incorporated by reference herein, including those identified in Starwood Hotels'
Joint Annual Report on Form 10-K for the year ended December 31, 1997. See
"Where You Can Find More Information" starting on page 109.
RETENTION OF CAPITAL
As a result of the proposed restructuring, Starwood Hotels would change
from an enterprise that pays a relatively large dividend (a rate of
approximately $2.08 per share per annum based on the first three quarters of
1998) to an enterprise that, while paying significantly more in federal income
taxes, would pay a substantially smaller dividend beginning in the fourth
quarter of 1998 (a rate of approximately $.60 per share per annum for 1999 on a
pro forma basis) and therefore would retain significantly more capital in the
enterprise. As described under "The Restructuring -- Recommendation of the Trust
Board and the Corporation Board; Reasons for the Restructuring" starting on page
33, the Boards believe that Starwood Hotels should be able, through investing in
its business, to earn a higher after-tax return on that retained capital than
the average shareholder would be able to earn if that capital were returned to
the shareholders and that accordingly, such shareholders of Starwood Hotels
would be financially better off as a result of the restructuring, although there
can be no assurance of this. If, however, Starwood Hotels were not able to earn
such a return, then the restructuring could be financially disadvantageous to
Starwood Hotels' shareholders.
ADOPTION OF ADDITIONAL LEGISLATION, REGULATIONS OR INTERPRETATIONS
The United States Congress recently enacted tax legislation that adversely
affects the ability of Starwood Hotels to acquire additional hotel properties
because of the Trust's status as a "real estate investment trust" (a "REIT")
under the federal tax code and the existing "paired share" structure of Starwood
Hotels. While the Trust and the Corporation believe that the proposed
restructuring of the two companies will alleviate the adverse effects of the new
legislation, that the restructuring is the best alternative in light of such
legislation and that the new structure of Starwood Hotels does not raise the
same concerns that led Congress to enact such legislation, no assurance can be
given that additional legislation, regulations or administrative interpretations
will not be adopted that could eliminate or reduce certain benefits of the
restructuring and have a material adverse effect on the results of operations,
financial condition and prospects of Starwood Hotels.
16
<PAGE> 26
CHANGE IN NATURE OF INVESTMENT IN THE TRUST
Currently, holders of Trust Shares are entitled to receive dividends as
authorized by the Trust Board. They (together with the holders of Class A EPS
and Class B EPS) are also entitled to receive all assets available for
distribution upon any liquidation of the Trust, after the payment of preferences
to the holders of Class A EPS and Class B EPS. After the restructuring, these
same holders, as holders of Class B Shares, will be entitled to receive a
non-cumulative dividend initially fixed at $.60 per share annually, to the
extent authorized by the Trust Board. The dividend may increase after 1999
pursuant to a formula, and may not be paid under certain circumstances.
Generally, the Trust may not pay a dividend on the Class A Shares unless it has
first paid the dividend on the Class B Shares. However, in certain cases, such
as to comply with the terms of a credit or other borrowing agreement, the Trust
Board may declare a dividend on the Class A Shares without paying a dividend on
the Class B Shares. Upon liquidation of the Trust, assets of the Trust remaining
after all liabilities of the Trust have been satisfied and after the liquidation
preferences of any preferred shares of beneficial interest in the Trust have
been paid in full will be distributed as follows: first, the holders of the
Class A Shares will be entitled to receive the aggregate book value of the total
equity of the Trust on December 31, 1998, as shown on the balance sheet of the
Trust filed with the SEC, less the amount of such book value represented by the
Class A EPS and the Class B EPS (at September 30, 1998, such amount was
approximately $7.0 billion); second, the holders of Class B Shares (together
with the holders of Class A EPS and Class B EPS) will have the right to receive
10% of any remaining assets of the Trust; and third, the holders of the Class A
Shares will have the right to receive the remaining 90%.
In addition, the Trust Shares, Class A EPS and Class B EPS combined
currently represent 100% of the value and voting control of the Trust. After the
restructuring, the Class B Shares, Class A EPS and Class B EPS will represent
less than 50% of the value of the Trust, and none of the voting control (except
on certain matters as described under the captions "Description of Class B
Shares -- Voting Rights" on page 62, "Trust Preferred Shares -- Class A
EPS -- Voting Rights" on page 70 and "-- Class B EPS -- Voting Rights" on page
72). The remaining interest and voting control of the Trust will vest in the
Class A Shares, which will be owned by the Corporation. The direct voting
control of the holders of Class B Shares will be diluted in that such holders
will have indirect control over the Trust through their concurrent ownership of
the Corporation Shares, but they will no longer have direct voting control over
the Trust. There will be no restriction set forth in the terms of the Class B
Shares on the ability of the Corporation to sell or otherwise dispose of the
Class A Shares.
POSSIBILITY OF FUTURE AMENDMENTS TO THE PAIRING AGREEMENT
After the Pairing Agreement is amended, restated and renamed the
"Intercompany Agreement," the Boards may amend the Pairing Agreement at any time
without the consent of the holders of Class B Shares or Corporation Shares. An
amendment to the Pairing Agreement will require approval of the holders of Class
B Shares only if the amendment would materially and adversely affect the rights
of the holders of Class B Shares under the exchange provisions of the Pairing
Agreement, explained under "Description of Class B Shares -- Exchange Rights"
starting on page 62. Any other amendments, including any other amendment that
might materially and adversely affect the rights of holders of Class B Shares
under provisions other than the exchange provisions, can take effect with
approval only of the Boards.
EFFECT OF ADVERSE CONDITIONS ON CERTAIN FORWARD LOOKING STATEMENTS
Certain forward-looking statements previously made by Starwood Hotels
following the announcement of the Restructuring have been updated due to
uncertainties related to, among other things, adverse financial market
conditions (including conditions in the high-yield debt markets) and consequent
delays in refinancing Starwood Hotels' indebtedness (thereby delaying reductions
in Starwood Hotels' interest expense), delays in the completion of asset sales
(which would have permitted Starwood Hotels to repay a portion of its
indebtedness, thereby also reducing its interest expense), lower expected levels
of external growth and current forecasts of global economic conditions
(particularly in the Asia-Pacific region). See "The Restructuring -- Certain
Forward Looking Statements" starting on page 35.
17
<PAGE> 27
THE ANNUAL MEETINGS
This Joint Proxy Statement is being furnished to shareholders of the Trust
and stockholders of the Corporation in connection with the solicitation of
proxies (i) from the Trust shareholders by the Trust Board for use at the Trust
Meeting and (ii) from the Corporation stockholders by the Corporation Board for
use at the Corporation Meeting.
DATE, TIME AND PLACE
The Trust Meeting and the Corporation Meeting are to be held on January 6,
1999 at 10:00 a.m. (local time), and immediately after the Trust Meeting,
respectively, at the Caribbean Ballroom of the Sheraton Bal Harbour, 9701
Collins Avenue, Bal Harbour, Florida.
MATTERS TO BE CONSIDERED
At the Trust Meeting, the shareholders of the Trust will consider and vote
upon
- a proposal (the "Restructuring Proposal") to restructure (the
"Restructuring") Starwood Hotels pursuant to the Restructuring Agreement,
and pursuant to which proposal, among other things, (i) a newly
organized, wholly owned subsidiary of the Corporation will merge into the
Trust, with the Trust surviving as a subsidiary of the Corporation, which
will hold all outstanding Class A Shares; (ii) each outstanding Trust
Share will be converted into one Class B Share; (iii) the Declaration of
Trust of the Trust will be amended and restated as set forth in Annex B
hereto (which is marked to show the proposed amendments); and (iv) the
Pairing Agreement between the Trust and the Corporation will be amended
and restated to read as set forth in Annex C hereto;
- the Trust LTIP Amendment and Restatement;
- the election of three Trustees to the Board of Trustees of the Trust; and
- such other business as may properly come before the Trust Meeting.
The Trust Board is not aware of any matter that will be presented at the
Trust Meeting other than as described above. 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, Class A EPS or Class B EPS, as applicable, for which such persons have
voting authority in accordance with their best judgment on such matter.
At the Corporation Meeting, the stockholders of the Corporation will
consider and vote upon
- the Restructuring Proposal;
- the Corporation LTIP Amendment and Restatement;
- the election of four directors to the Board of Directors of the
Corporation; and
- such other business as may properly come before the Corporation Meeting.
The Corporation Board is not aware of any matter that will be presented at
the Corporation Meeting other than as described above. If any other matter is
presented at the Corporation Meeting, the persons named as proxies on the
enclosed proxy card will, in the absence of stockholder instructions to the
contrary, vote the Corporation Shares for which such persons have voting
authority in accordance with their best judgment on such matter.
VOTING RIGHTS; VOTE REQUIRED
The Trust. The Trust Board has fixed the close of business on November 20,
1998 as the record date (the "Record Date") for determining the shareholders of
the Trust entitled to notice of, and to vote at, the Trust Meeting. On the
Record Date there were outstanding and entitled to vote 175,521,662 Trust Shares
held of record by approximately 38,000 persons, 4,376,000 Class A EPS held of
record by
18
<PAGE> 28
approximately fifteen persons and 3,860,757 Class B EPS held of record by
approximately fifteen persons. The Trust Shares, Class A EPS and Class B EPS are
the only outstanding classes of voting securities of the Trust as of the Record
Date. Each holder of Trust Shares, Class A EPS or Class B EPS will be entitled
to one vote for each Trust Share, share of Class A EPS or share of Class B EPS
held of record by such shareholder on the Record Date on each matter that may be
properly submitted to a vote at the Trust Meeting. Shareholders of the Trust do
not have the right to cumulate votes in the election of Trustees.
A majority of the outstanding Trust Shares, Class A EPS and Class B EPS
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 Record Date, Trustees and executive officers of the Trust as a
group had the right to vote an aggregate of 191,073 Trust Shares, 1,749 Class A
EPS and 1,474 Class B EPS, and Mr. Sternlicht had voting control over entities
owning 377,069 Trust Shares, 2,179,187 Class A EPS and 1,835,622 Class B EPS,
collectively representing approximately 2.5% of the aggregate voting power of
all the shares of the Trust outstanding on such date. 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 Restructuring Proposal and the Trust LTIP
Amendment and Restatement and in favor of the election of the nominees for
Trustee named herein.
The affirmative vote of a majority of all the votes entitled to be cast on
the matter is required for approval of the Restructuring Proposal at the Trust
Meeting. For purposes of the vote on the Restructuring Proposal, abstentions and
broker non-votes will have the same effect as votes against such proposal,
although they will count toward the presence of a quorum. The affirmative vote
of a majority of the votes cast on the proposal is required for approval of the
Trust LTIP Amendment and Restatement, provided that the total vote cast on such
proposal represents over 50% in interest of all securities entitled to vote on
such proposal. For purposes of the vote on the Trust LTIP Amendment and
Restatement, an abstention or a broker non-vote will have the effect of a vote
cast against the proposal, unless holders of more than 50% in interest of all
securities entitled to vote on the proposal cast votes, in which event neither
an abstention nor a broker non-vote will have any effect on the result of the
vote. Trustees are elected by a plurality of the votes actually cast.
Accordingly, shares that are not voted with respect to the election of Trustees
will not have any effect on the outcome of the election of Trustees.
The Corporation. The Board of Directors has fixed the close of business on
the Record Date as the record date for determining the stockholders entitled to
notice of, and to vote at, the Corporation Meeting. On the Record Date there
were outstanding and entitled to vote 175,521,662 Corporation Shares held of
record by approximately 38,000 persons. The Corporation Shares are the only
outstanding class of voting securities of the Corporation and each stockholder
of the Corporation will be entitled to one vote for each Corporation Share held
of record by such stockholder on the Record Date on each matter that may be
properly submitted to a vote at the Corporation Meeting. Stockholders of the
Corporation do not have the right to cumulate votes in the election of
Directors.
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 Record Date, Directors and executive officers of the Corporation
as a group had the right to vote an aggregate of 815,801 Corporation Shares, and
Mr. Sternlicht had voting control over entities owning 377,069 Corporation
Shares, collectively representing approximately 0.7% of the Corporation Shares
outstanding on such date. 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 Restructuring Proposal and the Corporation LTIP Amendment and
Restatement and in favor of the election of the nominees for Director named
herein.
19
<PAGE> 29
The affirmative vote of a majority of all the votes entitled to be cast on
the matter is required for approval of the Restructuring Proposal at the
Corporation Meeting. For purposes of the vote on the Restructuring Proposal,
abstentions and broker non-votes will have the same effect as votes against such
proposal, although they will count toward the presence of a quorum. The
affirmative vote of a majority of the votes cast on the proposal is required for
approval of the Corporation LTIP Amendment and Restatement, provided that the
total vote cast on such proposal represents over 50% in interest of all
securities entitled to vote on such proposal. For purposes of the vote on the
Corporation LTIP Amendment and Restatement, an abstention or a broker non-vote
will have the effect of a vote cast against the proposal, unless holders of more
than 50% in interest of all securities entitled to vote on the proposal cast
votes, in which event neither an abstention nor a broker non-vote will have any
effect on the result of the vote. Directors are elected by a plurality of the
votes actually cast. Accordingly, shares that are not voted with respect to the
election of Directors will not have any effect on the outcome of the election of
Directors.
PROXIES
The Trust. Each Trust Share, share of Class A EPS and share of Class B EPS
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, Class A EPS and Class B EPS will
be voted FOR the approval of the Restructuring Proposal, FOR the Trust LTIP
Amendment and Restatement and FOR the election of the nominees for Trustee named
herein.
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, the Trust Meeting may be adjourned with the vote of a majority of the
shares the holders of which are present in person or by proxy. If the Trust
Board proposes to adjourn the Trust Meeting, the persons named as proxies on the
enclosed proxy card will have discretion to vote on such adjournment all Trust
Shares for which such persons have voting authority. It is intended that such
persons will vote on any such matter in accordance with the recommendation of
the Trust Board.
A shareholder of the Trust may revoke a proxy at any time prior to exercise
of such proxy by (i) filing with the Secretary of the Trust an instrument of
revocation bearing a date later than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same Trust Shares, Class A EPS or Class B EPS
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, 777 Westchester Avenue,
White Plains, New York 10604, Attention: Secretary.
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 Restructuring
Proposal, FOR the Corporation LTIP Amendment and Restatement and FOR the
election of the nominees for Director named herein.
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, the Corporation Meeting may be adjourned by the
stockholders entitled to vote thereat present in person or by proxy. If the
Corporation Board proposes to adjourn the Corporation Meeting, the persons named
as proxies on the enclosed proxy card will have discretion to vote on such
adjournment all Corporation Shares for which such persons have voting authority.
It is intended that such persons will vote on any such matter in accordance with
the recommendation of the Corporation Board.
A stockholder of the Corporation may revoke a proxy at any time prior to
exercise of such proxy by (i) filing with the Secretary of the Corporation an
instrument of revocation bearing a date later than the
20
<PAGE> 30
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., 777 Westchester Avenue, White
Plains, New York 10604, Attention: Secretary.
SOLICITATION OF PROXIES
The expenses of this solicitation of proxies by the Trust Board and the
Corporation Board, including the costs of preparing and mailing this Joint Proxy
Statement, will be borne by the Trust and the Corporation. In addition to
solicitation by use of the mails, proxies may be solicited in person or by
telephone, telegram or other appropriate means of communication by Trustees,
Directors, officers and employees of the Trust or the Corporation. 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 $17,500 plus reimbursement of reasonable out-of-pocket expenses. The
Trust and the Corporation will reimburse persons holding Paired Shares 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. All the foregoing fees and expenses will be paid or reimbursed in
equal parts by the Trust and the Corporation.
INDEPENDENT ACCOUNTANTS
A representative of Arthur Andersen LLP ("Arthur Andersen"), the
independent public accountants for 1998 for the Trust and the Corporation, is
expected to be present at the Trust Meeting and the Corporation Meeting, will
have an opportunity to make a statement if so desired and will be available to
respond to appropriate questions.
On April 24, 1998, Starwood Hotels dismissed Coopers & Lybrand LLP
("Coopers & Lybrand") as the independent public accountants for Starwood Hotels
and retained Arthur Andersen as its new public accountants. Arthur Andersen had
been the auditors of ITT and Westin Worldwide and certain of its affiliates
prior to the acquisition of such companies by Starwood Hotels. The Audit
Committee of the Trust Board and the Audit Committee of the Corporation Board
participated in and approved the decision to change independent accountants.
The reports of Coopers & Lybrand on the financial statements of Starwood
Hotels for the past two fiscal years contain no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with Coopers & Lybrand's audits for
Starwood Hotels' two most recent fiscal years and through April 24, 1998, there
have been no disagreements with Coopers & Lybrand on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which disagreements if not resolved to the satisfaction of Coopers &
Lybrand would have caused them to make reference thereto in their report on the
financial statements for such years. During Starwood Hotels' two most recent
fiscal years and through April 24, 1998, there has been no "reportable event"
which would have required disclosure herein under applicable rules of the SEC.
21
<PAGE> 31
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
SELECTED FINANCIAL INFORMATION
We are providing the following selected historical and pro forma financial
information to aid you in your analysis of the financial aspects of the
Restructuring. The following tables set forth selected consolidated combined
historical and consolidated pro forma financial information for Starwood Hotels.
The following information should be read in conjunction with (i) the historical
financial statements and notes thereto for Starwood Hotels and Management's
Discussion and Analysis of Combined Financial Condition and Results of
Operations, which are included in the 1997 10-K and the 1998 Quarterly Reports,
(ii) the February 23 8-K, (iii) the financial statements and notes thereto for
ITT and Management's Discussion and Analysis of Financial Condition and Results
of Operations, which are included in ITT's Annual Reports on Form 10-K for the
years ended December 31, 1996, 1995, 1994 and 1993 and (iv) the financial
statements and notes thereto for ITT that are included in the February 23 8-K.
Pro forma financial information relating to Starwood Hotels' acquisitions of ITT
and Westin is contained herein and in the February 23 8-K. Because the ITT
Merger was accounted for using reverse purchase accounting, the historical
financial information of Starwood Hotels as of December 31, 1997, 1996, 1995,
1994 and 1993 and for the years then ended is the historical financial
information of ITT. The historical financial information as of September 30,
1998 and for the nine months then ended is the historical financial information
of ITT for the nine months ended September 30, 1998, and of the Trust and the
Corporation, including Westin, for the period from the ITT Merger (February 23,
1998) to September 30, 1998. The historical financial information as of
September 30, 1997 and for the nine months ended September 30, 1997 is the
historical financial results of ITT as a result of the reverse purchase
accounting for the ITT Merger. The historical financial information described
above has been derived from the audited financial statements for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 and the unaudited financial
statements for the nine months ended September 30, 1997 that are incorporated by
reference herein. In the opinion of management of Starwood Hotels, the financial
data as of September 30, 1998 and 1997 and for the nine months ended September
30, 1998 and 1997 include all adjustments necessary to present fairly the
information set forth therein.
The pro forma operating and other data for the nine months ended September
30, 1998 and for the year ended December 31, 1997 have been prepared as if the
ITT Merger, the Westin Acquisition and the Restructuring had been completed on
January 1, 1997. The pro forma financial information is not necessarily
indicative of what the actual financial position and results of operations of
Starwood Hotels would have been as of and for the periods indicated, nor does it
purport to represent Starwood Hotels' future financial position and results of
operations.
As noted, the pro forma effects of the ITT Merger and the Westin
Acquisition which were consummated in 1998 are included in the pro forma
financial information. For a further description of these transactions, see the
February 23 8-K.
22
<PAGE> 32
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
The following unaudited condensed consolidated pro forma statement of
income for the nine months ended September 30, 1998 gives effect, as of January
1, 1998, to the ITT Merger, the Westin Acquisition and the Restructuring. The
pro forma information is based upon historical information and does not purport
to present what actual results would have been had such transactions, in fact,
occurred at January 1, 1998, or to project results for any future period.
Historical results are for the nine months ended September 30, 1998 (see Note
(a) in the accompanying notes to this financial statement).
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------
STARWOOD DESERT PRO
HISTORICAL(A) HOTELS(B) INN(C) OTHERS RESTRUCTURING FORMA
------------- --------- ------ ------ ------------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $6,296 $437 $ (87) $ -- $ -- $6,646
Costs and expenses:
Salaries, benefits and other operating... 4,614 325 (92) -- -- 4,847
Selling, general and administrative...... 706 42 -- (31)(d)(e) -- 717
Restructuring and other special
charges................................ 240 -- -- -- -- 240
Depreciation and amortization............ 414 43 (12) 13 (f) -- 458
------ ---- ----- ---- ---- ------
5,974 410 (104) (18) -- 6,262
------ ---- ----- ---- ---- ------
322 27 17 18 -- 384
Interest expense, net...................... (439) (25) -- (39)(g) -- (434)
57 (h)
3 (i)
9 (j)
Gain on investment in Madison Square
Garden................................... 31 -- -- (31)(k) -- 31
Miscellaneous income, net.................. 6 4 2 -- -- 12
------ ---- ----- ---- ---- ------
(80) 6 19 48 -- (7)
Income tax benefit (expense)............... 79 (2) (6) (20) (91)(l) (40)
Minority equity............................ (2) 1 -- -- -- (1)
------ ---- ----- ---- ---- ------
Income (loss) from continuing operations... $ (3) $ 5 $ 13 $ 28 $(91) $ (48)
====== ==== ===== ==== ==== ======
Basic earnings per Paired Share:
Loss from continuing operation........... $ (.10) $ (.28)
====== ======
Diluted earnings per Paired Share:
Loss from continuing operations.......... $ (.10) $ (.28)
====== ======
Weighted average number of Paired Shares... 187 187
====== ======
Weighted average number of equivalent
Paired Shares............................ 187 187
====== ======
</TABLE>
The accompanying notes are an integral part of the above unaudited pro forma
statement.
23
<PAGE> 33
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(a) Represents the consolidated results of ITT for the nine months ended
September 30, 1998 and of the Trust and the Corporation, including Westin,
for the period from the ITT Merger (February 23, 1998) through September
30, 1998.
(b) Represents the combined consolidated historical results of the Trust and
the Corporation, including Westin, for the period from January 1, 1998
through the closing of the ITT Merger on February 23, 1998.
(c) Represents the elimination of the Desert Inn from continuing operations.
Starwood Hotels has announced its intention to sell the Desert Inn and, as
a result, has excluded its results from continuing operations.
(d) Represents effects of termination of certain executives under contractual
severance agreements, net of additional costs for new executives under
employment contracts, removal of duplicate third-party consulting fees and
termination of certain advertising contracts and rental agreements, less
related termination fees.
(e) Represents the effects of the combination of certain identified benefit
plans as a result of the ITT Merger as if the new combined plans had been
in place as of January 1, 1998.
(f) Represents the depreciation and amortization expense related to the excess
value recorded as a result of the purchase consideration exceeding the fair
market value of the combined net assets of Starwood Hotels and Westin as if
the transactions had taken place on January 1, 1998.
(g) Represents additional interest expense as if the ITT Merger had occurred on
January 1, 1998, using an average rate of 7.5%, on the additional debt
incurred to finance (i) the $2.991 billion representing the cash portion of
the purchase price for the ITT Shares acquired from the ITT stockholders;
(ii) the $312 million representing cash used to retire ITT stock options;
and (iii) the $102 million of fees and expenses incurred in connection with
the ITT Merger including amounts paid as commitment fees for advisory
services and finders fees.
(h) Represents reduction of interest expense, using an average rate of 7.5%,
for the paydown of the term loans with proceeds from actual or planned
asset dispositions as if the dispositions had occurred on January 1, 1998.
The actual dispositions include the disposition of ITT World Directories,
Inc. ("WD") for gross proceeds of $2.1 billion to VNU International B.V. in
February 1998; the sale of ITT's interest in WBIS+, Channel 31 in New York
City, to Paxson Communications Corporation for gross proceeds of $128
million in March 1998; the exercise of one of the two "put" options in
April 1998 pursuant to which Cablevision Systems Corporation
("Cablevision") purchased one-half of ITT's 7.81% interest in Madison
Square Garden Corporation ("MSG") for gross proceeds of $94 million; the
sale of an aircraft for gross proceeds of $39 million in April 1998; and
the sale of approximately 13 million shares of ITT Educational Services,
Inc. ("ESI") for gross proceeds of $315 million in June 1998. The planned
asset dispositions include the exercise of the remaining "put" option
pursuant to the contractual obligation with Cablevision and MSG, the sale
of Starwood Hotels' remaining 35% interest in ESI through various
alternatives including a private placement or a registered public offering
of its shares, and the sale of the Desert Inn. The pro forma net proceeds
of the planned dispositions, after certain costs and income taxes, would
reduce debt by approximately $735 million. Starwood Hotels believes that
the planned dispositions are probable as required by Regulation S-X, Rule
11-01(a).
24
<PAGE> 34
(i) Represents the reduction of interest expense, using an average rate of 7.5%,
for the paydown of term loans with the proceeds of $245 million, net of
costs of $6 million, from the sale of 4.6 million Paired Shares on February
24, 1998 as if such offering had taken place on January 1, 1998.
(j) Represents a reduction of the amortization recognized on the deferred loan
fees which were incurred in connection with the one-year $1.0 billion term
loan facility as if the asset dispositions had occurred on January 1, 1998.
This reduction is net of the increased amortization of deferred loan fees
recognized for the period from January 1, 1998 through the closing of the
ITT Merger on February 23, 1998 for the costs incurred in connection with
the additional debt (see Note (g)).
(k) Represents the pro forma effects on the pretax gain on investment in MSG as
a result of the exercise of one of the MSG put options (See Note (h)).
(l) Represents the additional tax expense to Starwood Hotels as a result of the
Restructuring. The Restructuring results in an increased effective tax rate
that results from the Trust becoming a subsidiary of the Corporation, and,
therefore, the remaining net income of the Trust after an estimated payment
of dividends to Class B shareholders of $0.60 per Class B share on an annual
basis being subject to federal income tax. The estimated payment of the
dividend may have varied from what would have been actually paid had the
dividend been authorized and paid during the nine months ended September 30,
1998.
The calculation of the additional tax expense is as follows for the nine
months ended September 30, 1998:
<TABLE>
<S> <C>
Trust pro forma income from operations.................. $285
Non-cumulative annual dividend of $0.60 per share ($0.15
per quarter) to Class B shareholders.................... (57)
Trust pro forma net income after dividend payment to be
consolidated with the Corporation's taxable income...... 228
----
Income taxes at an expected tax rate of 40% on the
Trust taxable income.................................. $ 91
====
</TABLE>
25
<PAGE> 35
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
The following unaudited condensed consolidated pro forma statement of
income for the year ended December 31, 1997 gives effect, as of January 1, 1997,
to the ITT Merger, the Westin Acquisition and the Restructuring. The pro forma
information is based upon historical information and does not purport to present
what actual results would have been had such transactions, in fact, occurred at
January 1, 1997, or to project results for any future period. Historical results
are for the year ended December 31, 1997 (see Note (a) in the accompanying notes
to this financial statement).
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA ADJUSTMENTS
STARWOOD -----------------------------------
HOTELS DESERT PRO
AND ITT(A) INN(B) OTHERS RESTRUCTURING FORMA
---------- ------ ------ ------------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $7,222 $(88) $ -- $ -- $7,134
Costs and expenses:
Salaries, benefits and other
operating........................ 5,308 (114) -- -- 5,194
Selling, general and
administrative................... 781 -- (52)(c)(d) 729
Restructuring charge................ 691 -- -- -- 691
Depreciation and amortization....... 535 (8) -- -- 527
------ ---- ---- ---- ------
7,315 (122) (52) -- 7,141
------ ---- ---- ---- ------
(93) 34 52 -- (7)
Interest expense, net................. (456) -- 87 (e) -- (357)
18 (f)
(6)(g)
Miscellaneous income (expense), net... (155) 3 -- -- (152)
Income tax expense.................... 246 (15) -- --(h) 231
Minority equity....................... 2 -- -- -- 2
------ ---- ---- ---- ------
Loss from continuing operations....... $ (456) $ 22 $151 $ -- $ (283)
====== ==== ==== ==== ======
Basic earnings per Paired Share:
Income from continuing operation.... $(2.45) $(1.52)
====== ======
Diluted earnings per Paired Share:
Income from continuing operations... $(2.45) $(1.52)
====== ======
Weighted average number of Paired
Shares.............................. 186 5 (f) 191
====== ==== ======
Weighted average number of equivalent
Paired Shares....................... 186 5 191
====== ==== ======
</TABLE>
The accompanying notes are an integral part of the above unaudited pro forma
statement.
26
<PAGE> 36
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(a) Represents the consolidated pro forma results of ITT, the Trust and the
Corporation, including Westin, for the year ended December 31, 1997, which
are incorporated by reference to the February 23 8-K. These pro forma
results are based on the historical results of ITT, the Trust and the
Corporation, including Westin, for the year ended December 31, 1997.
(b) Represents the elimination of the Desert Inn from continuing operations.
Starwood Hotels has announced its intentions to sell the Desert Inn and, as
a result, has excluded its results from continuing operations.
(c) Represents effects of termination of certain executives under contractual
severance agreements, net of additional costs for new executives under
employment contracts, removal of duplicate third-party consulting fees and
termination of certain advertising contracts and rental agreements, less
related termination fees.
(d) Represents the effects of the combination of certain identified benefit
plans as a result of the ITT Merger as if the new combined plans had been in
place as of January 1, 1997.
(e) Represents reduction of interest expense, using an average rate of 7.5%, for
the paydown of the term loans with proceeds from actual or planned asset
dispositions as if the dispositions had occurred on January 1, 1997. The
actual dispositions include the exercise of one of the two "put" options in
April 1998 pursuant to which Cablevision purchased one-half of ITT's 7.81%
interest in MSG for gross proceeds of $94 million; the sale of an aircraft
for gross proceeds of $39 million in April 1998; and the sale of
approximately 13 million shares of ESI for gross proceeds of $315 million in
June 1998. The planned asset dispositions include the exercise of the
remaining "put" option pursuant to the contractual obligation with
Cablevision and MSG, the sale of Starwood Hotels' remaining 35% interest in
ESI through various alternatives including a private placement or a
registered public offering of its shares, and the sale of the Desert Inn.
The pro forma net proceeds of the planned dispositions, after certain costs
and income taxes, would reduce debt by approximately $735 million. Starwood
Hotels believes that the planned dispositions are probable as required by
Regulation S-X, Rule 11-01(a).
(f) Represents the reduction of interest expense, using an average rate of 7.5%,
for the paydown of term loans with the proceeds of $245 million, net of
costs of $6 million, from the sale of 4.6 million Paired Shares on February
24, 1998 as if such offering had taken place on January 1, 1997.
(g) Represents increased amortization of deferred loan fees as if they were
incurred on January 1, 1997 in connection with the ITT Merger.
(h) Represents the additional tax expense to Starwood Hotels as a result of the
Restructuring. The Restructuring results in an increased effective tax rate
that results from the Trust becoming a subsidiary of the Corporation, and,
therefore, the remaining net income of the Trust after an estimated payment
of dividends to Class B shareholders of $0.60 per Class B share on an annual
basis being subject to federal income tax. The estimated payment of the
dividend may have varied from what would have been actually paid had the
dividend been authorized and paid during the year ended December 31, 1997.
No additional tax expense is reflected as a pro forma adjustment for the
year ended December 31, 1997 as the Corporation experienced a net loss for
the year.
27
<PAGE> 37
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
The following unaudited pro forma consolidated balance sheet as of
September 30, 1998 gives effect, as of such date, to the ITT Merger, the Westin
Acquisition and the Restructuring. The pro forma information is based upon
historical information and does not purport to present what the actual financial
position would have been had such transactions, in fact, occurred at September
30, 1998, or to project the financial position for any future period.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------- PRO FORMA
HISTORICAL(A) OTHER RESTRUCTURING ADJUSTED
------------- ----- ------------- ---------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 260 $ -- $ -- $ 260
Accounts receivable, net.............................. 640 -- -- 640
Inventories........................................... 67 -- -- 67
Prepaid expenses and other............................ 228 -- 228
------- ----- ------- -------
Total current assets........................... 1,195 -- -- 1,195
Plant, property and equipment, net...................... 9,853 -- -- 9,853
Investment in Madison Square Garden..................... 43 (43)(b) -- --
Other investments....................................... 317 -- -- 317
Long-term receivables, net.............................. 408 -- -- 408
Other assets............................................ 381 -- -- 381
Goodwill, net........................................... 3,602 -- 3,602
Net assets held for sale................................ 394 (387)(b) -- 7
Net assets of discontinued operations................... 34 (34)(b) --
------- ----- ------- -------
$16,227 (464) $15,763
======= ===== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 271 $ -- $ -- $ 271
Accrued expenses...................................... 1,112 -- -- 1,112
Notes payable and current maturities of long-term
debt................................................ 982 -- -- 982
Other current liabilities............................. 200 -- 200
------- ----- ------- -------
Total current liabilities...................... 2,565 -- 2,565
Long-term debt.......................................... 7,436 (735)(c) -- 6,701
Deferred income taxes................................... 585 1,000 (d) 1,585
Other liabilities....................................... 450 -- 450
Minority interest....................................... 583 433 (e) 1,016
------- ----- ------- -------
11,619 (735) 1433 12,317
------- ----- ------- -------
Equity put options and forward equity contracts......... 430 -- -- 430
------- ----- ------- -------
Class B exchangeable preferred shares, at redemption
value................................................. (153) -- (153)(e) --
------- ----- ------- -------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares................. 5 -- (5)(e) --
Corporation common stock at September 30, 1998; $0.01
par value; 1,050,000,000 authorized; 182,837,403
outstanding at September 30, 1998..................... 2 -- -- 2
Trust common shares of beneficial interest at September
30, 1998; $0.01 par value; 1,200,000,000 authorized;
182,837,403 outstanding at September 30, 1998......... 2 -- (2)(f) --
Class B common shares at September 30, 1998; $0.01 par
value; 1,200,000,000 authorized; 182,837,403
outstanding at September 30, 1998..................... -- -- 2 (f) 2
Additional paid-in capital.............................. 2500 -- (275)(e) 2225
Cumulative translation adjustment and marketable
securities adjustment................................. (103) -- -- (103)
Retained earnings (accumulated deficit)................. 1,619 271 (1,000) 890
------- ----- ------- -------
Total stockholders' equity..................... 4025 271 1280 3016
------- ----- ------- -------
$16,227 $(464) $ -- $15,763
======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of the above unaudited pro forma
statement.
28
<PAGE> 38
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(a) Represents the combined consolidated balance sheet of the Trust and the
Corporation, including Westin and ITT, as of September 30, 1998.
(b) Represents the planned asset dispositions including the exercise of the
remaining "put" option pursuant to the contractual obligation with
Cablevision and MSG, the sale of Starwood Hotels' remaining 35% interest in
ESI through various alternatives including a private placement or a
registered public offering of its shares, and the sale of the Desert Inn
(see Note (h) to the pro forma statement of income for the nine months
ended September 30, 1998). Starwood Hotels believes that the planned
dispositions are probable as required by Regulation S-X, Rule 11-01(a).
(c) Represents the reduction of debt with the net proceeds of the planned
dispositions in Note (b).
(d) Represents the deferred tax liability resulting from the Restructuring as
required by SFAS No. 109. See "The Restructuring -- Accounting Treatment."
(e) Subsequent to the Restructuring, the Class A EPS and Class B EPS will
remain outstanding securities of the Trust and represent a minority
interest in the Corporation. This represents the reclassification of the
Class A EPS and Class B EPS as minority interest on a consolidated basis.
(f) Represents conversion of each outstanding Trust Share into one Class B
Share.
29
<PAGE> 39
THE RESTRUCTURING
BACKGROUND OF THE RESTRUCTURING
Current Paired Share Structure. Since 1980, Starwood Hotels has conducted
its business under a "paired" share structure, consisting of an operating
company (the Corporation) and a "real estate investment trust" or "REIT" (the
Trust), as defined in Section 856 of the Internal Revenue Code of 1986, as
amended (the "Code").
The Trust was organized in 1969 as a Maryland REIT and has invested in fee,
ground leasehold and mortgage loan interests in hotel properties located
throughout the United States and in Mexico and Scotland. In order for the Trust
to maintain its status as a REIT, it cannot operate its hotels directly or
participate in the net profits of its hotels. Therefore, prior to 1980 the Trust
leased all its hotels to third-party operators for specified rents.
In 1980, the Trust formed the Corporation as a Maryland corporation,
distributed the shares of the Corporation to the shareholders of the Trust, and
adopted a policy of leasing its hotels to the Corporation and subsidiaries of
the Corporation.
Concurrently with the distribution in 1980 of the Corporation's shares, the
Trust and the Corporation entered into the Pairing Agreement, pursuant to which
the Trust Shares and the Corporation Shares are paired on a one-for-one basis
and may be held or transferred only in units consisting of one Trust Share and
one Corporation Share. Under the current paired share structure, because the
Trust and the Corporation are owned by the same persons (with the exception of
the Class A EPS and Class B EPS, which represent approximately 4.5% of the
voting power of the shareholders of the Trust) and because substantially all the
Trust's properties are leased to the Corporation or its subsidiaries, holders of
Paired Shares participate in both the ownership and operational aspects of the
hotel business. Starwood Hotels received a private letter ruling from the
Internal Revenue Service (the "IRS") in 1980 to the effect that Starwood Hotels'
paired share structure would not prevent the Trust from continuing to qualify as
a REIT.
Federal Legislation on Paired Structure. In 1984, Congress enacted
legislation that treats a REIT and a non-REIT, the shares of which are paired,
as one entity for purposes of determining whether either company qualifies as a
REIT. However, the "grandfathering" provision of that legislation has permitted
the Trust to continue to qualify as a REIT.
In July 1998, the Code was amended in a manner that has the effect of
restricting the benefits of the grandfathering from the 1984 legislation to
interests in real property acquired by the Trust or the Corporation on or before
March 26, 1998. See "Material Federal Income Tax Consequences -- Federal Income
Taxation of the Trust After the Restructuring -- Requirements for
Qualification."
The amendments make it difficult for Starwood Hotels to acquire and operate
additional hotels while still maintaining the Trust's status as a "grandfathered
paired share REIT." Those amendments, as a practical matter, prevent the
Corporation from operating hotels that are acquired in the future by the Trust
or the Corporation. The Boards believe these restrictions would, over time,
adversely affect Starwood Hotels' competitive position and financial condition.
The acquisition of real property interests pursuant to the Westin Acquisition in
January 1998 and the ITT Merger in February 1998 are not subject to the new
amendments. However, Starwood Hotels' policy of continuing to expand and
diversify its hotel portfolio would likely be significantly hampered by the
amendments under Starwood Hotels' current organizational structure. See
"Material Federal Income Tax Consequences -- Federal Income Taxation of the
Trust After the Restructuring."
The Restructuring Proposal; Other Alternatives. The Trust and the
Corporation have considered a number of options to minimize the adverse effect
of the recent Code amendments on the results of operations, financial condition
and prospects of Starwood Hotels, including: modifying or terminating the
pairing arrangement such that some or all of the Trust Shares and Corporation
Shares could be sold separately (a "Paper Clip Structure"); retaining the paired
structure but leasing newly acquired hotel properties to a third party not
affiliated with Starwood Hotels (a "Third Party Management Structure"); merging
the Trust and the Corporation and abandoning the Trust's REIT status (a
"Non-REIT Structure"); and the Restructuring Proposal.
30
<PAGE> 40
Beginning in March 1998, in anticipation of the enactment of legislation,
Starwood Hotels retained Bear, Stearns & Co. Inc. ("Bear Stearns") as its
financial advisor and Sidley & Austin as its outside counsel and special tax
counsel to assist it in evaluating its alternatives from a financial, legal and
tax perspective, and developing a response to the then proposed legislation.
Through August 1998, management of the Trust and the Corporation, together with
their legal and financial advisors, held numerous discussions and meetings to
review and consider the alternatives available to Starwood Hotels, including
proposed terms of a restructuring and various strategic, legal, financial and
tax issues.
At their meetings on June 25, 1998 and July 15, 1998, the Trust Board and
the Corporation Board received preliminary oral assessments from management and
Starwood Hotels' financial and legal advisors of the various alternative
responses under consideration (i.e., the Restructuring, a Paper Clip Structure,
a Third Party Management Structure and a Non-REIT Structure).
On August 12, 1998, the Trust Board and the Corporation Board met to review
the proposed Restructuring. In connection with this review, members of Starwood
Hotels' management made a presentation on the different alternatives evaluated
and the strategic, financial, legal and tax advantages and disadvantages of
each. Representatives of Bear Stearns compared the proposed restructuring from a
financial standpoint to other alternatives then under consideration by Starwood
Hotels. Members of Sidley & Austin made presentations concerning the federal
income tax aspects of the Restructuring, including the effect of the recent
legislation on the Restructuring as compared to other alternatives, other legal
issues relating to the Restructuring and the Boards' duties to Starwood Hotels
and its stockholders and shareholders in considering transactions such as the
Restructuring. Sidley & Austin noted that the Restructuring Proposal, a Paper
Clip Structure and a Non-REIT Structure would avoid the restrictions imposed by
the new legislation because Starwood Hotels would relinquish its status as a
"grandfathered paired share REIT," and that a Third Party Management Structure
would reduce the effect of the restrictions imposed by the new legislation
because the Corporation would not be operating newly acquired hotel properties.
In addition, Sidley & Austin advised the Boards that in order for Starwood
Hotels not to be deemed "stapled entities" (as that term is defined in Section
269B(c)(2) of the Code), no more than 50% in value of the beneficial ownership
in either the Trust or the Corporation could consist of "stapled interests"
(i.e., the aggregate value of the outstanding Class B Shares must be less than
the aggregate value of the outstanding Class A Shares, Class A EPS and Class B
EPS). Although the Boards satisfied themselves that the aggregate value of the
Class B Shares would be significantly less than such 50%, based on the advice of
management and the terms of the Class B Shares and the Class A Shares (including
the dividends to be paid on the Class B Shares and the right of the holders of
the Class A Shares to receive, upon liquidation of the Trust, after all
liabilities of the Trust had been satisfied and after the liquidation preference
of any preferred shares of beneficial interest in the Trust had been paid in
full, the aggregate book value of the total equity of the Trust on December 31,
1998, as shown on the balance sheet of the Trust filed with the SEC, less the
amount of such book value represented by the Class A EPS and the Class B EPS,
and, thereafter, 90% of any remaining assets of the Trust), the Boards did not
attempt to precisely value the Class B Shares. They considered the precise value
not to be relevant (so long as it were significantly below such 50%) because the
shareholders of the Trust would, after the Restructuring, continue to own
directly and indirectly through their ownership of the Corporation Shares the
same interest in the Trust as they currently own directly. Sidley & Austin noted
that, particularly because the portion of the income of the Trust that would be
paid as dividends on the Class B Shares would be deducted from the taxable
income of the Trust (and therefore would not be subject to federal entity-level
tax), the Restructuring would be more favorable to Starwood Hotels from a tax
perspective than a Non-REIT Structure.
In addition, Sidley & Austin discussed the potential and actual conflicts
of interest inherent in a Paper Clip Structure, and noted their mitigation or
absence in the other alternatives under consideration. Sidley & Austin noted
that with a Paper Clip Structure, over time the shareholders of the Trust and
the stockholders of the Corporation would diverge as current shareholders and
stockholders transferred their Trust Shares and Corporation Shares separately.
Because the Trust Board and the Corporation Board owe duties to shareholders of
the Trust and stockholders of the Corporation, respectively, the various
arrangements between the Trust and the Corporation (e.g., hotel management
contracts and human resources, legal and accounting arrangements) would need to
be scrutinized closely and continually by the
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Boards. In addition, a Paper Clip Structure could increase the risk of
litigation by shareholders or stockholders claiming a breach of duty by the
Trust Board or the Corporation Board. Unlike either the current structure or the
Restructuring Proposal (or a Non-REIT Structure), each of which involves an
identity between the shareholders of the Trust and the stockholders of the
Corporation, a Paper Clip Structure could create continuous conflicts of
interest between the Trust and the Corporation.
Similarly, management advised the Boards at the August 12 meeting that the
Third Party Management Structure could create conflicts between Starwood Hotels,
as the owner of newly-acquired hotels, and the third party operators of those
hotels. These conflicts could manifest themselves in numerous ways, including
conflicts over capital expenditures to upgrade and maintain hotels. Management
advised the Boards that, over time, these conflicts and the conflicts inherent
in the Paper Clip Structure could significantly and adversely affect the
competitive position and financial condition of Starwood Hotels. Both management
and Bear Stearns advised the Boards that these effects, while potentially
significant and adverse, were not quantifiable. Although similar conflicts
between the Trust and the Corporation could be present after the Restructuring,
holders of Units cannot be disadvantaged by the resolution of these conflicts
because the same shareholders will own (and currently own) all of the common
equity interests in both the Trust and the Corporation.
Management also advised the Boards that the ability to retain earnings
would make Starwood Hotels less dependent upon the capital equity markets for
capital to fund its operations.
On August 19, 1998, the Trust Board and the Corporation Board again met to
review the proposed Restructuring with their management, Bear Stearns and Sidley
& Austin. After making an additional presentation concerning the Restructuring,
management of Starwood Hotels made a recommendation to the Corporation Board and
the Trust Board that the Restructuring be approved. Following lengthy
discussion, the Trust Board and the Corporation Board concluded that the
Restructuring was in the best interests of the Trust and the Corporation and,
each by a unanimous vote, approved the Restructuring.
The Boards believe that the other alternatives are less advantageous to
Starwood Hotels and its shareholders and stockholders than the Restructuring.
Both a Paper Clip Structure and a Third Party Management Structure present an
inherent conflict of interest between the owner and the operator of hotels. The
Boards believe that, over time, these conflicts could adversely affect the
competitive position and financial condition of Starwood Hotels, though these
effects cannot be quantified, and the Boards did not rely on quantitative
analysis in rejecting these alternatives. A Non-REIT Structure, while not
presenting these conflicts, would involve relinquishing the tax advantages
inherent in maintaining the Trust's status as a REIT in the Restructuring.
At the conclusion of the August 19 meeting, the Boards requested that
management consider and make a recommendation concerning the dividend level to
be established for the Class B Shares.
On August 26, 1998, at a meeting of the Boards, management recommended and
the Boards approved the dividends to be established for the Class B Shares. See
"Description of Class B Shares -- Dividend Rights." The Boards were advised by
Sidley & Austin that, in order to maintain the tax-free nature of the
Restructuring, the Class B Shares would need to have fixed or formulaic dividend
rights (unlike the current Trust Shares or the Class A Shares, each of which
permits the Trust Board to authorize dividends in any amount determined by the
Trust Board in its discretion). Because the Boards expect the operating and net
income of the Trust to increase in future years, the Boards did not want the
Class B Shares to have a fixed dividend rate that may in the future be too low.
Accordingly, the Boards determined to adopt management's recommendation that the
Class B Shares pay an initial $.60 per share annual dividend and that such
amount increase after 1999 pursuant to the formula described under "Description
of Class B Shares -- Dividend Rights." In considering the dividend policy,
management and the Boards took into consideration the aggregate amount of
dividends required to be paid in relation to its anticipated capital needs, the
dividend yields of comparable companies and the potential in the future to
increase dividends based upon growth in earnings (see "Risk Factors -- Retention
of Capital").
At the August 26 meeting, the Boards also determined that, effective upon
completion of the Restructuring, Barry S. Sternlicht would become Chairman and
Chief Executive Officer of the Corporation and Richard D. Nanula would become
President and Chief Operating Officer. In addition, the Boards
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authorized the repurchase from time to time of up to $1 billion of Paired
Shares, such purchases to be made on The New York Stock Exchange ("NYSE") or
otherwise from time to time at prices deemed advantageous by the respective
Executive Committees of the Boards, and which may include the repurchase of
shares issued in earlier forward equity transactions and transactions in
derivatives of Paired Shares.
On August 26, 1998, the Trust and the Corporation issued a joint press
release announcing the proposed Restructuring. On September 16, 1998, the Trust
and the Corporation executed the Restructuring Agreement.
RECOMMENDATION OF THE TRUST BOARD AND THE CORPORATION BOARD; REASONS FOR THE
RESTRUCTURING
THE TRUST BOARD AND THE CORPORATION BOARD APPROVED THE RESTRUCTURING
PROPOSAL AND THE MERGER AND RECOMMEND THAT SHAREHOLDERS OF THE TRUST AND
STOCKHOLDERS OF THE CORPORATION VOTE FOR APPROVAL OF THE RESTRUCTURING PROPOSAL.
The recommendations of the Trust Board and the Corporation Board are based
on the following material factors considered by the Boards:
- The Boards' belief, based on their experience with Starwood Hotels'
businesses and on the analysis of management, that maintaining the
existing "paired share" structure would be significantly disadvantageous
under the recent Code amendments (see "-- Background of the
Restructuring" above) because of the new restrictions imposed on Starwood
Hotels' ability to own and operate newly acquired hotels.
- The Boards' belief that Starwood Hotels' philosophy of, to the extent
practicable, owning and operating its hotels, in order to align the
interests of both the owners and the operators for Starwood Hotels'
shareholders, is in the best interests of its shareholders (for the
reasons discussed above).
- The Boards' view, based on management's past performance and the Boards'
expectations of future performance, that, after the Restructuring,
Starwood Hotels should be able to earn a higher after-tax return on
retained capital than the average shareholder would be able to earn if
that capital were returned to the shareholders (see "Risk
Factors -- Retention of Capital").
- The projected results of operations, financial condition and competitive
position of Starwood Hotels on a prospective basis after giving effect to
the Restructuring, as contrasted with other alternatives available to the
companies.
- The judgment and advice of Starwood Hotels' management, Bear Stearns and
Sidley & Austin, described above.
- The relative levels of potential and actual conflicts of interest
inherent in the various alternatives under consideration.
- The potential reactions to the various alternatives by Starwood Hotels'
shareholders and stockholders, creditors, third parties under various
contracts and customers; the debt rating agencies and bond markets; and
federal and state legislators and regulators. The Boards desired an
alternative that the shareholders and stockholders would approve, that
would encourage creditors, third parties and customers to continue to
want to deal with Starwood Hotels on favorable terms, that would receive
a positive reaction from debt rating agencies and bond markets and permit
Starwood Hotels to obtain debt financing on more favorable terms, and
that would be acceptable to both federal and state legislators and
regulators, including Congress and the various gaming regulatory
authorities. The Boards expect all these constituencies generally to have
neutral to favorable reactions to the Restructuring, although the Boards
are aware that certain institutional shareholders that desire to invest
in REIT equity securities because of the relatively high dividends
generally associated with such securities might reduce or eliminate their
holdings in Starwood Hotels as a result of the Restructuring.
- The risk that Starwood Hotels will not be able to earn a higher after-tax
rate of return on its increased retained capital resulting from the
Restructuring (due to the proposed smaller dividend
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payout, albeit offset by the payment of higher federal income taxes) than
the average shareholder would be able to earn if that capital were
returned to the shareholders. The Boards did not specifically determine
the rate that an individual shareholder would be able to achieve by
reinvesting the dividends received from Starwood Hotels. However, in
evaluating whether Starwood Hotels could reinvest its retained earnings
at rates that would equal or exceed those that could be achieved by
shareholders, the Boards reviewed information concerning the rates of
return that Starwood Hotels would be required to achieve in order to
match shareholder reinvestment rates ranging from 5% to 15%, both for
fully taxable and non-taxable shareholders, over periods of time ranging
from 5 to 20 years. See "Risk Factors -- Retention of Capital."
- The Boards considered advice and input from various representatives and
advisors, including Board members, including former Senator George J.
Mitchell, members of the Corporation's Public Policy Advisory Committee,
including former Senator Robert J. Dole, certain officers of Starwood
Hotels, Verner, Liipfert, Bernhard, McPherson and Hand, Sidley & Austin
and PricewaterhouseCoopers, LLP, as to the likelihood that changes in
legislation, regulations or administrative interpretations would
adversely affect the new structure of Starwood Hotels. See "Risk
Factors -- Adoption of Additional Legislation, Regulations or
Interpretations."
- The Boards considered the differences in the dividend, liquidation and
voting rights of the Class B Shares as compared to the Trust Shares.
- The Boards' judgment that the ability to retain earnings would make
Starwood Hotels less dependent upon the capital equity markets for
capital to fund its operations.
The Boards of the Corporation and the Trust did not assign relative weights
to the foregoing factors or determine that any factor was of particular
importance. Rather, the Boards viewed their recommendations as being based on
the totality of the information presented and considered by them.
INTERESTS OF CERTAIN PERSONS IN THE RESTRUCTURING
In considering the recommendation of the Trust Board and the Corporation
Board, shareholders and stockholders should be aware that, as described below,
certain members of management of the Trust, the Trust Board and the Corporation
Board may have interests in the Restructuring that are different from the
interests of holders of Paired Shares, Class A EPS or Class B EPS generally.
Barry S. Sternlicht, the Chairman and Chief Executive Officer of the Trust and
the Chairman of the Board of the Corporation, is the founder and General Manager
of Starwood Capital Group, L.L.C. ("Starwood Capital") which, together with its
affiliates, owned 2,179,187 Class A EPS and 1,835,622 Class B EPS as of the
Record Date. In addition, Madison F. Grose, a Trustee of the Trust, is a Senior
Managing Director and General Counsel of Starwood Capital and owns, directly or
indirectly, an aggregate of 29,213 Class A EPS and Class B EPS. Jonathan D.
Eilian, a Director of the Corporation, is also a Senior Managing Director of
Starwood Capital.
Stuart M. Rothenberg, a Trustee of the Trust, and Barry S. Volpert, a
Director of the Corporation, are Managing Directors of Goldman, Sachs & Co.
("Goldman Sachs"). As of the Record Date, Goldman Sachs and its affiliates owned
2,179,184 Class A EPS and 2,008,851 Class B EPS.
The Declaration of Trust of the Trust (the "Trust Declaration") provides
that holders of Class A EPS and Class B EPS are entitled to vote on all matters
upon which holders of Trust Shares (which is defined to be the existing Trust
Shares or any shares of beneficial interest in the Trust into which the Trust
Shares may be changed) have the right to vote. In the Restructuring, the Trust
Shares will be changed into Class B Shares, which would not be entitled to vote,
except upon matters materially and adversely affecting the rights of holders of
Class B Shares disproportionately to the effect on holders of Class A Shares.
Accordingly, after the Restructuring, holders of Class A EPS and Class B EPS
will no longer be entitled to vote in the election of Trustees. Because the
Class A EPS and Class B EPS are not "paired" with any shares of stock of the
Corporation and thus the holders have no right to elect Directors of the
Corporation, after the Restructuring, holders of Class A EPS and Class B EPS
will not have any vote in elections for Directors of the Corporation or Trustees
of the Trust.
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In addition, Mr. Rothenberg is the designee of an affiliate of Goldman
Sachs on the Trust Board. The Trust has agreed to include Mr. Rothenberg (or a
successor to Mr. Rothenberg designated by such affiliate) on each management
slate of nominees to the Trust Board for so long as Goldman Sachs and its
affiliates meet certain share ownership criteria. Mr. Volpert is the designee of
an affiliate of Goldman Sachs on the Corporation Board. The Corporation has
agreed to include Mr. Volpert (or a successor to Mr. Volpert designated by such
affiliate) on each management slate of nominees to the Corporation Board for so
long as Goldman Sachs and its affiliates meet certain ownership criteria. Roger
S. Pratt is the designee of The Prudential Insurance Company of America
("Prudential") on the Trust Board pursuant to an agreement which entitles
Prudential to designate one representative to be nominated for election to the
Trust Board, and requires the Trust to cause the Trust Board to so nominate such
designee, and to support such nomination along with the other nominees of
Management and the Trust Board, for election to the Trust Board, for so long as
Prudential meets certain share ownership criteria. After the Restructuring, the
Corporation will have the right to elect all Trustees as well as to increase or
decrease the size of the Trust Board (currently fixed at nine members).
TRUST BOARD AFTER THE RESTRUCTURING
The Boards have not yet determined the size or makeup of the Trust Board
after the Restructuring or whether the Trustees would receive the same
compensation as current members of the Trust Board receive.
ACCOUNTING TREATMENT
The Restructuring will be accounted for as a reorganization of two
companies under common control. There will be no revaluation of the assets and
liabilities of the combining companies. Starwood Hotels will take a one-time
charge of approximately $1 billion, primarily related to a deferred tax
liability that will result from the reorganization, as required by SFAS No. 109.
After the Restructuring, Starwood Hotels' financial statements will be
presented on a consolidated basis representing the operations of the Corporation
and its subsidiaries, including the Trust. Because the Class B Shares will be
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), it is anticipated that separate financial statements of the Trust will
continue to be presented and filed in Starwood Hotels' annual and quarterly
reports to the SEC.
CERTAIN FORWARD LOOKING STATEMENTS
On August 27, 1998, following the announcement of the Restructuring,
representatives of Starwood Hotels participated in a conference telephone call
with members of the investment community. During the call, Starwood Hotels
disclosed certain statements. THESE STATEMENTS WERE NOT PREPARED IN COMPLIANCE
WITH THE PUBLISHED GUIDELINES OF THE SEC OR THE GUIDELINES ESTABLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR
FORECASTS. THESE STATEMENTS ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE CONTROL OF
STARWOOD HOTELS, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
PROJECTIONS. SEE "RISK FACTORS." ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT
THESE STATEMENTS WILL PROVE ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY
DIFFERENT FROM THOSE CONTAINED IN THE PROJECTIONS. THERE CAN BE NO ASSURANCE
THAT CHANGES IN CIRCUMSTANCES OR EVENTS WILL NOT CAUSE SUCH STATEMENTS TO BE
INACCURATE. THE INCLUSION OF THESE STATEMENTS HEREIN SHOULD NOT BE RELIED UPON
AS SUCH OR AS A REPRESENTATION AS TO FUTURE RESULTS. STARWOOD HOTELS DOES NOT
INTEND TO UPDATE OR OTHERWISE REVISE THESE STATEMENTS TO REFLECT CIRCUMSTANCES
EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS
EVEN IN THE EVENT THAT THESE STATEMENTS ARE SHOWN TO BE IN ERROR IN ANY RESPECT.
The statements disclosed were that, assuming the Restructuring is effected,
Starwood Hotels expected that: (i) principally as a result of the reduced
dividend requirements, it could retain between $800 million and $1 billion, net
of taxes, over the next three years which would be available to reinvest in its
assets and business; (ii) going forward, it expected to report substantial
earnings per share ("EPS") next year, and expected that its EPS could grow
significantly faster than its historical rate of growth; specifically, Starwood
Hotels believed that, depending on future trends and uncertainties, its 1999 EPS
would fall in the range of then current analyst estimates of between $1.80 and
$2 per share and could roughly double over a three-year period; (iii) it
believed that there was substantial upside potential in both average daily rate
("ADR") and
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occupancy rate which should allow it to continue to be an industry leader in
growth; and (iv) it believed that it would be an industry leader in earnings
before interest, taxes, depreciation and amortization ("EBITDA") margin growth.
The basis for these statements was management's assessment at the time the
statements were made of then current operations and future trends and
opportunities, as described under or incorporated by reference in "Management's
Discussion and Analysis of Combined Financial Condition and Results of
Operations" included in the 1997 10-K and the 1998 Quarterly Reports. Based
upon, among other factors, adverse financial market conditions and consequent
delays in refinancing its indebtedness, delays in the completion of asset sales,
lower expected levels of external growth and current forecasts of global
economic conditions, Starwood Hotels currently believes that a more accurate
estimate for its 1999 EPS is in the range of $1.50 to $2.00 per share. As
discussed above, Starwood Hotels' ability to perform at these levels is subject
to a number of risks and uncertainties, including, among other things, risks
associated with the integration of Starwood Hotels, ITT and Westin, the risk
that Starwood Hotels would not be successful in implementing its capital
expenditure program to renovate existing properties or that such expenditures
would not result in enhanced revenues from such properties, risks associated
with the opening of new hotel and gaming properties and risks relating to
general economic conditions. For more information about these and other risks,
read "Risk Factors" starting on page 16 and the descriptions of risks included
in the 1997 10-K and the 1998 Quarterly Reports.
REGULATORY APPROVALS
The Trust and the Corporation have made certain filings and taken other
actions necessary to obtain approvals from certain U.S. regulatory authorities
in connection with the Restructuring, including U.S. competition authorities.
The waiting period under the HSR Act for the Restructuring will expire on
December 25, 1998, unless the Department of Justice or the Federal Trade
Commission issues a request for additional information or other documentary
materials.
For a description of the various casino gaming regulatory requirements
applicable to Starwood Hotels, see "Regulation and Licensing" under Part I of
Starwood Hotels' Joint Annual Report on Form 10-K for the year ended December
31, 1997. In addition, Starwood Hotels has made certain filings with, and taken
such other necessary actions with respect to, all relevant casino gaming
regulatory agencies in connection with the Restructuring.
NO DISSENTERS' RIGHTS
Under Maryland law, holders of Trust Shares, Class A EPS and Class B EPS
are not entitled to appraisal rights under Maryland law in connection with the
Restructuring, because the Trust Shares are listed on the NYSE and because (as
to the Class A EPS and Class B EPS) the Trust is the successor in the Merger and
the Merger will not alter the contract rights of the Class A EPS or the Class B
EPS as set forth in the Trust Declaration and the Class A EPS and Class B EPS
will not be changed or converted in the Merger into anything other than shares
of beneficial interest in the successor.
Holders of Corporation Shares are not entitled to appraisal rights under
Maryland law in connection with the Restructuring because the Corporation is not
a constituent corporation in the Merger.
CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES
The issuance of Class B Shares pursuant to the Restructuring is exempt from
registration under the Securities Act by virtue of the exemption afforded by
Section 3(a)(9) under the Securities Act and, in general, such shares will be
freely transferable by the holders thereof. However, Class B Shares held by
"affiliates" (within the meaning of the Securities Act) of the Trust will need
to be resold pursuant to Rule 144 under the Securities Act or another exemption
from the registration requirements of the Securities Act. Class B Shares
received in the Restructuring in exchange for securities that were
"unrestricted" for purposes of Rule 144 would be similarly unrestricted and
could be sold by affiliates of Starwood Hotels pursuant to Rule 144, without
regard to the holding requirements thereof. For purposes of resales under Rule
144, of securities received in the restructuring by affiliates in exchange for
securities that were "restricted" for purposes of such Rule, the holding period
for the securities received may be "tacked" to the holding period of the
securities surrendered.
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THE RESTRUCTURING AGREEMENT
The description of the Restructuring Agreement contained in this Joint
Proxy Statement is qualified by reference to the complete text of the
Restructuring Agreement, a copy of which is attached hereto as Annex A and is
incorporated herein by reference. All shareholders and stockholders are urged to
read carefully the Restructuring Agreement in its entirety.
GENERAL
The Restructuring Agreement provides for the merger of a newly organized,
wholly owned subsidiary of the Corporation ("Merger Sub") with and into the
Trust at the Effective Time (as defined below), whereupon the separate existence
of Merger Sub will cease and the Trust will continue as the surviving entity
(the "Surviving Entity"). As a result of the Merger, the Trust will become a
subsidiary of the Corporation.
CLOSING AND EFFECTIVE TIME
Subject to the satisfaction or waiver of the conditions to the
Restructuring, the closing of the Restructuring (the "Closing") shall take place
on January 5, 1999 or, if on such date all the conditions set forth in the
Restructuring Agreement have not been satisfied or waived, then on such later
date when all the conditions set forth in the Restructuring Agreement have been
satisfied or waived, or at such time and/or on such other date as the
Corporation and the Trust may agree, by duly filing Articles of Merger, in the
form required by, and executed in accordance with, the relevant provisions of
Maryland law. The Restructuring will be effective at such time as the Articles
of Merger are duly filed with, and accepted for record by, the State Department
of Assessments and Taxation of the State of Maryland (the "Effective Time"). 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 in this Joint Proxy Statement as
the "Closing Date."
At the Effective Time, the Declaration of Trust shall be amended and
restated as set forth in Annex B hereto (which is marked to show the proposed
amendments). As so amended and restated, the Declaration of Trust of the Trust
shall be the Declaration of Trust of the Surviving Entity. The Trustees'
Regulations of the Trust, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Entity. See "Comparison of Rights of
Holders of Trust Shares and Holders of Class B Shares -- Authorized Capital."
CONVERSION OF SHARES
As of the Effective Time, by virtue of the Merger and without any action on
the part of Merger Sub, the Trust or the holders of any securities of the Trust
or Merger Sub:
- each issued and outstanding common share of beneficial interest, par
value $.01 per share, in Merger Sub will be converted into one validly
issued, fully paid and nonassessable Class A Share of the Surviving
Entity;
- all Trust Shares that have been acquired by the Trust or by any of its
wholly owned subsidiaries and Trust Shares owned by the Corporation or
any of its wholly owned subsidiaries will be canceled and no cash, shares
of beneficial interest in the Trust or other consideration will be
delivered in exchange therefor;
- each Trust Share issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled as described above)
shall be converted into, and become exchangeable for, one Class B Share
of the Surviving Entity;
- each share of Class A EPS will remain outstanding and will be
exchangeable pursuant to its terms for one Unit (which consists of one
Class B Share and one Corporation Share) (subject to adjustment in
certain circumstances); and
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- each share of Class B EPS will remain outstanding and will continue to be
convertible pursuant to its terms into one share of Class A EPS (subject
to adjustment in certain circumstances).
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, Starwood Hotels will
deposit with the exchange agent for the Restructuring (the "Exchange Agent"), in
trust for the holders of Trust Shares, "back-to-back" certificates representing
an equal number of Units (such shares being hereinafter referred to as the
"Exchange Fund"). Although Corporation Shares are not being converted in the
Merger, the certificates representing Paired Shares are "back-to-back"
certificates (i.e., each certificate representing Corporation Shares is printed
on the back of a certificate representing Trust Shares). Accordingly, in order
to surrender Trust Shares to receive Class B Shares, a holder of Trust Shares
must also send in his, her or its Corporation Shares. The Corporation will
cancel the old certificate and issue a new one.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of record of a certificate or certificates representing
Paired Shares (i) a letter of transmittal and (ii) instructions for use in
effecting the surrender of the certificates.
Upon surrender for cancellation to the Exchange Agent of a certificate,
together with the letter of transmittal, duly executed, the holder of the
certificate will be entitled to receive a new "back-to-back" certificate
representing the number of Units equal to the number of Paired Shares that were
represented by the certificate surrendered. If a new certificate is to be issued
or delivered in a name other than that in which the certificate surrendered is
registered, it will be a condition of such exchange that the certificate
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 new certificates
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.
After the Effective Time, there will be no further transfers of Trust
Shares on the stock transfer books of the Trust. If a certificate representing
Paired Shares is presented for transfer, it will be canceled and a certificate
representing the appropriate number of Units will be issued in exchange for the
old certificate. After the Effective Time and until surrendered, each Trust
Share will be deemed for all purposes, other than the payment of any dividends
and distributions, to evidence only the right to receive a Class B Share.
DIVIDENDS
Subject to the effect of applicable law, all dividends or other
distributions that are declared on or after the Effective Time on Class B
Shares, or are payable to the holders of record thereof on or after the
Effective Time, will be paid, at the appropriate payment date or as promptly as
practicable thereafter, (i) in the case of Class B Shares for which new
certificates have already been issued, to the holders of record of such Class B
Shares as of the record date(s) established for such dividends or distributions,
or (ii) in the case of Class B Shares for which new certificates have not been
issued, to the holder of record of the certificate(s) representing the Trust
Shares converted into such Class B Shares in the Merger. In no event shall the
person entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions.
STARWOOD OPTIONS
Each option to purchase Paired Shares (a "Starwood Option" or "Paired
Option") which is outstanding immediately prior to the Effective Time pursuant
to Starwood Hotels' long-term incentive plans will become and represent an
option (a "Substitute Option") to purchase the number of Units equal to the
number of Paired Shares subject to such Starwood Option, at an exercise price
per Unit equal to the current exercise price per Paired Share under such
Starwood Option. Each Substitute Option will be otherwise exercisable upon the
same terms and conditions as were applicable under the related Starwood Option
immediately prior to or at the Effective Time.
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REPRESENTATIONS AND WARRANTIES
In the Restructuring Agreement, the Trust made certain customary
representations and warranties to the Corporation and the Corporation made
substantially identical representations and warranties to the Trust.
BUSINESS OF STARWOOD HOTELS PENDING THE RESTRUCTURING
Each of the Corporation and the Trust has agreed that, during the period
from the date of the Restructuring Agreement to the Effective Time (except as
otherwise approved by the other party), its business and that of its
subsidiaries shall be conducted in the ordinary and usual course consistent with
past practice and, to the extent consistent therewith, it and its subsidiaries
shall use all reasonable efforts to preserve its business organization intact
and maintain its existing relations and goodwill with customers, suppliers,
distributors, creditors, lessors, employees and business associates.
INDEMNIFICATION
Pursuant to the Restructuring Agreement, the Corporation 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 Trustees or officers of the Trust and its subsidiaries as
provided in their respective declarations of trust, articles or certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of the Trust 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 the Trust
in connection therewith shall be assumed by the Corporation.
CONDITIONS TO THE CONSUMMATION OF THE RESTRUCTURING
Conditions to Each Party's Obligation to Effect the Restructuring. The
respective obligation of each party to consummate the Restructuring is subject
to the satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
- the Restructuring Agreement and the amendment and restatement of the
Trust Declaration and the Pairing Agreement shall have been duly approved
by the holders of the Trust Shares, Class A EPS and Class B EPS and the
amendment and restatement of the Pairing Agreement shall have been duly
approved by the holders of the Corporation Shares;
- the Class B Shares issuable in the Restructuring shall have been
authorized for listing on the NYSE, subject to official notice of
issuance;
- the waiting period applicable to the consummation of the Restructuring
under the HSR Act shall have expired or been terminated and all notices,
reports and other filings required to be made prior to the Effective Time
by the Trust or the Corporation or any of their respective subsidiaries
with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Trust or the Corporation or any of their respective subsidiaries from,
any governmental entity in connection with the execution and delivery of
the Restructuring Agreement and the consummation of the Restructuring
shall have been made or obtained (as the case may be), except those the
failure to make or to obtain are not, individually or in the aggregate,
reasonably likely to have a material adverse effect on the Trust or the
Corporation; and
- no court or other governmental entity having jurisdiction over the Trust,
the Corporation or any of their respective subsidiaries shall have
enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) that is then in effect and that
restrains, enjoins or otherwise prohibits consummation of the
Restructuring, and no governmental entity shall have instituted any
proceeding therefor.
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Conditions to Obligations of the Trust. The obligation of the Trust to
effect the Restructuring is also subject to the satisfaction or waiver by the
Trust at or prior to the Effective Time of certain conditions, including the
following:
- subject to certain limitations, the representations and warranties of the
Corporation set forth in the Restructuring Agreement shall be true and
correct in all material respects at and as of the Effective Time as
though made at and as of the Effective Time; and
- the Corporation shall have performed in all material respects all
material obligations required to be performed by it under the
Restructuring Agreement at or prior to the Effective Time.
Conditions to Obligation of the Corporation. The obligation of the
Corporation to effect the Restructuring is also subject to the satisfaction or
waiver by the Corporation at or prior to the Effective Time of certain
conditions, including the following:
- subject to certain limitations, the representations and warranties of the
Trust set forth in the Restructuring Agreement shall be true and correct
in all material respects at and as of the Effective Time as though made
at and as of the Effective Time; and
- the Trust shall have performed in all material respects all material
obligations required to be performed by it under the Restructuring
Agreement at or prior to the Effective Time.
TERMINATION
The Restructuring Agreement may be terminated at any time prior to the
Effective Time, whether before or after any approval of the matters presented in
connection with the Restructuring by the shareholders of the Trust or the
stockholders of the Corporation:
- by mutual written consent of the Trust and the Corporation;
- by either the Trust or the Corporation if there has been a material
breach of the representations and warranties, covenants and agreements on
the part of the other set forth in the Restructuring Agreement, which
breach has not been cured within twenty business days following receipt
by the breaching party of notice of such breach from the non-breaching
party;
- by either the Trust or the Corporation if any court or other governmental
entity having jurisdiction over either of them or any of their respective
subsidiaries shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other
order or taken any other action permanently enjoining, restraining or
otherwise prohibiting or making illegal the Restructuring and such law,
rule, regulation, executive order, decree, injunction or other order or
other action shall have become final and nonappealable;
- by either the Trust or the Corporation if the Restructuring has not been
consummated before June 30, 1999, unless the failure to consummate the
Restructuring is the result of a material breach of the Restructuring
Agreement by the party seeking to terminate the Restructuring Agreement;
- by either the Trust or the Corporation if the shareholders of the Trust
do not approve the Restructuring Proposal at the Trust Meeting; or
- by either the Trust or the Corporation if the stockholders of the
Corporation do not approve the Restructuring Proposal at the Corporation
Meeting.
WAIVER
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 under the Restructuring Agreement, (ii) waive any inaccuracies in the
representations and warranties contained in the Restructuring Agreement or in
any document delivered pursuant to the Restructuring Agreement and (iii) waive
compliance with any of the agreements or conditions contained in the
Restructuring Agreement which may legally be waived. Any
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determination to waive a condition would depend upon the facts and circumstances
existing at the time of such waiver and would be made by the waiving party's
respective Board, exercising its duties to such party and its shareholders or
stockholders. If, after approval of the Restructuring Proposal by shareholders
of the Trust and stockholders of the Corporation, the Trust or the Corporation
waives any material condition to the consummation of the Restructuring, the
Trust and the Corporation will, to the extent they deem it necessary under
applicable law or desirable, resolicit the approval of shareholders and
stockholders to the Restructuring, taking into account such waived condition.
Neither the Trust nor the Corporation has any current intention to waive any
material provisions or conditions of the Restructuring Agreement.
AMENDMENT AND RESTATEMENT OF THE DECLARATION OF TRUST OF THE TRUST
The Trust Board approved and declared advisable the amendment and
restatement of the Trust Declaration as set forth in Annex B (which is marked to
show the proposed amendments) to this Joint Proxy Statement (the "Trust
Declaration Amendment and Restatement") and directed that the Trust Declaration
Amendment and Restatement be submitted to shareholders of the Trust at the Trust
Meeting. As described below, the Trust Declaration Amendment and Restatement
would (i) increase the number of authorized shares of beneficial interest of the
Trust by 5,000 shares and classify 5,000 shares of beneficial interest as "Class
A Shares" and 1,000,000,000 shares of beneficial interest as "Class B Shares,"
(ii) make certain changes to reflect the proposed amendment and restatement of
the Pairing Agreement and (iii) make certain other changes.
CURRENT PROVISIONS
Authorized Shares of Beneficial Interest. The Trust Declaration currently
authorizes the Trust to issue 1.35 billion shares of beneficial interest 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 Trust Declaration grants to the Trustees the power
to create and authorize the issuance of one or more classes or series of 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.
As of September 30, 1998, 182,837,403 Trust Shares were issued and
outstanding and 34,533,337 Trust Shares were reserved for issuance and 8,380,091
Trust Preferred Shares were issued and outstanding and 4,750,986 Trust Preferred
Shares were reserved for issuance.
It is currently anticipated that approximately 180 million Class B Shares
will be issued and 35 million will be reserved for issuance in connection with
the Restructuring. The Trust Declaration currently does not permit the Board of
Trustees, without the approval of the shareholders of the Trust, to change the
classification of the Trust Shares to Class B Shares. Accordingly, adoption of
the amendments is necessary in order to permit the Trust to effect the
Restructuring and to set forth the preferences, conversion and other rights,
voting powers, limitation as to dividends or distributions, qualifications, or
terms or conditions of redemption of the Class A Shares and the Class B Shares.
Pairing Agreement. The Trust Declaration currently provides that until the
limitation on transfer provided for in the Pairing Agreement is terminated,
among other things, the Trust Shares shall not be transferable unless a
simultaneous transfer is made by the same transferor to the same transferee, or
such transferor has previously arranged with the Corporation for the acquisition
by the transferee, of a like number of Corporation Shares and such shares and
Trust Shares are paired with one another.
As further discussed under the caption "Amendment and Restatement of the
Pairing Agreement," after the Restructuring, the Class B Shares, and not the
Trust Shares, will be attached to and trade together with the Corporation
Shares. Accordingly, the Trust Declaration must be amended to provide for the
new arrangement.
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PROPOSED AMENDMENTS
Authorized Shares of Beneficial Interest. The Trust Declaration Amendment
and Restatement provides that the Trust may issue 1,350,005,000 shares of
beneficial interest in the Trust, consisting of (i) 5,000 Class A Shares, (ii)
one billion Class B Shares, (iii) 200 million Excess Trust Shares, (iv) 30
million Class A EPS, (v) 15 million Class B EPS, (vi) 55 million Trust Preferred
Shares and (vii) 50 million Excess Trust Preferred Shares. In addition, the
amendment would provide that the Trustees would have the power to classify or
reclassify any unissued shares of one or more classes, or one or more series
within any class by setting or changing the preferences, conversion and other
rights, voting powers, limitation as to dividends or distributions,
qualifications, or terms or conditions of redemption as not prohibited by the
Trust Declaration Amendment and Restatement. If the shareholders of the Trust
approve the Trust Declaration Amendment and Restatement, Section 6.1 of the
Trust Declaration will be amended to read as set forth in Annex B to this Joint
Proxy Statement.
Pairing Agreement. The Trust Declaration Amendment and Restatement would
provide that until the Pairing Agreement (as it is proposed to be amended and
restated as described under the caption "Amendment and Restatement of the
Pairing Agreement") is terminated, the Trust shall comply in all material
respects with the restrictions on transfer of its shares of beneficial interest
and all other provisions set forth in that agreement. If the shareholders of the
Trust approve the Trust Declaration Amendment and Restatement, Section 6.14 of
the Trust Declaration will be amended to read in its entirety as set forth in
Annex B to this Joint Proxy Statement, with the effective date of the proposed
amendment and restatement of the Pairing Agreement inserted at the appropriate
place.
Classification of Class A Shares and Class B Shares. The Trust Declaration
Amendment and Restatement would authorize and designate the Class A Shares and
Class B Shares. The amendment would set forth the preferences, conversion and
other rights, voting powers, limitations as to dividends or distributions,
qualifications, and terms or conditions of redemption of the Class A Shares and
Class B Shares. For a description of the Class A Shares and Class B Shares, see
"Description of Class A Shares" and "Description of Class B Shares." If the
shareholders of the Trust approve the Trust Declaration Amendment and
Restatement, Sections 6.18 and 6.19 will be inserted into the Trust Declaration,
as set forth in Annex B to this Joint Proxy Statement.
Other Amendments. If the shareholders of the Trust approve the Trust
Declaration Amendment and Restatement, the other changes that are reflected in
the Trust Declaration Amendment and Restatement, including conforming changes
relating to the voting rights of the shares of beneficial interest of the Trust,
would also be effected.
PURPOSE AND EFFECT OF PROPOSED AMENDMENTS
Authorized Shares of Beneficial Interest. The purpose of the proposed
changes to Section 6.1 of the Trust Declaration is to provide for the Class A
Shares and the Class B Shares in order to consummate the Restructuring and to
provide the Trust Board with the authority to classify or reclassify any
unissued shares of beneficial interest in the Trust, if and when needed, for
issuance from time to time for any proper purpose approved by the Trust Board,
including issuances to raise capital, effect acquisitions or preserve the
Trust's status as a REIT for federal income tax purposes, and for other Trust
purposes. (The Trust may also issue debt securities for such purposes.) Although
there are no present arrangements, agreements or understandings for the issuance
of shares of beneficial interest (other than the shares previously reserved for
issuance as described above, and the shares to be issued pursuant to the
Restructuring and in connection with acquisitions in the ordinary course of
business), the Trust Board believes that the authority to classify or reclassify
any unissued shares upon approval of the Trust Board without the necessity for,
or the delay inherent in, a meeting of the shareholders of the Trust will be
beneficial to the Trust and its shareholders by providing the Trust with the
flexibility required to promptly consider and respond to future business
opportunities and needs as they arise.
If the proposed amendment is approved by shareholders of the Trust, the
Trust Board does not presently intend to seek further shareholder approval with
respect to any particular issuance, classification
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or reclassification 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 may then be listed.
Shareholders of the Trust 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 shareholders.
Pairing Agreement. The purpose of the proposed change to Section 6.14 of
the Trust Declaration is to provide that the Trust shall comply with the
restrictions on transfer set forth in the proposed amendment and restatement of
the Pairing Agreement, rather than providing for the pairing of the Trust Shares
with Corporation Shares.
EFFECTIVE TIME OF THE AMENDMENT AND RESTATEMENT
If approved, the Trust Declaration Amendment and Restatement is expected to
take effect at the Effective Time. If the Closing under the Restructuring
Agreement does not occur, the Trust Declaration Amendment and Restatement will
not be effected. Approval of the Restructuring Proposal will include approval of
the Trust Declaration Amendment and Restatement.
AMENDMENT AND RESTATEMENT OF THE PAIRING AGREEMENT
The Trust and the Corporation are parties to the Pairing Agreement, which
provides, among other things, that neither the Trust nor the Corporation may
issue or transfer or agree to issue or transfer shares of beneficial interest in
the Trust or Corporation Shares unless effective provision is made for the
issuance or transfer to the same person of the same number of shares of
beneficial interest in the Trust and Corporation Shares and that shares of
beneficial interest in the Trust and Corporation Shares may not be transferred
on the respective books of either entity unless the transferee acquires the same
number of shares of beneficial interest in the Trust and Corporation Shares.
Following the Effective Time, the Class B Shares, and not the Trust Shares,
will be attached to and trade together with the Corporation Shares. The Class A
Shares, which will all be owned by the Corporation, will not be required to be
held and transferred with any shares of stock of the Corporation. In order to
permit this arrangement, the Trust Board and the Corporation Board have adopted
an amendment and restatement of the Pairing Agreement (the "Pairing Agreement
Amendment and Restatement") and directed that such amendment and restatement be
submitted to the shareholders of the Trust at the Trust Meeting and to the
stockholders of the Corporation at the Corporation Meeting.
The Pairing Agreement Amendment and Restatement would amend and restate the
Pairing Agreement to read substantially as set forth in Annex C.
The adoption of the Pairing Agreement Amendment and Restatement would
rename the Pairing Agreement the "Intercompany Agreement." In addition, all
references in the Pairing Agreement to Trust Shares would be changed to Class B
Shares, so that the Class B Shares will be attached to the Corporation Shares.
The Pairing Agreement Amendment and Restatement also provides for the adjustment
of the number and class of securities comprising a Unit upon certain events,
including any distribution of Class B Shares or Corporation Shares or the
subdivision, combination or other reclassification of the Class B Shares or
Corporation Shares.
The Pairing Agreement Amendment and Restatement provides that the Trust
Board and the Corporation Board may amend the agreement without the consent of
the holders of Class B Shares or Corporation Shares, except that no such
amendment may materially and adversely affect the rights of the holders of the
Class B Shares pursuant to the provisions of the agreement relating to the
Corporation's exchange right without the prior approval of the holders of a
majority of the then outstanding Class B Shares.
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Finally, the Pairing Agreement Amendment and Restatement provides that if a
Tax Event, a Creditor Event or any Other Event (each as defined under the
caption "Description of Class B Shares -- Exchange Rights") shall occur and be
continuing, or at any time after the date that is five years after the Effective
Time, the Corporation, at its sole option, but solely in accordance with the
Trust Declaration, will have the right to exchange for all or any portion of the
outstanding Class B Shares cash, Corporation Shares, or other property with a
fair market value, in the good faith judgement of the Trust Board, at least
equal to the fair market value of the Class B Shares being exchanged. See
"Description of Class B Shares -- Exchange Rights" for a description of this
exchange right.
If approved, the Pairing Agreement Amendment and Restatement is expected to
take effect upon the Closing under the Restructuring Agreement. If the Closing
under the Restructuring Agreement does not occur, the Pairing Agreement
Amendment and Restatement will not be effected. Approval of the Restructuring
Proposal will include approval of the Pairing Agreement Amendment and
Restatement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Restructuring to Starwood Hotels and its shareholders and stockholders.
This summary is for information purposes only and is not tax advice. Except as
discussed below, no ruling or determination letters from the IRS or opinions of
counsel have been rendered or will be requested by Starwood Hotels on any tax
issue connected with the Restructuring.
This summary is based upon the Code, as currently in effect, applicable
Treasury Regulations thereunder and judicial and administrative interpretations
thereof, all of which are subject to change, including changes that may be
retroactive. No assurance can be given that the IRS will not challenge the
propriety of one or more of the tax positions described herein or that such a
challenge would not be successful.
This summary does not purport to deal with all aspects of taxation that may
be relevant to Starwood Hotels or to its shareholders and stockholders in light
of their personal investment or tax circumstances. Sidley & Austin, special tax
counsel for Starwood Hotels, is opining on certain federal income tax
consequences of the proposed Restructuring for Starwood Hotels and the
shareholders and stockholders of Starwood Hotels. Such opinion has been included
as Annex F to this Joint Proxy Statement. Sidley & Austin has advised Starwood
Hotels that such opinion is not binding on the IRS or any court and no assurance
can be given that the IRS will not challenge the propriety of part or all of
such opinion or that such a challenge would not be successful. Such opinion of
Sidley & Austin relies upon and is premised on the accuracy of factual
statements and representations of Starwood Hotels concerning its business and
properties, ownership, organization, sources of income, future operations,
levels of distributions and recordkeeping, and the judgments of Starwood Hotels
with respect to the fair market value of its real estate assets, the relative
value of the Trust Shares and the Corporation Shares to the value of the Paired
Shares, the relative value of the Class B Shares to the total shares of
beneficial interest of the Trust, the reasonableness of the guaranty fee paid by
the Corporation to the Trust with respect to indebtedness of the Corporation,
and the ability of the Corporation to have arranged for debt financing for the
ITT Merger without a guaranty of the Trust. Such statements and representations
by Starwood Hotels are incorporated by reference into Sidley & Austin's opinion
letter. Except as specifically provided, the discussion below does not address
foreign, state or local tax consequences, nor does it specifically address the
tax consequences to taxpayers subject to special treatment under the federal
income tax laws (including dealers in securities, foreign persons, life
insurance companies, tax-exempt organizations, financial institutions, and
taxpayers subject to the alternative minimum tax). The discussion below assumes
that the Paired Shares and the Units (each of which consists of one Class B
Share and one Corporation Share) 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 opinions
contained in the
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Sidley & Austin opinion letter and/or the accuracy of any statements in this
Joint Proxy Statement with respect to transactions entered into or contemplated
prior to the effective date of such changes.
EACH SHAREHOLDER AND STOCKHOLDER OF STARWOOD HOTELS IS URGED TO CONSULT
HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM,
HER OR IT OF THE RESTRUCTURING, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE RESTRUCTURING AND OF POTENTIAL CHANGES IN THE
APPLICABLE TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF THE RESTRUCTURING
Federal Income Tax Consequences to the Trust Shareholders
Pursuant to the proposed Restructuring, a wholly-owned subsidiary of the
Corporation will merge with and into the Trust. In the opinion of Sidley &
Austin, the Restructuring will be treated for federal income tax purposes as if
the holders of Trust Shares had exchanged a portion of their outstanding Trust
Shares for Class B Shares in a transaction qualifying as a recapitalization
under Section 368(a)(1)(E) of the Code, and as if the holders of Trust Shares
had contributed the remaining portion of their Trust Shares to the Corporation
in a transaction qualifying under Section 351(a) of the Code. Therefore, a
holder of Trust Shares will not recognize any gain or loss as a result of the
Restructuring.
A shareholder's tax basis in his, her or its Units will be equal to the
shareholder's tax basis in his, her or its Paired Shares. The tax basis of the
Class B Shares received by such holder will be equal to the tax basis of the
portion of the Trust Shares treated as surrendered therefor and the holding
period of the Class B Shares will include the holding period of the portion of
the Trust Shares treated as so surrendered. A shareholder's tax basis in his,
her or its Corporation Shares will be increased by the excess of such holder's
tax basis in the Trust Shares over the amount of such tax basis that is
allocated to the Class B Shares received by such holder. A shareholder's holding
period in Corporation Shares will remain the same.
Federal Income Tax Consequences to the Holders of Class A EPS and Class B
EPS
Sidley & Austin is of the opinion that no gain or loss will be recognized
by holders of Class A EPS and Class B EPS as a result of the Restructuring.
Federal Income Tax Consequences to the Trust, the Corporation and the
Corporation Stockholders
Sidley & Austin is of the opinion that no gain or loss will be recognized
by the Trust, the Corporation or the stockholders of the Corporation as a result
of the Restructuring. The Corporation will have a tax basis in the Trust Shares
treated as received by the Corporation equal to the tax basis in the portion of
the Trust Shares in the hands of the Trust shareholders treated as contributed
to the Corporation.
However, in anticipation of the proposed Restructuring, the Trust will not
distribute the total amount of its required annual distribution for 1998 in
1998. See "Federal Income Taxation of the Trust After the
Restructuring -- Requirements for Qualification -- Annual Distribution
Requirements," below. Instead, the Trust will declare and pay to the Corporation
a special dividend with respect to the Class A Shares in January 1999. The Trust
intends to make an election pursuant to Section 858 of the Code to have this
special dividend relate back to the Trust's 1998 taxable year for REIT
qualification purposes. The Trust will, however, be required to pay a
nondeductible 4% excise tax on a portion of this special dividend and the
Corporation will be taxable on the amount of the special dividend.
After the Restructuring, the Corporation will own all of the Class A Shares
and the Corporation will be subject to federal income tax on the amount of any
dividends paid with respect to the Class A Shares and will not be entitled to a
dividends received deduction with respect to such dividends.
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FEDERAL INCOME TAXATION OF THE TRUST AFTER THE RESTRUCTURING
Background
In 1980, prior to the establishment of the Corporation and the pairing of
its shares with the shares of the Trust, the IRS issued a Private Letter Ruling
(the "Ruling") to the Trust in which the IRS held that the pairing of the Trust
Shares and the Corporation Shares and the operation of the Corporation would not
preclude the Trust from qualifying as a REIT. The Ruling does not impose any
continuing limitations on the Trust or the Corporation. Subsequent to the
issuance of the Ruling, (i) the IRS announced that it would no longer issue
rulings to the effect that a REIT whose shares are paired with those of a
non-REIT will qualify as a REIT if the activities of the paired entities are
integrated and (ii) Congress, in 1984, enacted Section 269B(a)(3) of the Code,
which, in certain circumstances, treats a REIT and a non-REIT, the paired shares
of which were not paired on or before June 30, 1983, as one entity for purposes
of determining whether either company qualifies as a REIT. Section 269B(a)(3) of
the Code has not applied to the Trust and the Corporation (because 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 Internal Revenue Service Restructuring and Reform Act of 1998 ("H.R.
2676") was enacted on July 22, 1998. H.R. 2676 has the effect of limiting the
grandfathering from the anti-pairing rules of Section 269B(a)(3) of the Code of
which Starwood Hotels has enjoyed the benefits since 1984. Under H.R. 2676, for
purposes of the gross income tests for qualification as a REIT, the Trust and
the Corporation would be treated as one entity with respect to interests in real
property acquired directly or indirectly after March 26, 1998 by the Trust or
the Corporation, or a subsidiary or partnership in which a 10% or greater
interest is owned by the Trust or the Corporation (collectively, the "REIT
Group"), unless (i) the interests in real property are acquired pursuant to a
written agreement binding on March 26, 1998 and at all times thereafter or (ii)
the acquisition of such interests in real property was described in a public
announcement or in a filing with the SEC on or before March 26, 1998. H.R. 2676
also provides that an interest in real property held by the REIT Group that is
not subject to these rules would become subject to such rules in the event an
improvement to such interest in real property is placed in service after
December 31, 1999 that changes the use of the property and the cost of such
improvement is greater than 200% of (x) the undepreciated cost of the property
(prior to the improvement) or (y) in the case of property acquired where there
is a substituted basis, the fair market value of the property on the date it was
acquired by the REIT Group. There is an exception for improvements placed in
service before January 1, 2004 pursuant to a binding contract in effect as of
December 31, 1999 and at all times thereafter.
After the Restructuring, the restrictions of H.R. 2676 will no longer apply
to Starwood Hotels, and thus will not prevent Starwood Hotels from acquiring
additional interests in real property. Prior to the completion of the
Restructuring, Starwood Hotels will monitor the acquisition of interests in real
property by the REIT Group to ensure that such acquisitions do not prevent the
Trust from qualifying for taxation as a REIT.
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General
The Trust has elected to be taxed as a REIT under Sections 856 through 860
of the Code and applicable Treasury Regulations (the "REIT Provisions")
commencing with its taxable year ended December 31, 1995. The Trust believes
that, commencing with such taxable year, it was organized and has operated in
such a manner so as to qualify for taxation as a REIT and the Trust intends to
continue to operate in such a manner after the Restructuring; 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
discussion 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 has rendered an opinion to the effect that after the
Restructuring, the Trust's proposed method of operation will enable it to
continue to comply with the REIT Provisions for its taxable year ending December
31, 1999 and future taxable years. It must be emphasized that such qualification
and taxation as a REIT depend 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 operations for any particular taxable year will
satisfy such requirements. Further, the anticipated federal income tax treatment
described in this Joint Proxy Statement may be changed, perhaps retroactively,
by legislative, administrative, or judicial action at any time. For a discussion
of the tax consequences of failure to qualify as a REIT, see "-- Failure to
Qualify," below.
As long as the Trust qualifies for taxation as a REIT, it will not be
subject to federal corporate income taxes on net income that it currently
distributes to shareholders, except in the circumstances set forth in this
paragraph. The Trust, even if it qualifies for taxation as a REIT, 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
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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 during the applicable
Recognition Period is likely to result in a federal income tax liability to the
Trust to the extent that, in general, the net Built-in Gain exceeds available
loss carryforwards.
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) that, as of the close of the taxable
year, has no earnings and profits accumulated in any non-REIT year; (viii) that
is not electing to be taxed as a REIT prior to the fifth taxable year which
begins after the first taxable year for which its REIT status terminated or was
revoked or the IRS has waived the applicability of such waiting period; (ix)
that has the calendar year as its taxable year; and (x) that meets certain other
tests, described below, regarding the nature of its income and assets. The REIT
Provisions provide that conditions (i) to (iv), inclusive, must be met during
the entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. Conditions (v) and (vi) do not apply until after
the first taxable year for which an election is made by the REIT to be taxed as
a REIT.
The Trust believes that it satisfies conditions (i) through (x) described
in the immediately preceding paragraph. The Trust believes that the dividends
paid and to be paid by the Trust and its predecessors will enable the Trust to
satisfy condition (vii) above. In addition, the Trust Declaration and the
charter of the Corporation (the "Corporation Charter") 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. After the Restructuring, although
the Class A Shares will constitute more than 50% in value of the shares of the
Trust and will be held by the Corporation, the Trust will continue to satisfy
condition (vi) above because, for purposes of such condition, the Class A Shares
will be considered to be owned by the Corporation's stockholders. 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
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references to the Trust in this "Material Federal Income Tax Consequences"
section include the Trust's Qualified REIT Subsidiaries.
As part of the Westin Acquisition, the Realty Partnership acquired
substantially all of the stock of certain corporations, 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
each of which the Trust owns all of the nonvoting stock and voting stock
comprising less than 10% of the outstanding voting stock. The remainder of the
voting stock of the Management Subsidiaries is owned by the Corporation. The
Management Subsidiaries will not be treated as Qualified REIT Subsidiaries.
In the case of a REIT that is a partner in a partnership, the REIT
Provisions provide that the REIT is deemed to own its proportionate share of the
assets of the partnership based on the REIT's capital interest in the
partnership and is deemed to be entitled to the income of the partnership
attributable to such proportionate share. In addition, the character of the
assets and gross income of the partnership will 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 Hotels, however, that if the gross income tests and the asset
tests described below were applied to partnerships in a manner different from
that described in this paragraph, then the Trust might not be able to satisfy
one or more of the gross income tests or asset tests and, in such a case, the
Trust would lose its REIT status.
Paired Shares. Section 269B(a)(3) of the Code provides that if a REIT and
a non-REIT are "stapled entities," as such term is defined in Section
269B(c)(2), then the REIT and the non-REIT shall be treated as one entity for
purposes of determining whether either company qualifies as a REIT. The term
"stapled entities" means any group of two or more entities if more than 50% in
value of the beneficial ownership in each of such entities consists of "stapled
interests." If Section 269B(a)(3) applied to the Trust and the Corporation, then
the Trust would not be able to satisfy the gross income tests (described below)
and thus would not be eligible to be taxed as a REIT. Except to the extent
provided in H.R. 2676, Section 269B(a)(3) does not apply 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. This grandfathering rule does not, by its
terms, require that the Trust be taxed as a REIT at all times after June 30,
1983. Therefore, the termination of the Trust's REIT election for the taxable
years ended December 31, 1991 through 1994 did not result in Section 269B(a)(3)
becoming applicable to the Trust. Sidley & Austin has rendered an opinion to the
effect that Section 269B(a)(3) has not applied to the Trust and will continue
not to apply to the Trust after the Restructuring because, after the
Restructuring, although each Class B Share will trade only as a unit with an
attached Corporation Share, the Trust and the Corporation will not be "stapled
entities." Sidley & Austin's opinion is based on the Trust's representation that
the value of the Class B Shares will at all relevant times be less than 50% of
the value of the shares of beneficial interest of the Trust. The Trust's
representation is based on its analysis of the terms of the Class B Shares
relative to the terms of the other shares of the Trust that will be outstanding
after the Restructuring, including that the Class B Shares are nonvoting (except
upon matters materially and adversely affecting the rights of the holders of
Class B Shares disproportionately to the effect on holders of Class A Shares),
will only participate (together with the Class A EPS and Class B EPS) in 10% of
the liquidation proceeds of the Trust after the payment of the liquidation
preference of the Class A
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Shares, and the dividends paid with respect to the Class B Shares are expected
to be less than the dividends paid with respect to the Class A Shares.
Sidley & Austin has rendered an opinion to the effect that, after the
Restructuring, the Trust and the Corporation will no longer be "stapled
entities" for purposes of Section 269B(a)(3) of the Code. As a result, Starwood
Hotels will cease to qualify as a "grandfathered paired share REIT." Because the
anti-paired share REIT provisions of H.R. 2676 only apply to grandfathered
paired share REITs, after the Restructuring Starwood Hotels will no longer be
subject to such provisions.
Sidley & Austin has advised Starwood Hotels that, even though Section
269B(a)(3) of the Code does not apply to the Trust and the Corporation, the IRS
could assert that the Trust and the Corporation should be treated as one entity
under general tax principles. In general, such an assertion would only be upheld
if the separate corporate identities of the Trust and the Corporation are a sham
or unreal. Not all of the Trustees of the Trust are also Directors of the
Corporation. In addition, 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 has rendered an opinion to the effect that, based on the
foregoing, the separate corporate identities of the Trust and the Corporation
will be respected.
The Trust, the Corporation, the Realty Partnership, the Operating
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. It is the policy
of the Trust and the Corporation to evaluate material intercompany transactions
and to attempt to set the terms of such transactions so as to achieve
substantially the same result as they believe would have been the case if they
were unrelated parties. As a result, the Trust and the Corporation believe that
(i) 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, and (ii) 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. Pursuant to H.R. 2676, prior to the effective date of the
Restructuring, with respect to certain interests in real property acquired after
March 26, 1998, the Trust and the Corporation will be treated as a single entity
for purposes of the gross income tests.
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
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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 renders or
furnishes 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 rendered or furnished 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 rendered or furnished 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." The
provision of Prohibited Services by a REIT in connection with a lease of real
property will not cause the rent to fail to qualify as "rents from real
property" unless the amount treated as received for the Prohibited Services
exceeds 1% of all amounts received or accrued during the taxable year directly
or indirectly by the REIT with respect to such property.
A substantial portion of the Trust's income will be derived from its
partnership interests in the Realty Partnership and the Realty Subsidiary
Entities and its indirect ownership of the Subsidiary REITs. The Trust, the
Realty Partnership, the Realty Subsidiary Entities and the Subsidiary REITs
currently 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 partnerships, limited liability companies or corporations owned
in whole or in part by the Operating Partnership (collectively, the "Operating
Subsidiary Entities"), or to unrelated persons (the "Leases"). The Leases are
net leases which generally provide for payment of rent equal to the greater of a
fixed rent or a percentage rent. The percentage rent is determined by
calculating a fixed percentage of the gross room revenues and adding, for
certain hotels, fixed percentages of other types of gross revenues in excess of
certain levels. Pursuant to the proposed Restructuring, substantially all of the
Leases to the Operating Partnership and the Operating Subsidiary Entities will
be transferred to the Corporation as of December 31, 1998.
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 has rendered an opinion to the effect that the Leases will
be treated as true leases for federal income tax purposes, which 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.
Investors should be aware, however, that there are not controlling
authorities involving leases with terms substantially the same as the Leases.
Therefore, the opinion of Sidley & Austin is based upon an analysis of the facts
and circumstances and upon rulings and judicial decisions involving situations
that are
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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 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 any tenant under a Lease. If the
Trust or any Subsidiary REIT were to own directly or indirectly, 10% or more of
such tenant, the tenant would be a Related Party Tenant and 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 Trust
Declaration and the Corporation Charter contain restrictions on the amount of
Units 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 Units will be ineffective. Sidley & Austin has advised Starwood
Hotels, 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
Units, it is possible for a person to own sufficient Units to cause the
termination of the Trust's REIT status. The Trust, the Realty Partnership, the
Realty Subsidiary Entities and the Subsidiary REITs currently lease all of their
fee and leasehold interests in their hotels and associated property to the
Corporation, the Operating Partnership, the Operating Subsidiary Entities or to
unrelated persons. Pursuant to the proposed Restructuring, effective as of
December 31, 1998, substantially all of the Leases to the Operating Partnership
and the Operating Subsidiary Entities will be transferred to the Corporation.
Sidley & Austin is of the opinion that the Corporation will not be a Related
Party Tenant with respect to the Trust or the Subsidiary REITs.
Finally, rent under the Leases will not qualify as "rents from real
property" if the Trust or any Subsidiary REIT renders or furnishes Prohibited
Services to the occupants of the properties (subject to a de minimis rule) other
than through an independent contractor from whom the Trust or such Subsidiary
REIT does not derive any income. So long as the Leases are treated as true
leases, neither the Trust nor
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any Subsidiary REIT will be 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, the Realty Partnership, nor any of the Realty
Subsidiary Entities, the Subsidiary REITs or the Management Subsidiaries will
render or furnish Prohibited Services to the Corporation, the Operating
Partnership or any Operating Subsidiary Entity. Sidley & Austin has advised
Starwood Hotels that if the IRS were to successfully assert that the Trust, the
Realty Partnership, any Realty Subsidiary Entity, any Subsidiary REIT or any
Management Subsidiary was rendering or furnishing Prohibited Services to the
Corporation, the Operating Partnership or any Operating Subsidiary Entity or was
managing or operating any assets owned directly or indirectly by the Trust, the
Realty Partnership, any Realty Subsidiary Entity, any Subsidiary REIT or any
Management Subsidiary, 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.
A corporation cannot qualify as an independent contractor if more than 35%
of the total combined voting power of its stock is owned directly or indirectly
by one or more persons who own 35% or more of the REIT. Therefore, after the
Restructuring, certain entities owned directly or indirectly by the Corporation
will not qualify as independent contractors. The Corporation has represented
that any Prohibited Services to be provided by any non-independent contractor
entity will not be rendered or furnished by or on behalf of the Trust.
Based on the foregoing, Sidley & Austin has rendered an opinion to the
effect that, except with respect to Leases that, as of December 31, 1998, are
not transferred to the Corporation, 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 failure 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,
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 provides 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 intends to charge interest that
will depend in whole or in part on the income or profits of any person or to
make loans (not secured in substantial part by real estate mortgages) in amounts
that could jeopardize the Trust's compliance with the 75% and 5% asset tests,
discussed below. Accordingly, to the extent the notes held by the Trust, the
Realty Partnership or the Realty Subsidiary Entities are secured by real
property, the interest received or accrued with respect to such notes will be
treated as qualifying income for both the 75% and the 95% gross income tests.
Certain of the notes held by the Trust and the Realty Partnership are not
secured by real property and, with respect to such notes that are secured by
real property (including notes issued in connection with the ITT 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 test. However, Starwood
Hotels believes that the amount of such interest will not cause the Trust to
fail to satisfy the 75% gross income test.
The Trust has guaranteed certain indebtedness of the Corporation. The fees
paid to the Trust for such guarantee are unlikely to be treated as qualifying
income for either the 75% or the 95% gross income tests.
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However, Starwood Hotels 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.
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 the business of the Trust, the Realty Partnership, any Realty
Subsidiary Entity or any Subsidiary REIT.
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.
Asset Tests. In order to maintain qualification as a REIT, a REIT, at the
close of each quarter of its taxable year, must also satisfy three tests
relating to the nature of its assets. First, at least 75% of the value of the
REIT's total assets must be represented by "real estate assets" (including stock
or debt instruments held for not more than one year purchased with the proceeds
of a stock offering or long-term (at least five years) debt offering of the
REIT), cash, cash items and 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 owns all of the nonvoting stock and less than 10% of the voting
stock of each 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 by the Trust 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
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deduction and the Trust's net capital gain) and (b) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
non-cash income. In addition, if the Trust directly or indirectly disposes of
any Built-in Gain Asset during its Recognition Period, the Trust will be
required, pursuant to Treasury Regulations that have not yet been promulgated,
to distribute at least 95% of the Built-in Gain (after tax), if any, recognized
on the disposition of such asset. Distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Trust timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Trust does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain 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 distribution over the amounts actually
distributed.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements. 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, although the Trust may, in such case, be eligible to
file a consolidated return with the Corporation. 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 (including the
Corporation) 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 Units 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.
The Corporation will be taxable on the dividends it receives from the Trust and
will not be entitled to a dividends-received deduction with respect to such
dividends.
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FEDERAL INCOME TAXATION OF HOLDERS OF UNITS
Federal Income Taxation of Taxable U.S. Holders
As used herein, the term "U.S. Shareholder" means a holder of Units 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 such U.S. Shareholders 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. Certain capital gain dividends will be taxed at
different rates, depending on the type of gain recognized by the Trust. 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. Distributions
in excess of the Trust's current and accumulated earnings and profits will not
be taxable to a holder to the extent that they do not exceed the adjusted basis
of the U.S. Shareholder's Class B Shares, but rather will reduce the adjusted
basis of such Class B Shares. To the extent that such distributions exceed the
adjusted basis of a U.S. Shareholder's Class B 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 U.S. Shareholder of
record on a specified date in any such month will be treated as both paid by the
Trust and received by the U.S. Shareholder on December 31 of such year, provided
that the dividend is actually paid by the Trust during January of the following
calendar year.
If the Trust elects to retain and pay tax on its net capital gains, the
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 U.S. Shareholders'
Class B 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, U.S. Shareholders 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 Class B
Shares will not be treated as passive activity income and, therefore, U.S.
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 U.S.
Shareholders 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 U.S. Shareholder
to the extent that they do not exceed the adjusted basis of the U.S.
Shareholder'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 U.S. Shareholder'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).
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In general, a U.S. Shareholder will realize capital gain or loss on the
disposition of Units equal to the difference between the amount realized on such
disposition and the U.S. Shareholder's adjusted basis in such Units. Such gain
or loss will generally constitute long-term capital gain or loss if the U.S.
Shareholder held such Units for more than one year. However, any loss upon a
sale or exchange of Class B Shares by a U.S. Shareholder 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 U.S. Shareholder as long-term capital gain. U.S.
Shareholders who directly or indirectly hold Class A EPS or Class B EPS
immediately prior to the Restructuring should consult their tax advisors
regarding the potential application of Section 306 of the Code to a sale or
other disposition of Class B Shares or Units.
For U.S. Shareholders who are individuals, the maximum capital gains tax
rate for sales of Units will be: (i) 20%, if such shares have been held for more
than 12 months, or (ii) 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 Units
The IRS has ruled that amounts distributed as dividends by a REIT to a
tax-exempt employee's pension trust do not constitute unrelated business taxable
income ("UBTI"). Based on this ruling and the analysis therein, distributions by
the Trust will not, subject to certain exceptions described below, be UBTI to a
qualified plan, IRA or other tax-exempt entity (a "Tax-Exempt Shareholder")
provided the Tax-Exempt Shareholder has not held its shares as "debt financed
property" within the meaning of the Code and the shares are not otherwise used
in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Class B Shares will not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held such
Class B 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" will (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. 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 Units
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
non-resident alien individuals, foreign corporations, foreign partnerships, or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Shareholder in light of its particular
circumstances. Prospective Non-U.S. Shareholders should consult with their own
tax advisors to determine
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the effect of federal, state, local, and foreign income tax laws with regard to
an investment in Units, including any reporting requirements.
Treasury Regulations were issued on October 14, 1997 (the "1997 Final
Regulations") that will affect the United States federal income taxation of
distributions by the Trust or Corporation to Non-U.S. Shareholders. The 1997
Final Regulations are generally effective for payments made after December 31,
1999. In addition, the 1997 Final Regulations provide for the replacement of a
number of current tax certification forms (including IRS Form W-8 and IRS Form
4224) with a single, revised IRS Form W-8 (which, in certain circumstances,
requires more information than previously required). 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 Units if the income or gain
attributable to such investment is "effectively connected" with the Non-U.S.
Shareholder's conduct of a trade or business in the United States. A corporate
Non-U.S. Shareholder that receives income that is (or is treated as) effectively
connected with a United States trade or business may also be subject to the
branch profits tax under Section 884 of the Code, which is payable in addition
to regular United States corporate income tax. The following discussion will
apply to Non-U.S. Shareholders whose income or gain attributable to such
investment in Units is not so effectively connected.
Distributions. Distributions by the Trust to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Trust of United
States real property interests nor designated by the Trust as capital gains
dividends and distributions by the Corporation will be treated as dividends of
ordinary income to the extent that they are made out of current or accumulated
earnings and profits of the Trust or the Corporation, as the case may be. Such
distributions ordinarily will be subject to United States withholding tax on a
gross basis at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Any such amounts withheld should be creditable
against the Non-U.S. Shareholder's United States federal income tax liability.
Distributions in excess of current or accumulated earnings and profits of
the Trust or the Corporation, as the case may be, will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the Non-U.S. Shareholder's Class B 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 Class B
Shares or Corporation Shares, as the case may be, they will give rise to gain
from the sale or exchange of such Non-U.S. Shareholder's Units if the Non-U.S.
Shareholder otherwise would be subject to tax on any gain from the sale or other
disposition of Units, as described below. Distributions to Non-U.S. Shareholders
that reduce the adjusted basis of Class B Shares or Corporation Shares and
distributions to Non-U.S. Shareholders that exceed the adjusted basis of Class B
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, is 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 (or, for payments made after
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December 31, 1999, a revised IRS Form W-8) 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 and 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 Units. Gain recognized by a Non-U.S. Shareholder upon a sale or
other disposition of Units generally will not be subject to United States
federal income tax if (i) in the case of Class B Shares, the Trust is a
"domestically controlled REIT" or (ii) (a) the Units are regularly traded on an
established securities market (e.g., the NYSE, where the Units are expected to
be traded) and (b) the selling Non-U.S. Shareholder held 5% or less of the
outstanding Units 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, Units. Backup withholding will apply only if
the holder: (i) fails to furnish its taxpayer identification number ("TIN")
(which, for an individual, would be his or her Social Security number); (ii)
furnishes an incorrect TIN; (iii) is notified by the IRS that the holder has
failed to report properly payments of interest and dividends; or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that the
holder has furnished a correct TIN and has not been notified by the IRS that the
holder is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding will not apply with respect to payments
made to certain exempt recipients, such as corporations and tax-exempt
organizations. In addition, the Trust and the Corporation will be required to
withhold a portion of capital gain distributions made to any holders who fail to
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, her or its 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 taxable 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, they would be taxable as a corporation
and, therefore, subject to an entity level tax on their income. In addition, if
the Realty Partnership or certain Realty Subsidiary Entities were to be taxable
as corporations, the Trust would not qualify as a
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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.
OTHER TAX CONSEQUENCES
Starwood Hotels and the 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 the Trust, the Corporation and the holders of Units 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 RESTRUCTURING AND ON THE
PURCHASE, OWNERSHIP AND SALE OF UNITS.
DESCRIPTION OF CLASS B SHARES
The statements under this caption relating to the Class B Shares are a
summary of the provisions for the Class B Shares set forth in the Trust
Declaration Amendment and Restatement (the "Class B Provisions") and the Pairing
Agreement as it is proposed to be amended and restated.
When issued as contemplated in the Restructuring Agreement, the Class B
Shares required to be issued thereunder will be validly issued, fully paid and
nonassessable. The holders of Class B Shares will not have any preemptive rights
with respect to the issuance of any shares of beneficial interest in the Trust
or any securities convertible into, exchangeable for or carrying rights or
options to purchase any such shares. There is no provision for any sinking fund
with respect to the Class B Shares. The Class B Shares will be attached to and
trade with the Corporation Shares for the purposes of the Pairing Agreement.
The transfer agent, registrar and distribution disbursement agent for the
Class B Shares will initially be ChaseMellon Shareholder Services, LLC.
The Trust Declaration Amendment and Restatement will authorize one billion
Class B Shares (the number of Trust Shares currently authorized by the Trust
Declaration). It is expected that approximately 180 million Class B Shares will
be issued in the Restructuring. The Class B Shares will have a par value of $.01
per share and will have the following rights, designations, preferences,
participations and other limitations and restrictions.
DIVIDEND RIGHTS
Subject to certain conditions and to the prior rights of the holders of
Class A EPS and Class B EPS, the holders of Class B Shares will be entitled to
receive a non-cumulative annual dividend (the "Class B Dividend") in an amount
per share equal to the Class B Dividend Amount (as defined below) as, if and
when authorized by the Trust Board out of assets of the Trust available for
payment.
So long as any Class B Shares are outstanding, no dividends may be declared
or paid or set apart for payment on the Class A Shares with respect to any
fiscal quarter unless all accrued dividends on the Class B Shares with respect
to such quarter have been or are concurrently declared and paid; provided,
however, that this restriction on the payment of dividends on the Class A Shares
shall not apply to the extent (x) that the Trust is restricted, under the terms
of any bona fide loan or credit agreement or indenture relating to a borrowing
by the Trust or the Corporation or any of their respective subsidiaries, from
declaring or paying, with respect to any fiscal quarter, any dividend on the
Class B Shares but not on the Class A Shares, (y) the Trust makes an election
pursuant to Section 858 of the Code with respect to any such dividend or (z)
necessary, in the good faith judgment of the Trust Board, to permit the Trust to
continue to qualify for taxation as a REIT. One loan agreement to which the
Trust and the Corporation are parties restricts the dividends that the Trust may
pay to its shareholders (other than the Corporation) for any twelve-month period
to an aggregate amount not to exceed the lesser of $150 million (such amount to
be increased, for periods ending after such increase, by 20% on each anniversary
of the Restructuring) or 15% of adjusted funds from operation for such period.
There can be no assurance that loan or credit agreements relating to future
borrowings by the Trust, the Corporation or any of their respective subsidiaries
will not contain similar restrictions.
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The Class B Dividend will rank junior to the Class A EPS Preferred Dividend
(as defined below under the caption "Trust Preferred Shares -- Class A
EPS -- Dividend Rights") and the Class B EPS Preferred Dividend (as defined
below under the caption "Trust Preferred Shares -- Class B EPS -- Dividend
Rights"), and holders of Class A EPS and Class B EPS have the right to
participate in dividends declared on the Class B Shares. See "Trust Preferred
Shares -- Class A EPS -- Dividend Rights" and "-- Class B EPS -- Dividend
Rights."
The following definitions apply for the purposes hereof:
"Class B Dividend Amount" shall mean an amount equal to $.60 per Class
B Share per annum; provided that such amount shall increase by 15% per
annum commencing January 1, 2000 (rounded to the nearest $.01); provided
further that if the Dividend Amount for any calendar year would (without
giving effect to this proviso) exceed 25% (but be less than or equal to
35%) of FFO Per Share (as defined below) for the prior calendar year, then
the Dividend Amount shall increase by 5% for such year (so rounded);
provided further that if the Dividend Amount for such calendar year would
(without giving effect to the preceding proviso) exceed 35% of FFO Per
Share for such prior calendar year, then the Dividend Amount for such
calendar year shall equal the Dividend Amount for such prior calendar year;
and provided further that in no calendar year shall the Dividend Amount
exceed an amount equal to 49% of the Taxable Income Per Share for the prior
calendar year (so rounded).
"Common Shares and Equivalents" shall mean the Class A Shares, the
Class B Shares, the Class A EPS Underlying Class B Shares (as defined under
"Trust Preferred Shares -- Class A EPS -- Exchange Rights"), which shares
shall be deemed outstanding to the extent the corresponding Class A EPS is
outstanding, the Class B EPS Underlying Class B Shares (as defined under
"Trust Preferred Shares -- Class B EPS -- Exchange and Redemption Rights"),
which shares shall be deemed outstanding to the extent the corresponding
Class B EPS is outstanding, and any other shares of beneficial interest in
the Trust that do not entitle the holders thereof to a liquidation
preference with respect to the Class A Shares and the Class B Shares, but
shall not include the Class A EPS or the Class B EPS.
"FFO Per Share" for any calendar year shall mean "funds from
operations" of the Trust for such year, as such amount is calculated and
publicly disclosed by the Trust from time to time, divided by the average
number of Common Shares and Equivalents outstanding during such calendar
year.
"Taxable Income Per Share" for any calendar year shall mean the
taxable income of the Trust under the Code as reported by the Trust to the
IRS for such calendar year, divided by the average number of Common Shares
and Equivalents outstanding during such calendar year.
LIQUIDATION RIGHTS
Upon the occurrence of any liquidation, dissolution or winding up of the
affairs of the Trust, whether voluntary or involuntary, the holders of Class B
Shares (and of any shares of beneficial interest in the Trust entitled to
participate in such distributions received by the holders of the Class B Shares,
including the Class A EPS (to the extent of the Class A EPS Liquidation
Participation Right (as defined below under the caption "Trust Preferred
Shares -- Class A EPS -- Liquidation Rights")) and the Class B EPS (to the
extent of the Class B EPS Liquidation Participation Right (as defined below
under the caption "Trust Preferred Shares -- Class B EPS -- Liquidation
Rights"))) will be entitled to receive out of the assets of the Trust legally
available for liquidating distributions to holders of shares of beneficial
interest in the Trust, after the payment in full of any liquidation preference
of any outstanding shares of beneficial interest in the Trust (other than Junior
Shares (as defined below)), including the Class A EPS (to the extent of the
Class A EPS Liquidation Preference (as defined below under the caption "Trust
Preferred Shares -- Class A EPS -- Liquidation Rights")) and Class B EPS (to the
extent of the Class B EPS Liquidation Preference (as defined below under the
caption "Trust Preferred Shares -- Class B EPS -- Liquidation Rights")), and
after payment in full of the Class A Liquidating Distribution (as defined
below), a liquidating distribution in an amount equal to 10% of such assets,
with the remaining 90% of such assets to be distributed concurrently to the
holders of the Class A Shares (and of any shares of
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beneficial interest in the Trust entitled to participate in such distributions
received by the holders of Class A Shares). See "Description of Class A
Shares -- Liquidation Rights," "Trust Preferred Shares -- Class A EPS --
Liquidation Rights" and "-- Class B EPS -- Liquidation Rights." For such
purposes, the consolidation or merger of the Trust with one or more entities, a
statutory share exchange, or the sale or transfer of all or substantially all
the Trust's assets, shall be deemed not to be a liquidation, dissolution or
winding up of the Trust.
The following definitions apply for the purposes hereof:
"Class A Liquidating Distribution" shall mean the payment to the
holders of the Class A Shares (and of any shares of beneficial interest in
the Trust entitled to participate in such distributions received by the
holders of Class A Shares) of a liquidating distribution, out of the assets
of the Trust legally available for liquidating distributions to holders of
shares of beneficial interests in the Trust, in the amount of the aggregate
book value of the total equity of the Trust on December 31, 1998, as shown
on the balance sheet of the Trust filed with the SEC, less the amount of
such book value represented by the Class A EPS and the Class B EPS. At
September 30, 1998, such amount was approximately $7.0 billion.
"Junior Shares" shall mean the Class A Shares, the Class B Shares and
any other shares of beneficial interest in the Trust that do not entitle
the holders thereof to a liquidation preference with respect to the Class A
Shares and the Class B Shares, but shall not include the Class A EPS or the
Class B EPS.
VOTING RIGHTS
Except as described below, the holders of Class B Shares shall not be
entitled to vote upon any matter regardless of whether holders of Class A Shares
have the right to vote on such matter.
So long as any Class B Shares are outstanding, in addition to any other
vote or consent of holders of such shares required by the Trust Declaration
Amendment and Restatement, the affirmative vote of at least a majority of the
votes entitled to be cast by the holders of all outstanding Class B Shares,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for that purpose, shall be necessary for effecting or
validating any amendment, alteration or repeal of any of the provisions of the
Trust Declaration Amendment and Restatement that materially and adversely
affects the rights of the holders of the Class B Shares disproportionately to
the effect of such amendment, alteration or repeal on the holders of Class A
Shares; provided, however, that (i) any amendment of the provisions of the Trust
Declaration Amendment and Restatement so as to authorize or classify, or to
increase the authorized amount of, any class or series of shares of beneficial
interest in the Trust, whether ranking prior to, on a parity with or junior to
the Class B Shares shall be deemed not to materially and adversely affect the
rights of the holders of Class B Shares and (ii) no filing with the State
Department of Assessments and Taxation of Maryland or otherwise in connection
with a merger, consolidation or sale of all or substantially all the assets of
the Trust shall be deemed to be an amendment, alteration or repeal of any of the
provisions of the Declaration unless such filing expressly purports to amend,
alter or repeal the Class B Provisions. For these purposes, each Class B Share
will have one vote per share.
REDEMPTION RIGHTS
Except as described below, the Trust will not have the right to, and the
holders of the Class B Shares will not have the right to require the Trust to,
redeem any or all of the Class B Shares at any time.
EXCHANGE RIGHTS
If a Tax Event, a Creditor Event or any Other Event (each as defined below)
shall occur and be continuing, or at any time after the date that is five years
after the Effective Time, the Corporation, at its sole option upon written
notice (an "Exchange Notice"), will have the right (the "Exchange Right") to
exchange for all or any portion of the Class B Shares cash, Corporation Shares,
or other property with a
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fair market value, in the good faith judgment of the Trust Board, at least equal
to the fair market value of the Class B Shares being exchanged (the "Exchange
Amount").
Such exchange shall be deemed to have been made as of the close of business
on the applicable date fixed by the Corporation for such exchange (the "Exchange
Date") and after such Exchange Date, provided that the Exchange Amount has been
duly paid or set apart for payment in full, dividends shall cease to accrue on
the Class B Shares called for exchange, such shares shall be deemed to be no
longer outstanding and all rights of the holders of such shares as shareholders
of the Trust shall cease, except the right to receive the Exchange Amount,
without interest thereon, upon surrender of the certificates evidencing such
Class B Shares.
The Exchange Notice shall be given by the Corporation to the Trust not less
than ten nor more than sixty days prior to the Exchange Date. Each Exchange
Notice shall concurrently be given by the Corporation by first class mail to
each holder of shares to be exchanged at such holder's address as shown on the
sharebooks of the Trust and shall specify (i) the Exchange Date, (ii) the number
of Class B Shares to be exchanged in the aggregate and from such holder, (iii)
the Exchange Amount, specifying whether the Exchange Amount will be paid in
cash, Corporation Shares or other property (and identifying such other property,
if other property is to be exchanged), (iv) the place or places where
certificates for the Class B Shares to be exchanged are to be surrendered for
payment of the Exchange Amount and (v) that dividends will cease to accrue on
the Class B Shares to be exchanged on the Exchange Date. If less than all
outstanding Class B Shares are to be exchanged, the shares to be exchanged shall
be selected pro rata, by lot or in such other manner as the Trust deems
appropriate.
Upon receipt of an Exchange Notice, each holder of Class B Shares being
exchanged shall surrender to the Transfer Agent a certificate or certificates
evidencing such shares. As soon as practicable, and in any event within five
business days, after such surrender, the Trust shall cause the Corporation to
pay the applicable Exchange Amount to such holder and, if less than the full
number of shares represented by the certificate or certificates so surrendered
are to be exchanged, the Trust shall promptly deliver to such holder a
certificate or certificates evidencing the excess Class B Shares not being
exchanged. The Trust shall cause the Corporation to deliver promptly to such
holder a certificate or certificates evidencing the Corporation Shares
previously evidenced by the certificate or certificates surrendered. The
Exchange Amount, if payable in cash, shall be payable at the election of the
Corporation by check or by wire transfer to an account designated in writing by
the holder at least two (2) Business Days prior to the applicable Exchange Date,
if one has been so designated; if the Exchange Amount is not payable in cash,
then the Exchange Amount shall be payable in such manner as may be determined by
the Corporation and set forth in the Exchange Notice.
With respect to any Corporation Shares or other securities to be issued
pursuant to such exchange, the Trust shall cause the Corporation or the issuer
of such other securities to issue and deliver, at the office of the Transfer
Agent to the exchanging holder, a certificate or certificates for the number of
full Corporation Shares or other securities deliverable in accordance with the
Class B Provisions, and cash shall be paid in lieu of any fractional Corporation
Shares (the date of delivery of such certificate or certificates being sometimes
referred to herein as the "Exchange Issuance Date"). Any such Corporation Shares
or other securities issued upon such exchange shall be deemed to have been
issued immediately prior to the close of business on the Exchange Issuance Date,
and the person or persons in whose name or names any certificate or certificates
for Corporation Shares or other securities shall be issuable pursuant to such
exchange shall be deemed to have become the holder or holders of record of the
Corporation Shares or other securities represented thereby at such time on such
date unless the share transfer records for the Corporation Shares or other
securities shall be closed on such date, in which event such person or persons
shall be deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such share transfer books are open.
The following definitions apply for the purposes hereof:
"Creditor Event" means the occurrence of one or more material defaults
(whether or not any applicable cure period has expired), as determined in
good faith by the Corporation Board or the
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Trust Board, under any agreement or instrument governing a material amount
of indebtedness of the Trust, the Corporation or any of their subsidiaries,
including, without limitation, the Credit Agreement, dated as of February
23, 1998, among the Corporation, the Trust, the Realty Partnership and ITT,
certain additional borrowers, various lenders and Lehman Brothers
Commercial Paper Inc., as Syndication Agent, and Bankers Trust Company and
The Chase Manhattan Bank, as Administrative Agents, together with the
related documents thereto (including any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented, replaced, refinanced or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding or
deleting subsidiaries of the Corporation or the Trust as additional
borrowers or guarantors thereunder) all or any portion of the indebtedness
under such agreement or any successor or replacement agreement and whether
by the same or any other agent, lender or group of lenders.
"Other Event" means any of the following: (i) the consummation of any
public offering or distribution of equity securities of the Trust (other
than as Units), (ii) the consummation of any transaction or series of
transactions that results in the Corporation beneficially owning securities
carrying less than 50% of the aggregate voting power of all the outstanding
voting securities of the Trust, (iii) consummation by the Corporation of
any transaction or series of related transactions in which stock of the
Corporation or securities convertible into or exchangeable or exercisable
for stock of the Corporation is issued, if the stock of the Corporation has
or will have upon issuance voting power or value equal to or in excess of
20% of the voting power or value, respectively, of the stock of the
Corporation outstanding before the issuance of such stock of the
Corporation or securities convertible into or exchangeable or exercisable
for stock of the Corporation or (iv) any change (including any prospective
change) after the Effective Time in the accounting principles applicable to
the preparation of the financial statements filed by the Trust or the
Corporation with the SEC that, in the good faith determination of the Trust
Board or the Corporation Board, respectively, has or would have a material
adverse effect on the Trust or the Corporation in the event the Exchange
Right were not exercised, but which effect would be mitigated by such
exercise.
"Tax Event" means (i) the good faith determination by the Trust Board,
after consultation with counsel experienced in such matters, that, as a
result of any amendment to, or change (including any enacted prospective
amendment or change) in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the Effective Time, there is a substantially
increased likelihood that (A) dividends payable by the Trust are not, or
within 90 days after the date of such determination, will not be,
deductible by the Trust, in whole or in part, for United States federal
income tax purposes, or (B) the Trust is not, or within 180 days after the
date of such determination will not be, taxable as a REIT or (ii) the Trust
revokes or terminates or states its intention to revoke or terminate its
election to be taxed as a REIT.
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF CLASS B
SHARES
The Corporation Charter provides, and the Trust Declaration Amendment and
Restatement will provide, that, subject to certain exceptions specified in the
Corporation Charter and the Trust Declaration Amendment and Restatement, 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 in the Trust or stock of the Corporation, respectively, whether
measured by vote, value or number of shares outstanding (other than for
shareholders who owned in excess of 8.0% as of January 31, 1995, who may not so
own or be deemed to own more than the lesser of 9.9% or the percentage of shares
in the Trust or stock of the Corporation they held on such date) (the "Ownership
Limit"). The Trust Board and the Corporation Board may, but are not required to,
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
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that such ownership will not jeopardize the Trust's status as a REIT. As a
condition of such waiver, each of the Trust Board and the Corporation Board may
require opinions of counsel satisfactory to it and/or an undertaking from the
applicant with respect to preserving the REIT status of the Trust. If shares
which would cause the Trust to be beneficially owned by fewer than 100 persons
are issued or transferred to any person, such issuance or transfer shall be null
and void and the intended transferee will acquire no rights to the stock. Any
acquisition of shares in the Trust or stock of the Corporation and continued
holding or ownership of shares in the Trust or stock of the Corporation
constitutes, under the Trust Declaration Amendment and Restatement and the
Corporation Charter, 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 shares in the Trust or stock of the
Corporation 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 shares in the Trust or
stock of the Corporation would automatically be exchanged for Excess Shares or
Excess Stock, as applicable (collectively, "Excess Stock"), authorized by the
Trust Declaration Amendment and Restatement and the Corporation Charter,
according to rules set forth in the Trust Declaration Amendment and Restatement
and the Corporation Charter, to the extent necessary to ensure that the
purported transfer or other event does not result in ownership of shares in the
Trust or stock of the Corporation 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 Shares and Excess Stock which may be issued in exchange for
Units will be attached in the same manner that the Class B Shares and the
Corporation Shares comprising such Units were attached prior to such exchange.
Excess Stock will not be Treasury stock but rather will continue as issued and
outstanding shares in the Trust and stock of 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 shares
in the Trust or stock of the Corporation for Excess Stock and prior to the
discovery by the Trust and the Corporation of such exchange, dividends or
distributions are paid with respect to the shares in the Trust or the stock of
the Corporation 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 shares in the Trust or the stock of the
Corporation exchanged for such Excess Stock. 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
shares in the Trust or stock of the Corporation will not violate the Ownership
Limit, at which time the Excess Stock will be automatically exchanged for the
same number of shares in the Trust or stock of the Corporation of the same type
and class as the shares in the Trust or stock of the Corporation for which the
Excess Stock was originally exchanged. The Corporation Charter contains, and the
Trust Declaration Amendment and Restatement will 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 shares in the Trust or stock of the Corporation
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.
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The Corporation Charter further provides, and the Trust Declaration
Amendment and Restatement will 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 shares in the
Trust or the stock of the Corporation 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 Units or
other shares in the Trust or stock of the Corporation) at any time during the
period in which the Excess Stock is held in trust) and the closing market price
for the Units or other shares in the Trust or stock of the Corporation 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 Amendment and
Restatement and the Corporation Charter. Amendments to the Trust Declaration
Amendment and Restatement will generally require the affirmative vote of holders
owning a majority of the outstanding Class A Shares and amendments to the
Corporation Charter generally require the affirmative vote of holders owning a
majority of the outstanding Corporation Shares, 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 shares in the Trust or
stock of the Corporation must file an affidavit with the Trust and the
Corporation containing the information specified in the Trust Declaration
Amendment and Restatement and the Corporation Charter before January 30 of each
year. In addition, each shareholder and stockholder 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 Surviving Trust Declaration and the Corporation
Charter or the Code applicable to a REIT or to comply with the requirements of
any taxing authority or governmental agency.
All certificates representing shares in the Trust (including the Class B
Shares) or stock of the Corporation will bear a legend referring to the
restrictions described above.
In addition, the Corporation Charter provides that (i) all Starwood Hotels'
securities are subject to redemption to the extent necessary to prevent the
loss, or to secure the reinstatement, of any casino gaming license held by any
of Starwood Hotels' subsidiaries in any jurisdiction within or without the
United States; (ii) all Starwood Hotels' securities are held subject to the
condition that if a holder is found by a gaming authority in any jurisdiction to
be disqualified or unsuitable pursuant to any gaming law, such holder will be
required to dispose of all such securities, and failing such disposition, the
Corporation may redeem the securities at the lesser of their market price or the
disqualified holder's original purchase price; and (iii) it is unlawful for any
such disqualified person to (a) receive payments of interest or dividends on any
such securities; (b) exercise, directly or indirectly, any rights conferred by
any such securities; or (c) receive any remuneration in any form, for services
rendered or otherwise, from the subsidiary that holds the gaming license in the
applicable jurisdiction.
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DESCRIPTION OF CLASS A SHARES
The statements under this caption relating to the Class A Shares are a
summary of certain provisions of the Trust Declaration Amendment and
Restatement. Except for liquidation rights, the Class A Shares will have rights
identical to those of the Trust Shares, as follows.
When issued as contemplated in the Restructuring Agreement, the Class A
Shares required to be issued thereunder will be validly issued, fully paid and
nonassessable. The holders of Class A Shares will not have any preemptive rights
with respect to the issuance of any shares of beneficial interest in the Trust
or any securities convertible into, exchangeable for or carrying rights or
options to purchase any such shares. There is no provision for any sinking fund
with respect to the Class A Shares. The Class A Shares will not be attached to
any shares of stock of the Corporation for purposes of the Pairing Agreement.
The Class A Shares will have a par value of $.01 per share and will have
the following rights, designations, preferences, participations and other
limitations and restrictions.
DIVIDEND RIGHTS
Subject to the prior rights of the holders of the Class B Shares, Class A
EPS and Class B EPS (and any other class or series of shares of beneficial
interest that may from time to time be issued), the holders of Class A Shares
shall be entitled to receive, when, as and if authorized by the Trustees, out of
assets of the Trust available for payment, dividends payable in cash or other
form.
LIQUIDATION RIGHTS
Upon the occurrence of any liquidation, dissolution or winding up of the
affairs of the Trust, whether voluntary or involuntary, the holders of Class A
Shares (and of any shares of beneficial interest in the Trust entitled to
participate in such distributions received by the holders of Class A Shares)
will be entitled to receive out of the assets of the Trust legally available for
liquidating distributions to holders of shares of beneficial interest in the
Trust, (i) after the payment in full of any liquidation preference of any
outstanding shares of beneficial interest in the Trust (other than Junior
Shares), including the Class A EPS (to the extent of the Class A EPS Liquidation
Preference) and Class B EPS (to the extent of the Class B EPS Liquidation
Preference), the Class A Liquidating Distribution, and (ii) after the payment in
full of the Class A Liquidating Distribution, a liquidating distribution in an
amount equal to 90% of such assets with the remaining 10% of such assets to be
distributed concurrently to the holders of the Class B Shares (and of any shares
of beneficial interest in the Trust entitled to participate in such
distributions received by the holders of the Class B Shares, including the Class
A EPS (to the extent of the Class A EPS Liquidation Participation Right) and the
Class B EPS (to the extent of the Class B EPS Liquidation Participation Right)).
See "Description of Class B Shares -- Liquidation Rights," "Trust Preferred
Shares -- Class A EPS -- Liquidation Rights" and "-- Class B EPS -- Liquidation
Rights." For such purposes, the consolidation or merger of the Trust with one or
more entities, a statutory share exchange or the sale or transfer of all or
substantially all the Trust's assets, shall be deemed not to be a liquidation,
dissolution or winding up of the Trust.
As described under "Description of Class B Shares -- Liquidation Rights,"
the amount of the Class A Liquidation Distribution is the aggregate book value
of the total equity of the Trust on December 31, 1998, as shown on the balance
sheet of the Trust filed with the SEC, less the amount of such book value
represented by the Class A EPS and the Class B EPS. At September 30, 1998, such
amount was approximately $7.0 billion.
VOTING RIGHTS
The holders of Class A Shares shall be entitled to one vote per share upon
all matters submitted to the vote of holders of shares of beneficial interest in
the Trust at any meeting of shareholders of the Trust. Accordingly, immediately
after the Restructuring, the Corporation, as the sole holder of the Class A
Shares, will be the only person entitled to vote in the election of Trustees of
the Trust.
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REDEMPTION RIGHTS
The Trust will not have the right to, and the holders of the Class A Shares
will not have the right to require the Trust to, redeem any or all of the Class
A Shares at any time except in the event of a violation of the Ownership Limit
or to the extent necessary to prevent the loss, or to secure the reinstatement,
of any casino gaming license held by any of Starwood Hotels' subsidiaries. See
"Description of Class B Shares -- Ownership Limits; Restrictions on Transfer;
Repurchase and Redemption of Class B 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 classifying the Class A EPS, shares of
Class A EPS have a par value of $.01 per share and, after the Restructuring,
will have the following rights, designations, preferences, participations and
other limitations and restrictions.
Dividend Rights. The holders of Class A EPS will be entitled (i) to
receive as described below a preferred dividend (a "Class A EPS Preferred
Dividend") based on the payment of any dividend on the Corporation Shares (other
than a dividend or distribution constituting a Class A EPS Adjustment Event as
described below) or any liquidating distribution in respect of the Corporation
Shares and (ii) to participate on the basis described below in any dividend
(other than a dividend or distribution constituting a Class A EPS Adjustment
Event) paid on the Class B Shares, when and if authorized by the Trustees out of
assets of the Trust available for payment (a "Class A EPS Participation
Dividend").
Upon the payment of any dividend on the Corporation Shares (other than a
dividend or distribution that constitutes a Class A EPS Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares, a Class A EPS
Preferred Dividend in a corresponding amount will automatically accrue with
respect to the Class A EPS based on the number of Class A EPS Underlying
Corporation Shares (as defined below) for which each share of Class A EPS is
then exchangeable upon exercise of the Class A EPS Exchange Right described
below. Each Class A EPS Preferred Dividend will be cumulative from the date on
which it accrues.
No Class B Dividend may be authorized unless the Trust Board concurrently
authorizes a Class A EPS Participation Dividend entitling each share of Class A
EPS to receive a dividend equal to the amount of the Class B Dividend authorized
on each Class B Share multiplied by the number of Class A EPS Underlying Class B
Shares into which each share of Class A EPS is then convertible upon exercise of
the Class A EPS 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 Class
B Shares or any other class or series of shares of beneficial interest in the
Trust ranking junior to the Class A EPS (including the Class A Shares), a
liquidating distribution in an amount equal to the Class A EPS Liquidation
Preference described below and (ii) to participate on the basis described below
in any liquidating distribution to holders of Class B Shares (the "Class A EPS
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 EPS 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 EPS Underlying Corporation Shares for which each Class A EPS
is exchangeable as of such date upon exercise of the Class A EPS
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Exchange Right plus (y) the amount of any accrued but unpaid Class A EPS
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 EPS 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
EPS Liquidation Participation Right, ratably with the holders of Class B 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 Class B Shares equal to
the number of Class A EPS Underlying Class B Shares (as defined below) for which
each share of Class A EPS is then exchangeable upon exercise of the Class A EPS
Exchange Right.
Exchange Rights. Shares of Class A EPS will be exchangeable at any time at
the option of the holder for Units based on a one-to-one exchange ratio (subject
to adjustment as described below) (the "Class A EPS Exchange Right"); provided
that the Trust may instead, at its option, deliver to the holder upon exercise
of the Class A EPS Exchange Right the cash equivalent of some or all of such
Units based on the average closing price of the Units 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
Units requested to be delivered by such holder (the "Requested Shares") would
result in a violation of the Ownership Limit, the Trust may either (x) deliver
to such holder the maximum number of Units 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 Provisions
because the exchanging holder, together with its affiliates, beneficially owns
Units other than through the ownership of securities directly or indirectly
issued pursuant to the Transaction Agreement dated as of September 8, 1997
pursuant to which Starwood Hotels acquired Westin (the "Westin 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 Units 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 Units 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 Units will 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 Units
("Class A EPS Adjustment Events"). The number of Units for which each share of
Class A EPS is exchangeable at any given time is referred to as the "Class A EPS
Underlying Units", with the Corporation Shares component of such Class A EPS
Underlying Units being referred to as the "Class A EPS Underlying Corporation
Shares" and the Class B Shares component of such Class A EPS Underlying Units
being referred to as the "Class A EPS Underlying Class B Shares". In addition,
in the event any capital reorganization or reclassification of the Class B
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 Class B
Shares or Corporation Shares will be entitled to receive stock, securities or
other assets with respect to or in exchange for Class B Shares or Corporation
Shares, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or
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lease, the Class A EPS 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 EPS Underlying Units immediately prior to the effective date of such
transaction.
If there are any accrued but undeclared Class A EPS Preferred Dividends on
any Class A EPS being exchanged pursuant to any exercise of the Class A EPS
Exchange Right, the number of Units to be delivered pursuant to such exercise
shall be increased by a number of Units equal to the amount of such accrued but
undeclared Class A EPS Preferred Dividends divided by the average closing price
of the Units on the NYSE during the five trading days preceding the date of
delivery of the applicable Class A EPS Exchange Notice.
Voting Rights. Except as required by law, the holders of Class A EPS will
be entitled to vote on any matter on which the holders of Class B Shares will be
entitled to vote. Each share of Class A EPS held of record on the record date
for the determination of holders of Class B 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 EPS Underlying Class B Shares for which such shares of
Class A EPS could be exchanged at such time.
CLASS B EPS
Under the Articles Supplementary classifying the Class B EPS, shares of
Class B EPS have a par value of $.01 per share and, after the Restructuring,
will have the following rights, designations, preferences, participations and
other limitations and restrictions:
Dividend Rights. The holders of Class B EPS will be entitled (i) to
receive as described below a preferred dividend (a "Class B EPS Preferred
Dividend") based on the payment of any dividend on the Corporation Shares (other
than a dividend or distribution constituting a Class A EPS Adjustment Event) or
any liquidating distribution in respect of the Corporation Shares and (ii) to
participate on the basis described below in any dividend (other than a dividend
or distribution constituting a Class A EPS Adjustment Event) paid on the Class B
Shares, when and if authorized by the Trustees out of assets of the Trust
available for payment (a "Class B EPS Participation Dividend").
Upon the payment of any dividend on the Corporation Shares (other than a
dividend or distribution that constitutes a Class A EPS Adjustment Event) or any
liquidating distribution in respect of the Corporation Shares, a Class B EPS
Preferred Dividend will automatically accrue with respect to the Class B EPS
based on the number of Class B EPS Underlying Corporation Shares (as defined
below) for which each share of Class B EPS is then indirectly exchangeable. Each
Class B EPS Preferred Dividend will be cumulative from the date on which it
accrues.
No Class B Dividend may be authorized unless the Trust Board concurrently
authorizes a Class B EPS Participation Dividend entitling each share of Class B
EPS to receive a dividend equal to the amount of the Class B Dividend authorized
on each Class B Share multiplied by the number of Class B EPS Underlying Class B
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 Class
B Shares or any other class or series of shares of beneficial interest in the
Trust ranking junior to the Class B EPS (including the Class A Shares), a
liquidating distribution in an amount equal to the Class B EPS Liquidation
Preference described below and (ii) to participate on the basis described below
in any liquidating distribution to holders of Class B Shares (the "Class B EPS
Liquidation Participation Right").
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The "Class B EPS 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 EPS 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 EPS 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
EPS Liquidation Participation Right, ratably with the holders of Class B 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 Class B Shares equal to
the number of Class B EPS Underlying Class B Shares for which each share of
Class B EPS is then indirectly exchangeable.
Exchange and Redemption Rights. Each share of Class B EPS will be
exchangeable at any time from and after the first anniversary of the date of
issuance of the Class B EPS through the date that is two business days after the
Cross-Over Date (as defined below), at the option of the holder, for one share
of Class A EPS, subject to adjustment in the event of a Class B EPS Adjustment
Event or as otherwise set forth below (the "Class B EPS 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 EPS Liquidation Preference as of the date notice of such exchange is
made by (ii) the Underlying Unit Value (as defined below) of one share of Class
A EPS (the "Class B EPS 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.
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 EPS Liquidation Preference as of the date of such Trust Redemption
Notice or (ii) exchange the Class B EPS, in whole or in part, for a number of
shares of Class A EPS equal to the Redemption Number of Shares; provided,
however, that prior to the first anniversary of the Cross-Over Date, the Trust
must redeem such shares of Class B EPS for the cash redemption price rather than
exchanging such shares for shares of Class A EPS.
The following definitions apply for the purposes hereof:
"Cross-Over Date" means the fifth anniversary of the Westin
Acquisition, subject to extension as described below under the caption
"Special Default Rights".
"Underlying Unit Value" as of a given date means the product of (A)
the average closing price of the Units on the NYSE during the five trading
days preceding such date multiplied by (B) the number of Units for which
each share of Class A EPS is then exchangeable upon exercise of the Class A
EPS 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 EPS Adjustment
Events"). The Units for which each share of Class B EPS will be indirectly
exchangeable at any given time (assuming both (i) the exercise of the Class B
EPS Exchange Right and (ii) the concurrent exercise of the Class A EPS Exchange
Right in respect of the shares of Class A EPS issuable upon exercise of such
Class B EPS Exchange Right) are referred to as the "Class B EPS Underlying
Units", with the Corporation Shares component of such Class B EPS Underlying
Units being referred to as the "Class B EPS Underlying Corporation Shares" and
the Class B Shares component of such Class B
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EPS Underlying Units being referred to as the "Class B EPS Underlying Class B
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, that 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
EPS 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 EPS 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
Units on the NYSE during the five trading days preceding the date of delivery of
such Class A EPS Exchange Notice multiplied by (B) the number of Units for which
each share of Class A EPS is then exchangeable upon exercise of the Class A EPS
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 EPS Exchange
Right, the Class B EPS 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 Westin 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 EPS Preferred Dividend or Class B
EPS 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 EPS Preferred Dividend or Class B
EPS 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 will
be entitled to vote on any matter on which the holders of Class B Shares are
entitled to vote. Each share of Class B EPS held of record on the record date
for the determination of holders of Class B 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 EPS Underlying Class B Shares for which such shares of
Class B EPS could be indirectly exchanged at such time (assuming the exercise of
the Class B EPS Conversion Right and the concurrent exercise of the Class A EPS
Exchange Right with respect to the shares of Class A EPS issuable upon exercise
of such Class B EPS Conversion Right).
OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND REDEMPTION OF TRUST
PREFERRED SHARES
Ownership of Class A EPS and Class B EPS is, and will continue to be,
subject to the Ownership Limit and the restrictions on transfer, repurchase and
redemption rights described above under the caption "Description of Class B
Shares -- Ownership Limits; Restrictions on Transfer; Repurchase and
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Redemption of Class B Shares." All certificates representing Class A EPS or
Class B EPS will bear a legend referring to these restrictions.
COMPARISON OF RIGHTS OF HOLDERS OF TRUST SHARES AND
HOLDERS OF CLASS B SHARES
If the Restructuring were consummated, holders of Trust Shares would become
holders of Class B Shares. The rights of shareholders of the Trust are, and
would continue to be after the Restructuring, governed by and subject to the
provisions of Maryland law. The rights of holders of Class B Shares following
the Restructuring would be governed by the Trust Declaration Amendment and
Restatement, rather than the Trust Declaration, and would continue to be
governed by the Trustees' Regulations of the Trust. The Trust Declaration
Amendment and Restatement would be the same in all material respects as the
Trust Declaration except that the Trust Declaration Amendment and Restatement
would contain the terms of the Class A Shares and the Class B Shares and except
as set forth below.
DIVIDEND RIGHTS
Subject to certain conditions and to the prior rights of the holders of
Class A EPS and Class B EPS, the holders of Class B Shares would be entitled to
receive a non-cumulative annual dividend at an initial rate of $.60 per share,
to the extent the dividend is authorized by the Board of Trustees of the Trust.
The dividend may increase after 1999 pursuant to a formula, and may not be paid
under certain circumstances. See "Description of Class B Shares -- Dividend
Rights." Subject to the prior rights of the holders of the Class A EPS and Class
B EPS, the holders of Trust Shares are entitled to receive, when, as and if
authorized by the Trust Board, out of assets of the Trust available for payment,
dividends payable in cash or other form. Because of the REIT qualification rules
of the Code, the dividends on Trust Shares have been based primarily on a
percentage of the Trust's taxable income. Accordingly, as a result of the
Restructuring, Starwood Hotels would change from an enterprise that pays a
relatively large dividend (at a rate of approximately $2.08 per share per annum
based on the first three quarters of 1998) to an enterprise that would pay a
smaller dividend beginning in the fourth quarter of 1998 (at a rate of
approximately $.60 per share per annum for 1999 on a pro forma basis).
LIQUIDATION RIGHTS
Upon liquidation of the Trust after the Restructuring, assets remaining
after all liabilities of the Trust have been satisfied and after the liquidation
preferences of any preferred shares of beneficial interest in the Trust have
been paid in full would be distributed as follows: first, the holders of the
Class A Shares would be entitled to receive the aggregate book value of the
total equity of the Trust on December 31, 1998, as shown on the balance sheet of
the Trust filed with the SEC, less the amount of such book value represented by
the Class A EPS and the Class B EPS (at September 30, 1998, such amount was
approximately $7.0 billion); second, the holders of the Class B Shares (together
with the holders of the Class A EPS and Class B EPS) would have the right to
receive 10% of any remaining assets of the Trust; and third, the holders of the
Class A Shares would have the right to receive the remaining 90%. See
"Description of Class B Shares -- Liquidation Rights."
Holders of Trust Shares (together with the holders of the Class A EPS and
Class B EPS) currently have the right to all assets, if any, legally available
for liquidating distributions to holders of shares of beneficial interest in the
Trust remaining after all liabilities of the Trust have been satisfied and after
all liquidation preferences (currently only those of the Class A EPS and Class B
EPS) have been satisfied.
VOTING RIGHTS
Except in the limited circumstances described above under the caption
"Description of Class B Shares -- Voting Rights", the holders of Class B Shares
would not be entitled to vote on any matter (including the election of Trustees)
on which the holders of the Class A Shares are entitled to vote. The
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current holders of Trust Shares are entitled to vote generally upon all matters
submitted to the vote of holders of shares of beneficial interest in the Trust
at any meeting of shareholders of the Trust.
EXCHANGE RIGHTS
As described above under the caption "Description of Class B
Shares -- Exchange Rights", the Corporation has the right to exchange the Class
B Shares upon the occurrence of certain events. The Corporation and the Trust do
not have any right to exchange, redeem or convert the Trust Shares except in the
event of a violation of the Ownership Limit or to the extent necessary to
prevent the loss, or to secure the reinstatement, of any casino gaming license
held by any of Starwood Hotels' subsidiaries. See "Description of Class B
Shares -- Ownership Limits; Restrictions on Transfer, Repurchase and Redemption
of Class B Shares."
AUTHORIZED CAPITAL
The Trust Declaration currently authorizes the Trust to issue 1.35 billion
shares of beneficial interest, consisting of (i) one billion Trust Shares, (ii)
200 million Excess Trust Shares, (iii) 100 million Trust Preferred Shares (which
include 30 million Class A EPS and 15 million Class B EPS) and (iv) 50 million
Excess Trust Preferred Shares. The Trust Declaration grants to the Trustees the
power to classify and authorize the issuance of one or more classes or series of
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 Trust Declaration Amendment and Restatement will authorize the Trust to
issue 1,350,005,000 shares of beneficial interest in the Trust, consisting of
(i) five thousand Class A Shares, (ii) one billion Class B Shares, (iii) 55
million Trust Preferred Shares, (iv) 30 million Class A EPS, (v) 15 million
Class B EPS, (vi) 200 million Excess Trust Shares and (vii) 50 million Excess
Trust Preferred Shares. The Trust Declaration Amendment and Restatement will
also grant to the Trustees the power to classify and authorize the issuance of
one or more classes or series of 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 Amendment and Restatement or applicable law
and as are specified by the Trustees in their discretion.
ELECTION OF TRUSTEES OF THE TRUST
The Trust Board is divided into three classes. One class is elected at each
annual meeting of shareholders to serve for a three-year term and until
successor Trustees are duly elected and qualify.
At the Trust Meeting, the terms of three Trustees are expiring. Those
Trustees nominated for election at this annual meeting would hold office for a
three-year term expiring in 2001 and until successor Trustees are duly elected
and qualify. Other Trustees are not up for election this year and will continue
in office for the remainder of their terms.
If a nominee is unavailable for election, proxy holders will vote for
another nominee proposed by the Trust Board or, as an alternative, the Trust
Board may reduce the number of Trustees to be elected at the meeting.
TRUSTEES NOMINATED THIS YEAR FOR TERMS EXPIRING IN 2001
MADISON F. GROSE, 45, has been a Managing Director or Senior Managing
Director and the General Counsel or Co-General Counsel of Starwood Capital
Group, L.L.C. (and its predecessor entities) since July 1992. From November 1983
through June 1992, he was a Partner in the law firm of Pircher, Nichols & Meeks.
Mr. Grose has been a Trustee of the Trust since December 1994.
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GEORGE J. MITCHELL, 65, has been Special Counsel to the law firm of Verner,
Liipfert, Bernhard, McPherson and Hand since January 1995. Senator Mitchell
served as a United States Senator from January 1980 to January 1995, and was the
Majority Leader from 1989 to 1995. Senator Mitchell serves as a director of The
Walt Disney Company, Federal Express Corporation, Xerox Corporation, UNUM
Corporation, KTI, Inc. and Staples, Inc. In addition, Senator Mitchell serves as
Chairman of the International Crisis Group, a non-profit organization dedicated
to the prevention of crises in international affairs. From 1995 to 1997, Senator
Mitchell served as the Special Advisor to the President of the United States on
economic initiatives in Ireland. At the request of the British and Irish
Governments, he served as Chairman of the International Commission on
Disarmament in Northern Ireland, and as Chairman of the peace negotiations in
Northern Ireland. Senator Mitchell serves as Chairman of the Ethics Committee of
the U.S. Olympic Committee and as Chairman of the National Health Care
Commission created by the Pew Charitable Foundation. Senator Mitchell has been a
Trustee of the Trust since November 1997.
STUART M. ROTHENBERG, 35, is a Managing Director in the Real Estate
Principal Investment Area of Goldman Sachs and the head of acquisitions for that
firm's Whitehall Real Estate Funds. Over the past 10 years, Mr. Rothenberg has
held various management and other positions with Goldman Sachs. Mr. Rothenberg
is a director of The Archon Group, Gestion d'Actifs Haussmann and The Wellsford
Whitehall, L.L.C. Mr. Rothenberg serves on the Mt. Sinai Board of Obstetrics and
Gynecology and the Fisher Center for Real Estate and Urban Economics Policy
Advisory Board, and is a member of the boards of the Wharton Real Estate Center
and Downtown Alliance. Mr. Rothenberg has been a Trustee of the Trust since
January 1998.
Pursuant to the Westin Transaction Agreement, the Trust has agreed to
include Mr. Rothenberg (and such successors to Mr. Rothenberg as shall be
designated by The Goldman Sachs Group, L.P. ("GS Group") or an affiliate thereof
designated by GS Group) on each management slate of nominees to the Trust Board.
This right to designate a Trustee will expire if affiliates of the GS Group sell
(to unaffiliated persons) more than 75% of the securities of Starwood Hotels and
the Partnerships received by affiliates of the GS Group in the transactions
provided for in the Westin Transaction Agreement (or securities of Starwood
Hotels issued in exchange for such securities).
The Trust Board recommends a vote FOR these nominees.
TRUSTEES WITH TERMS EXPIRING IN 1999
ROGER S. PRATT, 46, is a Managing Director and Senior Portfolio Manager of
Prudential Real Estate Investors. Since January 1992, Mr. Pratt has been the
portfolio manager for Prudential Property Investment Separate Account II, a real
estate fund managed by Prudential Real Estate Investors for pension fund
clients. Mr. Pratt has been with Prudential for more than 15 years, serving in a
variety of roles in development, asset management, hotel management and
administration. Mr. Pratt is a member of the American Institute of Certified
Planners and serves on the Multi-Family Council of the Urban Land Institute. He
is also a trustee of the George Street Playhouse. Mr. Pratt is the designee of
Prudential on the Trust Board pursuant to a Contribution Agreement dated as of
January 15, 1997, which entitles Prudential to designate one representative to
be nominated for election to the Trust Board, and requires the Trust to cause
the Trust Board to so nominate such designee, and to support such nomination
along with the other nominees of management and the Trust Board, for election to
the Trust Board, for so long as Prudential meets certain share ownership
criteria. Mr. Pratt has been a Trustee of the Trust since February 1997.
STEPHEN R. QUAZZO, 38, has been the Managing Director, Chief Executive
Officer and co-founder of Transwestern Investment Company, L.L.C., a real estate
principal investment firm, since March 1996. From April 1991 to March 1996, Mr.
Quazzo was President of Equity Institutional Investors, Inc., a subsidiary of
Equity Group Investments, Inc., a Chicago-based holding company controlled by
Samuel Zell. Mr. Quazzo is an advisory board member of City Year Chicago. Mr.
Quazzo has been a Trustee of the Trust since August 1995.
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RAYMOND S. TROUBH, 72, is a financial consultant in New York City and a
former Governor of the American Stock Exchange. He was also a general partner of
Lazard Freres & Co., an investment banking firm. Mr. Troubh is a director of
ARIAD Pharmaceuticals, Inc., Becton, Dickinson and Company, Diamond Offshore
Drilling, Inc., Foundation Health Systems, Inc., General American Investors
Company, Olsten Corporation, Triarc Companies, Inc. and WHX Corporation and is a
Trustee of MicroCap Liquidating Trust and Petrie Stores Liquidating Trust. Mr.
Troubh has been a Trustee of the Trust since April 1998.
TRUSTEES WITH TERMS EXPIRING IN 2000
JEAN-MARC CHAPUS, 39, has been Managing Director and Portfolio Manager of
Trust Company of the West and President of TCW/Crescent Mezzanine L.L.C., a
private investment fund, since March 1995. Prior to that time, Mr. Chapus was a
Managing Director and Principal of Crescent Capital Corporation with primary
responsibility for the firm's private lending and private placement activities.
Mr. Chapus was a Director of the Corporation from August 1995 to November 1997,
and is currently a member of the Board of Directors of Home Asset Management
Company and Firstamerica Automotive, Inc. Mr. Chapus has been a Trustee of the
Trust since November 1997.
BRUCE W. DUNCAN, 47, has been the Chairman, President and Chief Executive
Officer of The Cadillac Fairview Corporation Limited, a real estate operating
company, since December 1995. From October 1994 to December 1995, Mr. Duncan was
President of Blakely Capital, Inc., a private firm focusing on investments in
real estate and telecommunications. From 1992 to 1994, Mr. Duncan was President
and Co-Chief Executive Officer of JMB Institutional Realty Corporation providing
advice and management for investments in real estate by tax-exempt investors and
from 1978 to 1992, he worked for JMB Realty Corporation where he served as
Executive Vice-President and a member of the Board of Directors. Mr. Duncan is a
trustee of Amresco Capital Trust and Kenyon College and is a member of the Board
of Directors of The Cadillac Fairview Corporation Limited and the Canadian
Institute of Public Real Estate Companies. In addition, Mr. Duncan is a member
of the Urban Land Institute and a member and past trustee of the International
Council of Shopping Centres. Mr. Duncan has been a Trustee of the Trust since
August 1995.
BARRY S. STERNLICHT, 38, is the Chairman and Chief Executive Officer of the
Trust. Mr. Sternlicht also has been the President and Chief Executive Officer of
Starwood Capital and its predecessor entities since its formation in 1991. Mr.
Sternlicht is currently the Chairman of the Board of the Corporation, a Trustee
of Equity Residential Properties Trust, the Chairman of the Board of Trustees of
Starwood Financial Trust (a specialized real estate finance company organized as
a REIT), and a Director of each of U.S. Franchise Systems and ITT Educational
Services, Inc. Mr. Sternlicht is a member of the Urban Land Institute and of the
National Multi-Family Housing Council. Mr. Sternlicht is a member of the Board
of Directors of the Juvenile Diabetes Foundation International and of the
Council for Christian and Jewish Understanding, is a member of the Young
Presidents Organization and is on the Board of Directors of Junior Achievement
for Fairfield County, Connecticut. Mr. Sternlicht has been a Trustee of the
Trust since December 1994.
ELECTION OF DIRECTORS OF THE CORPORATION
The Corporation Board is divided into three classes. One class is elected
at each annual meeting of stockholders to serve for a three-year term and until
successor Directors are duly elected and qualify.
At the Corporation Meeting, the terms of four Directors are expiring. Those
Directors nominated for election at this annual meeting would hold office for a
three-year term expiring in 2001 and until successor Directors are duly elected
and qualify. Other Directors are not up for election this year and will continue
in office for the remainder of their terms.
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If a nominee is unavailable for election, proxy holders will vote for
another nominee proposed by the Corporation Board or, as an alternative, the
Corporation Board may reduce the number of Directors to be elected at the
meeting.
DIRECTORS NOMINATED THIS YEAR FOR TERMS EXPIRING IN 2001
BRUCE M. FORD, 59, has been President of F.K.B. Management Corporation, a
hotel and restaurant management company, since 1988. Mr. Ford has been a member
of Gibson 25 Associates, LLC, a hotel developer, since March 1995; the President
of Ford Management Corporation, a hotel/motel management and development
company, since June 1998; and was the President of FST and Associates from 1988
until August 1997. Prior to that time, Mr. Ford was Senior Vice President of
Operations of Ramada Inns. Mr. Ford has been a Director of the Corporation since
September 1983.
GRAEME W. HENDERSON, 65, was Chairman of the Trust from July 1989 to
December 1994 and a Trustee of the Trust from September 1986 to December 1994.
He has been a private investor since January 1990. Prior to January 1990, Mr.
Henderson was President of Henderson Consulting, Inc., a private financial
consulting firm. Mr. Henderson has been President of Capstan, Inc. (formerly
Seymour, Inc.), a manufacturer of machine tool controls, since 1982. Mr.
Henderson is currently a director of Capital Southwest Corporation. Mr.
Henderson has been a Director of the Corporation since December 1994.
EARLE F. JONES, 72, was the Chairman of the Board of the Corporation from
February 1989 to September 1997. He has been Co-Chairman since 1988 of MMI Hotel
Group, a hotel company, and is the Co-Chairman of MMI Dining Systems. From 1967
to 1968, Mr. Jones was President of the International Association of Holiday
Inns and served two terms as a director. Mr. Jones is a member of the board of
trustees for each of the National Multiple Sclerosis Society, Mississippi
Chapter, Millsap College and Jackson 2000, and is Co-Chairman of the Mississippi
Olympic Committee. Mr. Jones is a general partner of Orlando Plaza Suite Hotel,
Ltd-A, which filed a petition under Chapter 11 of the U.S. Bankruptcy Code in
May 1996. An order confirming the debtor's plan of restructuring was issued by
the court on January 27, 1997. Mr. Jones has been a Director of the Corporation
since September 1985.
DANIEL W. YIH, 40, has been a general partner of Chilmark Partners, L.P.
since June 1995. Mr. Yih served as interim Chief Financial Officer of Midway
Airlines (from September 1995 to December 1995), President of Merco-Savory,
Inc., a manufacturer of food preparation equipment (from March 1995 to June
1995), and as a senior executive of Welbilt Corporation (from September 1993 to
March 1995). Mr. Yih has been a Director of the Corporation since August 1995.
The Corporation Board recommends a vote FOR these nominees.
DIRECTORS WITH TERMS EXPIRING IN 1999
BRENDA C. BARNES, 45, is a director of Sears, Roebuck & Company, the New
York Times Company, Avon Products, Inc., Lucas Arts and Digital Equipment
Corporation. Ms. Barnes was the President and Chief Executive Officer of
Pepsi-Cola North America from April 1996 to January 1998, and was the Chief
Operating Officer of Pepsi-Cola North America from January 1993 to March 1996.
Ms. Barnes is also a member of the Advisory Board of The For All Kids Foundation
and of the Board of Trustees of Augustana College. Ms. Barnes has been a
Director of the Corporation since April 1998.
MICHAEL A. LEVEN, 61, has been the Chairman of the Board, President and
Chief Executive Officer of U.S. Franchise Systems, a hotel franchising and
development company, since September 1995. From October 1990 to September 1995,
Mr. Leven was President and Chief Operating Officer of Holiday Inn Worldwide.
Mr. Leven is a director of U.S. Franchise Systems and Servico, Inc. Mr. Leven is
also a member of the Board of Governors and the Chairman of the BioMedical
Services Board of the American Red Cross. Mr. Leven has been a Director of the
Corporation since August 1995.
DANIEL H. STERN, 37, has been the President of Reservoir Capital Group,
L.L.C., a New York-based investment management firm, since July 1997. Mr. Stern
was a Trustee of the Trust from
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August 1995 to November 1997. From December 1992 to July 1997, Mr. Stern was
President of Ziff Brothers Investments, L.L.C., a diversified investment
management firm. Mr. Stern has been a Director of the Corporation since November
1997.
BARRY S. VOLPERT, 39, is a Managing Director in the Principal Investment
Area of Goldman Sachs. Over the past 11 years, Mr. Volpert has held various
other management positions with that company. Mr. Volpert is a director of
Elifin S.A. (Luxembourg), Insilco Corp. and Rockefeller Center Properties, Inc.
Mr. Volpert has been a Director of the Corporation since January 1998.
Pursuant to the Westin Transaction Agreement, the Corporation has agreed to
include Mr. Volpert (and such successors to Mr. Volpert as shall be designated
by GS Group or an affiliate thereof designated by GS Group) on each management
slate of nominees to the Corporation Board. This right to designate a Director
will expire if affiliates of the GS Group sell (to unaffiliated persons) more
than 50% of the securities of Starwood Hotels and the Partnerships received by
affiliates of the GS Group in the transactions provided for in the Westin
Transaction Agreement (or securities of Starwood Hotels issued in exchange for
such securities).
DIRECTORS WITH TERMS EXPIRING IN 2000
JUERGEN BARTELS, 58, has been the Chief Executive Officer of Starwood
Hotels' Hotel Group since March 1998. From May 1995 to March 1998, Mr. Bartels
was the Chairman and Chief Executive Officer of Westin Hotels & Resorts. Prior
to joining Westin, Mr. Bartels was the President and Chief Executive Officer of
Carlson Hospitality Group, Inc. ("Carlson"), which controls Radisson Hotels
International, T.G.I. Friday's restaurants and Country Inns and Suites. Prior to
joining Carlson in 1983, Mr. Bartels was the President of Ramada's worldwide
holding company and founder of Ramada Renaissance Hotels. Mr. Bartels has been a
Director of the Corporation since January 1998.
JONATHAN D. EILIAN, 30, has been a Senior Managing Director, Managing
Director or executive officer of Starwood Capital and its predecessor entities
since its formation in 1991. Prior to being a founding member of Starwood
Capital, Mr. Eilian served as an Associate for JMB Realty Corporation, a real
estate investment firm, and for The Palmer Group, L.P., a private investment
firm specializing in corporate acquisitions. Mr. Eilian is currently a Trustee
of Starwood Financial Trust (a specialized real estate finance company organized
as a REIT) and is a member of the board of the Wharton Real Estate Center. Mr.
Eilian has been a Director of the Corporation since August 1995.
RICHARD D. NANULA, 38, joined the Corporation as its President and Chief
Executive Officer in June 1998. Prior to joining the Corporation, Mr. Nanula was
the Chief Financial Officer of The Walt Disney Co. ("Disney") from 1996 through
1998 and from 1991 through 1995. Mr. Nanula was the President of Disney Stores,
a division of Disney, from 1995 through 1996 and a senior executive vice
president of Disney from 1996. Prior to 1991, Mr. Nanula worked in the strategic
planning department at Disney. Mr. Nanula has been a Director of the Corporation
since June 1998.
BARRY S. STERNLICHT, 38, is the Chairman and Chief Executive Officer of the
Trust. Mr. Sternlicht also has been the President and Chief Executive Officer of
Starwood Capital and its predecessor entities since its formation in 1991. Mr.
Sternlicht is currently the Chairman of the Board of the Corporation, a Trustee
of Equity Residential Properties Trust, the Chairman of the Board of Trustees of
Starwood Financial Trust (a specialized real estate finance company organized as
a REIT) and a Director of each of U.S. Franchise Systems and ITT Educational
Services, Inc. Mr. Sternlicht is a member of the Urban Land Institute and of the
National Multi-Family Housing Council. Mr. Sternlicht is a member of the Board
of Directors of the Juvenile Diabetes Foundation International and the Council
for Christian and Jewish Understanding, is a member of the Young Presidents
Organization and is on the Board of Directors of Junior Achievement for
Fairfield County, Connecticut. Mr. Sternlicht has been a Director of the
Corporation since December 1994.
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BOARD MEETINGS AND COMMITTEES
In 1997, the full Trust Board met 32 times and the full Corporation Board
met 32 times. In addition to meetings of the full Boards, Trustees and Directors
attended meetings of individual Board committees and often considered issues
separate from these meetings. For the incumbent Trust Board as a whole,
attendance in 1997 at full Board and committee meetings exceeded 78% and for the
incumbent Corporation Board as a whole, attendance in 1997 at full Board and
committee meetings exceeded 80%. Each Trustee and Director attended at least 75%
of the meetings of the respective full Board and committees on which he or she
served except Messrs. Chapus and Leven.
The Trust Board and the Corporation Board have each established Executive,
Audit, Compensation and Option Committees, and the Corporation Board has
established a Gaming Audit Committee and a Public Policy Advisory Committee, the
principal functions of which are described below.
Executive Committees. To the extent permitted by law, the Executive
Committee of each Board is authorized to exercise the power of the Board with
respect to the management of the business and affairs of the Trust and the
Corporation, as the case may be, between meetings of the Board, except that the
Executive Committee of the Corporation may not authorize dividends on stock,
issue stock except in the limited circumstances permitted by statute, recommend
to the stockholders any action which requires stockholder approval, amend the
Corporation's Bylaws, or approve any merger or share exchange which does not
require stockholder approval. During 1997, the Executive Committees of the Trust
and the Corporation met twice each. The Executive Committee of the Trust Board
is currently comprised of Messrs. Sternlicht and Grose and the Executive
Committee of the Corporation Board is currently comprised of Messrs. Sternlicht,
Nanula and Eilian.
Audit Committees. The Audit Committee of each Board provides oversight
regarding accounting, auditing and financial reporting practices of Starwood
Hotels. Each Audit Committee selects, subject to the approval of the applicable
Board, the firm of independent public accountants to serve as auditors with whom
it discusses the scope and results of their audit. The Audit Committees also
discuss with the independent public accountants and with management financial
accounting and reporting principles, policies and practices and the adequacy of
Starwood Hotels' accounting, financial and operating controls. The Audit
Committees each met three times during 1997. The current members of the Audit
Committee of the Trust Board are Messrs. Troubh (chairman), Pratt and Quazzo and
the current members of the Audit Committee of the Corporation Board are Messrs.
Yih (chairman), Leven and Jones.
Gaming Audit Committee. The Corporation also has a Gaming Audit Committee,
which provides oversight regarding compliance with applicable gaming laws. The
current members of the Gaming Audit Committee are Ms. Barnes and Messrs. Nanula
and Leven (chairman).
Compensation Committees. The Compensation Committee of each Board makes
recommendations to the applicable Board with respect to the salaries and other
compensation to be paid to the executive officers and administers Starwood
Hotels' employee benefit plans other than the option plans. The Compensation
Committee of the Trust Board did not meet and the Compensation Committee of the
Corporation Board met once during 1997. The current members of the Compensation
Committee of the Trust Board are Messrs. Sternlicht and Grose and the members of
the Compensation Committee of the Corporation Board are Messrs. Jones and
Sternlicht.
Option Committees. The Option Committee of each Board administers the
Long-Term Incentive Plan of the Trust and the Long-Term Incentive Plan of the
Corporation, as applicable. The Option Committee of the Trust Board met seven
times and the Option Committee of the Corporation Board met eight times during
1997. The present members of the Option Committee of the Trust Board are Messrs.
Quazzo (chairman), Duncan and Chapus. William E. Simms, who resigned from the
Trust Board in June 1997, served as a member of the Option Committee of the
Trust prior to his resignation. The present members of the Option Committee of
the Corporation Board are Messrs. Yih (chairman), Leven and Jones.
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Public Policy Advisory Committee. The Public Policy Advisory Committee of
the Corporation Board makes recommendations to the Corporation Board on public
and social policy issues impacting the Corporation. The Advisory Committee met
on an informal basis during 1997. The present members of the Advisory Committee
are Senator Robert J. Dole (Chairman), former Majority Leader of the U.S.
Senate, James Miller, a former senior U.S. Treasury official in the Bush
Administration, John Merigan, an attorney, and Jeffrey R. Rosenthal, the Chief
Operating Officer of Starwood Capital.
COMPENSATION OF TRUSTEES AND DIRECTORS
Trustees and Directors who are Starwood Hotels employees receive no fees
for their services as Trustees and Directors. Non-employee Trustees and
Directors receive separate compensation for Board service. That compensation
includes:
<TABLE>
<S> <C>
Annual Fee: $50,000, payable in four equal installments of Paired Shares
(based on the market value of a Paired Share on the
preceding December 31). A Trustee or Director may elect to
receive up to one half of the Annual Fee in cash and may
defer (at an annual interest rate of LIBOR plus 1 1/2% for
deferred cash amounts) any or all of his or her Annual Fee.
The Annual Fee was increased from $25,000 to $50,000 as of
January 1, 1998.
Attendance Fees: $750 for each Board meeting ($500 in the case of a
telephonic meeting)
$500 for each Committee meeting ($1,000 for the chairman of
the Committee)
Expenses related to attendance
Starwood Options: Annual grants of 4,500 Paired Shares under the applicable
Incentive Plan
</TABLE>
Mr. Jones also received an additional fee of $2,500 per year (prorated) for
his services during 1997 as Chairman of the Corporation Board. Messrs. Quazzo
and Yih each received an additional fee of $400,000 (half in Paired Shares and
half in cash) for serving as the chairmen of the Special Committees of the Trust
and the Corporation, respectively, formed in connection with the negotiations to
acquire Westin.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Trustees, Directors and
executive officers of Starwood Hotels, and persons who own more than 10 percent
of the outstanding Paired Shares, to file with the SEC (and provide a copy to
Starwood Hotels) certain reports relating to their ownership of Paired Shares
and other equity securities of Starwood Hotels.
To Starwood Hotels' knowledge, based solely on a review of the copies of
these reports furnished to Starwood Hotels and written representations that no
other reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its Trustees, Directors,
officers and greater than 10 percent beneficial owners were complied with for
the most recent fiscal year and prior fiscal years, with the exception that
through inadvertence, Mr. Sternlicht did not include in his initial report of
ownership of Paired Shares an indirect pecuniary interest in Paired Shares held
by a partnership that he may be deemed to control indirectly, and omitted in
1995 to file two reports with respect to the indirect pecuniary interest in
Partnership Units exchangeable for Paired Shares that were acquired in exchange
for assets contributed to the Partnerships in a restructuring by limited
partnerships that Mr. Sternlicht may be deemed to control indirectly. A form
reporting these holdings and transactions was promptly filed by Mr. Sternlicht
after the oversight was discovered. Starwood Hotels believes that all such
holdings and transactions were properly and timely reported by Mr. Sternlicht on
Schedule 13D (filed under a different Exchange Act provision) and amendments
thereto, and that all such holdings and transactions have been properly and
timely disclosed in Starwood Hotels' proxy statements and annual reports.
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AMENDMENT AND RESTATEMENT OF THE LONG-TERM INCENTIVE PLANS
The Trust Board is proposing for approval by shareholders of the Trust the
amendment and restatement of the existing 1995 Long-Term Incentive Plan of the
Trust (as so amended and restated, the "Trust LTIP") and the Corporation Board
is proposing for approval by the stockholders of the Corporation the amendment
and restatement of the existing 1995 Long-Term Incentive Plan of the Corporation
(as so amended and restated, the "Corporation LTIP"). The Trust LTIP and the
Corporation LTIP (together, the "Incentive Plans") are separate plans under
which separate grants of awards ("Awards") may be granted. Reference is made to
Annexes D and E to this Joint Proxy Statement for the complete text of each of
the Incentive Plans, which are summarized below.
The purposes of each Incentive Plan are (i) to align the interests of the
shareholders of the Trust or the stockholders of the Corporation, as the case
may be, and recipients of awards under such Incentive Plan by increasing the
proprietary interest of such recipients in the growth and success of the Trust
and the Corporation and (ii) to advance the interests of the Trust and the
Corporation by attracting and retaining officers, key employees, consultants and
advisers, as well as qualified persons for service as Trustees or Directors, as
the case may be. Under each Incentive Plan, non-qualified stock options,
"incentive stock options" (within the meaning of Section 422 of the Code), stock
awards and performance awards may be granted.
The primary objective of the Trust Board and the Corporation Board with
respect to executive compensation is to establish programs which attract and
retain key managers and align the compensation received by executive officers
and other employees with the overall business strategies, values, performance
and financial condition of Starwood Hotels and to the achievement of individual
performance goals. To this end, the Trust Board and the Corporation Board have
each endorsed an executive compensation philosophy which includes the following
considerations:
- A "pay-for-performance" orientation that differentiates compensation
results based upon corporate and individual performance;
- An emphasis on stock incentives which vest over time as a significant
component of total compensation in order to more closely align the
interests of Starwood Hotels' executives and other employees with the
long-term interests of the shareholders;
- An emphasis on total compensation vs. cash compensation, which motivates
and rewards Starwood Hotels' executives and other employees with total
compensation (including incentive programs) at or above competitive
levels if performance is superior;
- Recognition that as an executive's level of responsibility increases, a
greater portion of the total compensation opportunity should be based
upon stock and other performance incentives and less on salary and
employee benefits;
- An appropriate mix of short-term and long-term compensation which
facilitates retention of talented executives who may have other
opportunities and encourages stock ownership and capital accumulation by
executives and other employees; and
- An appropriate distribution of Awards to senior executives and other
members of Starwood Hotels' management team, and the expansion of the
distribution of Awards to include property-level executives and other
personnel.
As of October 30, 1998, an aggregate of 17,753,631 Paired Shares have been
issued or granted under the Incentive Plans, and 9,674,630 Paired Shares are
currently available for issuance under the Incentive Plans.
For purposes of this section, the term "Paired Share" refers to a Paired
Share if prior to the Effective Time and to a Unit if after the Effective Time.
PROPOSED AMENDMENTS
The Trust Board and the Corporation Board each believe that the current
Incentive Plans have enabled the Trust and the Corporation to provide
compensation packages including long-term incentive awards to their respective
officers, key employees, Trustees and Directors that have better served the
goals
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of aligning the interests of such persons with those of the shareholders and
stockholders and advancing the interests of the Trust and the Corporation by
attracting and retaining qualified persons to serve as officers, key employees,
trustees and directors.
The adoption of the Trust LTIP Amendment and Restatement and the
Corporation LTIP Amendment and Restatement would provide that, unless provided
in the agreement relating to a Starwood Option, upon the voluntary termination
of a holder's employment or service as a consultant or advisor, each Starwood
Option held by such holder will be exercisable only to the extent that such
Starwood Option was exercisable on the effective date of such termination of
employment or service and shall be exercisable for thirty days after such
termination (or until the expiration date of such Starwood Option, if earlier).
Unless otherwise agreed in the context of a particular grant, upon the
involuntary termination of employment or service, each Starwood Option held by
such holder will be exercisable only to the extent that such Starwood Option was
exercisable on the effective date of such termination of employment or service
and shall be exercisable for three months after such termination (or until the
expiration date of such Starwood Option, if earlier).
In addition, the adoption of the Corporation LTIP Amendment and Restatement
would include under the Corporation LTIP the grant of 300,000 Restricted Stock
Units, vesting 120 days after June 1, 1998, and certain premium-priced Starwood
Options to Richard D. Nanula in connection with the commencement of his
employment as the President and Chief Executive Officer of the Corporation. The
fair market value of a Paired Share on the date of grant of these options was
$50.75 and the last sale price on December 2, 1998 was $28.63. Such Starwood
Options include (i) a Starwood Option to purchase 600,000 Paired Shares at an
exercise price of $53.2875 per Paired Share, (ii) a Starwood Option to purchase
400,000 Paired Shares at an exercise price of $53.2875 per Paired Share, (iii) a
Starwood Option to purchase 1,000,000 Paired Shares at an exercise price of
$55.825 per Paired Share, (iv) a Starwood Option to purchase 500,000 Paired
Shares at an exercise price of $63.4375 per Paired Share and (v) a Starwood
Option to purchase 500,000 Paired Shares at an exercise price of $76.125 per
Paired Share. Each such Starwood Option vests in 48 equal monthly installments
beginning on May 1, 1998 provided that Mr. Nanula is still employed by the
Corporation on such monthly vesting date, terminates one year (two years in
certain circumstances) after the termination of Mr. Nanula's employment and in
all events expires ten years after the date of grant.
The Trust and the Corporation are not proposing to change the aggregate
number of Paired Shares with respect to which Starwood Options or Restricted
Stock Awards may be made, but are substituting for the formula (set forth in the
current Incentive Plans) by which the number of Paired Shares available is
determined, the number obtained by applying such formula.
DESCRIPTION OF THE PLANS
Administration. Each Incentive Plan is administered by a committee of the
applicable Board (the "Committee") consisting of two or more trustees or
directors who are not eligible to receive discretionary awards under such
Incentive Plan or any other plan of the Trust or the Corporation, as the case
may be, or any of its affiliates, and, at the election of the applicable Board,
are "outside directors" within the meaning of Section 162(m) of the Code. Each
Incentive Plan may be amended by the applicable Board at any time, subject to
any requirement of shareholder approval required by applicable law, rule or
regulation and provided that no amendment may be made without shareholder
approval if such amendment would, among other things, (i) change the persons
eligible to participate in such Incentive Plan or (ii) change the maximum number
of Paired Shares available under such Incentive Plan.
Stock Options -- General. Pursuant to the Incentive Plans and the Pairing
Agreement, each option to purchase Corporation Shares shall be granted together
with an option to purchase an equal number of Trust Shares (after the Effective
Time, Class B Shares) (together, a "Starwood Option"). Each Committee will
determine the conditions to the exercisability of a Starwood Option granted
under the Incentive Plan which such Committee administers. Upon exercise of a
Starwood Option, including a Starwood Option which is comprised in part of an
"incentive stock option" within the meaning of Section 422 of the Code (an
"Incentive Starwood Option"), the purchase price may be paid in cash or by
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delivery of previously owned Paired Shares. Certain terms of a Starwood Option
(including certain terms relating to the exercisability of a Starwood Option
described below) may be modified in the agreement entered into in connection
with the grant of such Starwood Option. Without the approval by the shareholders
of the Trust and the stockholders of the Corporation, outstanding Starwood
Options may not be amended to reduce their exercise price.
Starwood Options. The number of Paired Shares subject to a Starwood
Option, the exercise price per Paired Share (which may not be less than the fair
market value of a Paired Share on the date of grant) and the period for the
exercise of a Starwood Option will be determined by the applicable Committee;
provided that no Incentive Starwood Option will be exercisable more than ten
years after its date of grant, unless the recipient of the Incentive Starwood
Option owns greater than ten percent of the voting power of (i) all classes of
shares of beneficial interest in the Trust (in the case of an Incentive Starwood
Option granted under the Trust LTIP) or (ii) all classes of stock of the
Corporation (in the case of an Incentive Starwood Option granted under the
Corporation LTIP), as the case may be (a "ten percent holder"), in which case
the Incentive Starwood Option will be exercisable for no more than five years
after its date of grant; and provided further that the exercise price of an
Incentive Starwood Option will not be less than the fair market value of a
Paired Share on the date of grant of such Starwood Option, except that if the
recipient of the Incentive Starwood Option is a ten percent holder, the exercise
price will be the price required by the Code, currently 110% of fair market
value.
Unless otherwise agreed in the context of a particular grant, in the event
of the termination of employment or service of a holder by reason of death or
disability, each Starwood Option will become fully vested and will be
exercisable for a period of one year after the date of such termination, but in
no event after the expiration of such Starwood Option. In the event of the
termination of employment or service of a holder for cause, each Starwood Option
will terminate on the date of such termination. In the event of the voluntary
termination of employment or service of a holder, each Starwood Option, to the
extent exercisable on the effective date of such holder's termination of
employment or service, may thereafter be exercised for a period of thirty days
after the date of such termination, but in no event after the expiration of such
Starwood Option. In the event of the termination of employment or service of a
holder for any other reason, each Starwood Option, to the extent exercisable on
the termination date, may thereafter be exercised for a period of three months
after the date of such termination, but in no event after the expiration of such
Starwood Option. If a holder of a Starwood Option dies during the one-year
period following termination of employment or service by reason of disability,
during the thirty-day period following the voluntary termination of employment
or service, or during the three-month period following termination of employment
or service for any other reason, each Starwood Option may thereafter be
exercised, to the extent exercisable on the date of the holder's death, for a
period of thirty days, in the case of voluntary termination, or three months, in
any other case, from the date of death (no less than one year after termination
of employment or service if the holder's termination was by reason of
disability) but in no event after the expiration of such Starwood Option.
Restricted Stock Awards. Each Committee will determine the conditions, if
any, to which a Restricted Stock Award shall be subject. The terms of each such
award, including the performance measures (if any) and restriction period
applicable to the award, will be set forth in the agreement relating to such
award. Unless otherwise set forth in the agreement relating to a Restricted
Stock Award, the holder of such award shall have all rights of a stockholder of
the Corporation and shareholder of the Trust, including, but not limited to,
voting rights, the right to receive dividends and the right to participate in
any capital adjustment applicable to all holders of Paired Shares.
Unless otherwise set forth in the agreement relating to a Restricted Stock
Award, in the event of termination of employment or service by reason of death,
disability or involuntary termination by Starwood Hotels without cause, the
restriction period terminates and the performance measures, if any, are to be
computed through the date of such termination. Unless otherwise set forth in the
agreement relating to a Restricted Stock Award, in the event of termination of
employment or service for any reason other than death, disability or involuntary
termination without cause, the portion of such award that is subject to a
restriction period on the date of such termination shall be forfeited.
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Performance Awards. Each Committee will determine the terms and
conditions, if any, to which an award of a right, contingent upon the attainment
of specified performance measures within a specified performance period, to
receive a payment in cash (a "Performance Award") shall be subject. Performance
Awards may be granted only in tandem with Starwood Options concurrently or
previously granted under the applicable Incentive Plan and will apply to all or
such portion of the Paired Shares subject to such Starwood Options as designated
by the Committee. The performance period and performance measures applicable to
any Performance Award will be designated by the applicable Committee, but in the
absence of such designation, the performance period will be the five-year period
commencing on August 12, 1996 and the performance measures will be a 15% per
annum compounded increase in the fair market value of an investment in Paired
Shares on August 12, 1996 at the then fair market value per Paired Share plus
all dividends and distributions paid with respect to Paired Shares subsequent to
such date and assuming reinvestment in additional Paired Shares of all such
dividends and distributions (the "Base Performance Measure"). Performance Awards
will vest upon satisfaction of the performance measures for the specified
performance period and will be settled in cash to the extent that both the
applicable Starwood Option has been exercised and the performance period has
expired. The cash amount will be the sum (without interest or compounding) of
all dividends and distributions per Paired Share during the performance period
and thereafter through the date of any subsequent exercise of the applicable
Starwood Options multiplied by the number of Paired Shares purchased upon
exercise of the applicable Starwood Options.
Unless otherwise agreed in the context of a particular grant, in the event
of termination of employment or service by reason of death, disability or
involuntary termination by Starwood Hotels without cause, the performance period
will be deemed to expire on the date of such termination and the performance
measures will be computed for the performance period through such date and the
Performance Award settled within ten days thereafter or, if later, when the
applicable Starwood Options are exercised. In the event of termination of
employment or service for any reason other than death, disability or involuntary
termination without cause, the Performance Award shall be canceled.
In the event of a change of control, Starwood Options will immediately
become fully exercisable for their remaining term and Restricted Stock Awards
under the Incentive Plans will immediately vest in full. In addition, in the
event of a change of control, the performance period for Performance Awards will
expire and the performance measures will be computed through the date of such
change of control and the applicable Performance Award will be settled on the
date of such change in control or, if later, upon exercise of the applicable
Starwood Options. The ITT Merger constituted a change in control under the
Incentive Plans. Accordingly, at the effective time of the ITT Merger, all
outstanding Starwood Options became fully exercisable for their remaining terms
(and the performance period for any related Performance Award expired and
performance measures were computed through the date of the ITT Merger) and all
outstanding Restricted Stock Awards vested in full, except for those Starwood
Options and Restricted Stock Awards for which the related agreements (or other
agreements) provided otherwise.
Trustee and Director Options and Paired Share Awards. On June 30 of each
year, each non-employee Trustee and Director is automatically granted
non-qualified Starwood Options to purchase 4,500 Paired Shares at an exercise
price per Paired Share equal to the fair market value of a Paired Share on the
date of grant. Such Starwood Options are fully exercisable on the date of grant
and expire ten years after the date of grant (notwithstanding termination of
service as a Trustee or Director, as the case may be, for any reason prior to
ten years after the date of grant). If a Trustee or Director dies while a
Starwood Option granted to such Trustee or Director is outstanding, such
Starwood Option may be exercised until and including the expiration date of the
Starwood Option.
During each calendar year, each non-employee Trustee and Director (other
than a Trustee or Director only of a subsidiary of the Trust or the Corporation)
on the last day of March, June, September and December will be awarded, on a
current or deferred basis at the election of each Trustee and Director, a number
of Paired Shares equal to one-quarter of $50,000 divided by the fair market
value of a Paired Share on the immediately preceding December 31; provided that
the number of Paired Shares issued in payment of such Annual Fee may be reduced,
to the extent that such Trustee or Director indicates an advance election to
receive cash (of no more than $25,000) in lieu of Paired Shares.
84
<PAGE> 94
AWARDS GRANTED UNDER THE INCENTIVE PLANS
The following table sets forth the number of Paired Shares underlying
Starwood Options that were granted on April 15, 1998 subject to the approval of
the Corporation LTIP Amendment and Restatement by the stockholders of the
Corporation. The following table does not include discretionary grants of Awards
made under the existing Incentive Plans or non-discretionary grants to
non-employee Trustees and Directors the provisions for which would not be
amended in the Trust LTIP Amendment and Restatement or the Corporation LTIP
Amendment and Restatement.
<TABLE>
<CAPTION>
NUMBER OF PAIRED NUMBER OF PAIRED
SHARES UNDERLYING SHARES CONSTITUTING
NAME AND POSITION PAIRED OPTIONS OTHER AWARDS
----------------- ----------------- -------------------
<S> <C> <C>
Awards Granted Under Trust LTIP
Barry S. Sternlicht................................... 0 0
Gary M. Mendell....................................... 0 0
Ronald C. Brown....................................... 0 0
Steven R. Goldman..................................... 0 0
All Current Executive Officers of the Trust, as a
Group............................................... 0 0
All Current Trustees who are not Executive Officers of
the Trust, as a Group............................... 0 10,880 (1)
All Employees of the Trust, including all Current
Officers who are not Executive Officers of the
Trust, as a Group................................... 0 0
Awards Granted Under Corporation LTIP
Eric A. Danziger...................................... 0 0
Theodore W. Darnall................................... 0 0
Steven R. Goldman..................................... 0 0
Alan M. Schnaid....................................... 0 0
All Current Executive Officers of the Corporation, as
a Group............................................. 2,400,000 (2) 0
All Current Directors who are not Executive Officers
of the Corporation, as a Group...................... 0 12,240 (1)
All Employees of the Corporation, including all
Current Officers who are not Executive Officers of
the Corporation, as a Group......................... 0 0
</TABLE>
- ---------------
(1) Assumes that no Trustee or Director elected to receive cash in lieu of
Paired Shares in connection with the annual fee of $50,000, which is payable
in four equal installments of Paired Shares (or up to one half of which may
be paid in cash at the election of the Trustee or Director).
(2) Includes the following premium-priced (over the fair market value of a
Paired Share on the date of grant of $50.75) Starwood Options granted to
Richard D. Nanula, the President and Chief Executive Officer of the
Corporation: (i) a Starwood Option to purchase 400,000 Paired Shares at an
exercise price of $53.2875 per Paired Share, (ii) a Starwood Option to
purchase 1,000,000 Paired Shares at an exercise price of $55.825 per Paired
Share, (iii) a Starwood Option to purchase 500,000 Paired Shares at an
exercise price of $63.4375 per Paired Share and (iv) a Starwood Option to
purchase 500,000 Paired Shares at an exercise price of $76.125 per Paired
Share. Each Starwood Option vests in 48 equal monthly installments beginning
on May 1, 1998 provided that the holder is still employed by the Corporation
on such monthly vesting date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the U.S. federal income tax
consequences of awards made under each Incentive Plan.
Starwood Options. A participant will not recognize any income upon the
grant of a Starwood Option. A participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding for Starwood Hotels
employees) upon exercise of a non-qualified Starwood Option equal to
85
<PAGE> 95
the excess of the fair market value of the Paired Shares purchased over the
exercise price, and the Corporation or the Trust, as the case may be, will be
entitled to a corresponding deduction. A participant will not recognize income
(except for purposes of the alternative minimum tax) upon exercise of an
Incentive Starwood Option, in the case of an Incentive Starwood Option granted
before the Restructuring, to the extent such option is an option to purchase
shares of the participant's employer, and provided that the Incentive Starwood
Option is exercised either while the participant is an employee of the
Corporation or the Trust, as the case may be, or within 3 months (one year if
the participant is disabled within the meaning of Section 22(c)(3) of the Code)
following the participant's termination of employment. If shares acquired by
such exercise of an Incentive Starwood Option are held for the longer of two
years from the date the option was granted and one year from the date it was
exercised, any gain or loss arising from a subsequent disposition of such shares
will be taxed as long-term capital gain or loss, and the Corporation or the
Trust, as the case may be, will not be entitled to any deduction. If, however,
such shares are disposed of within the above-described period, then in the year
of such disposition the participant will recognize compensation taxable as
ordinary income equal to the excess of (i) the lesser of the amount realized
upon such disposition and the fair market value of such shares on the date of
exercise over (ii) the exercise price, and the Corporation or the Trust, as the
case may be, will be entitled to a corresponding deduction.
Restricted Stock Awards. A participant will not recognize taxable income
at the time of the grant of a Restricted Stock Award, and the Corporation or the
Trust, as the case may be, will not be entitled to a tax deduction at such time,
unless the participant makes an election to be taxed at the time such Restricted
Stock Award is granted. If such election is not made, the participant will
recognize taxable income at the time the restrictions lapse in an amount equal
to the excess of the fair market value of the Paired Shares at such time over
the amount, if any, paid for such shares. The amount of ordinary income
recognized by a participant by making the above-described election or upon the
lapse of the restrictions is deductible by the Corporation or Trust, as the case
may be, as compensation expense, except to the extent the limit of Section
162(m) of the Code applies. In addition, a participant receiving dividends with
respect to Paired Shares subject to a Restricted Stock Award for which the
above-described election has not been made and prior to the time the
restrictions lapse will recognize taxable compensation (subject to income tax
withholding for Starwood Hotels employees), rather than dividend income, in an
amount equal to the dividends paid and the Corporation or Trust, as the case may
be, will be entitled to a corresponding deduction, except to the extent the
limit of Section 162(m) of the Code applies.
Performance Awards. A participant will not recognize taxable income upon
the grant of a Performance Award, and the Corporation or Trust, as the case may
be, will not be entitled to a tax deduction at such time. Upon the settlement of
a Performance Award, the participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding for Starwood Hotels
employees) in an amount equal to the cash paid to the participant, and the
Corporation or Trust, as the case may be, will be entitled to a corresponding
deduction, except to the extent the limit of Section 162(m) of the Code applies.
RECOMMENDATIONS
THE TRUST BOARD RECOMMENDS THAT SHAREHOLDERS OF THE TRUST VOTE FOR APPROVAL
OF THE TRUST LTIP AMENDMENT AND RESTATEMENT AND THE CORPORATION BOARD RECOMMENDS
THAT STOCKHOLDERS OF THE CORPORATION VOTE FOR APPROVAL OF THE CORPORATION LTIP
AMENDMENT AND RESTATEMENT.
86
<PAGE> 96
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
To the knowledge of the Trust and the Corporation, as of the Record Date,
no person "beneficially owned" 5% or more of the Paired Shares, except as
follows. In general, "beneficial ownership" includes those shares a person or
entity has the power to vote, or the power to transfer, and stock options that
are exercisable currently or become exercisable within 60 days.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------------------------ ------------------ ----------
<S> <C> <C>
Starwood Capital Group, L.L.C.,
its affiliated entities and Barry S. Sternlicht........... 11,050,083(2) 5.9%(2)
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830
FMR Corp. ................................................ 6,589,082(3) 3.8%(3)
82 Devonshire Street
Boston, MA 02109
</TABLE>
- -------------------------
(1) Based on the number of Paired Shares outstanding on the Record Date.
(2) Based on information in Amendment No. 2 to Schedule 13D dated December 31,
1996 filed by Starwood Capital, 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 Hotels, Mr.
Sternlicht may be deemed to beneficially own, directly or through entities
controlled by him, 477,069 Paired Shares and may be deemed to have either
sole or shared power to vote and dispose of such Paired Shares. Mr.
Sternlicht may also be deemed to beneficially own 2,579,500 Paired Shares
subject to presently exercisable options. Mr. Sternlicht holds, directly or
through trusts created by him for the benefit of members of his family,
Partnership Units that are exchangeable for an aggregate of 508,120 Paired
Shares. Starwood Partners may be deemed to hold shares of Class A EPS and
Class B EPS that are exchangeable for an aggregate of 4,014,809 Paired
Shares, and Partnership Units that are exchangeable for an aggregate of
3,470,585 Paired Shares. The amount beneficially owned and the percent of
class calculated assumes that Starwood Capital, its affiliated entities and
Mr. Sternlicht exchange Partnership Units for Paired Shares to the maximum
extent permitted within the Ownership Limit.
(3) Based on information contained in Amendment No. 2 to Schedule 13G dated
February 14, 1998, filed with respect to the Trust, 5,962,833 Paired Shares
are held by Fidelity Management & Research Company, a wholly owned
subsidiary of FMR Corp. ("FMRC"), and 626,249 Paired Shares are held by
Fidelity Management Trust Company, a wholly owned subsidiary of FMR Corp.
("FMTC"). FMR Corp. has sole voting power with respect to 626,249 Paired
Shares and dispositive power with respect to 6,589,082 Paired Shares.
The amount beneficially owned and the percent of class calculated do not
include 11,159,400 shares of common stock, no par value ("ITT Shares"), of
ITT held by FMRC and 363,622 ITT Shares held by FMTC (as reported in
Amendment No. 3 to Schedule 13G dated February 14, 1998, filed with respect
to ITT), constituting approximately 9.8% of the ITT Shares outstanding on
February 23, 1998. Pursuant to the ITT Merger, the former stockholders of
ITT received cash and an aggregate of 126,716,121 Paired Shares upon
consummation of the ITT Merger on February 23, 1998. Starwood Hotels
believes the number of Paired Shares issued to FMR Corp. in connection with
the ITT Merger to be at least 10,673,476. Such Amendment No. 3 also reports
that FMR Corp. had sole voting power with respect to 287,922 ITT Shares and
dispositive power with respect to 11,523,022 ITT Shares. Based on additional
information provided to Starwood Hotels, these ITT Shares were held by
various distinct entities no one of which, directly or by attribution, held
in excess of 8.0% of the outstanding ITT Shares.
87
<PAGE> 97
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
The following table sets forth the beneficial ownership of Paired Shares as
of the Record Date, by each Trustee and each executive officer of the Trust
named in the Summary Compensation Table who owns Paired Shares and by all
Trustees and current executive officers of the Trust as a group. Except as
otherwise provided below, each beneficial owner has sole voting and investment
power with respect to all Paired Shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------------ ------------------ ----------
<S> <C> <C>
Ronald C. Brown......................................... 131,806(2) (3)
Jean-Marc Chapus........................................ 31,837(4) (3)
Bruce W. Duncan......................................... 42,499(5) (3)
Steven R. Goldman....................................... 234,616(6) (3)
Madison F. Grose........................................ 219,331(7) (3)
Gary M. Mendell......................................... 935,612(8) (3)
George J. Mitchell...................................... 7,410(9) (3)
Roger S. Pratt.......................................... 4,539,344(10) 2.6%
Stephen R. Quazzo....................................... 34,784(11) (3)
Stuart M. Rothenberg.................................... 4,404,855(12) 2.4%
Barry S. Sternlicht..................................... 11,050,083(13) 5.9%
Raymond S. Troubh....................................... 15,535(14) (3)
All Trustees and executive officers as a group (10
persons).............................................. 20,580,294(15) 10.7%
</TABLE>
- -------------------------
(1) Based on the number of Paired Shares outstanding on the Record Date,
including any exercise of options to purchase Paired Shares or any exchange
of Class A EPS, Class B EPS or Partnership Units for Paired Shares.
(2) Includes 85,500 Paired Shares subject to presently exercisable options. In
March 1998, Mr. Brown resigned as an executive officer of the Trust to
become an executive officer of the Corporation.
(3) Less than 1%.
(4) Includes 27,000 Paired Shares subject to presently exercisable options.
(5) Includes 27,000 Paired Shares subject to presently exercisable options.
(6) Includes 171,500 Paired Shares subject to presently exercisable options and
Partnership Units that are exchangeable for 22,616 Paired Shares.
(7) Includes 124,500 Paired Shares subject to presently exercisable options,
Class A EPS and Class B EPS that are exchangeable for an aggregate of 3,223
Paired Shares, and Partnership Units that are exchangeable for an aggregate
of 43,299 Paired Shares. Also includes Class A EPS and Class B EPS that are
exchangeable for an aggregate of 25,990 Paired Shares and Partnership Units
that are exchangeable for an aggregate of 2,382 Paired Shares, all owned by
Mr. Grose's wife.
(8) As of March 1998, the date Mr. Mendell resigned as an officer of the Trust,
Mr. Mendell's beneficial ownership of Paired Shares included 300,000 Paired
Shares subject to exercisable options and Partnership Units that were
exchangeable for an aggregate of 599,112 Paired Shares, as well as
Partnership Units owned by a limited partnership of which Mr. Mendell was
general partner that were exchangeable for 36,500 Paired Shares.
(9) Includes 7,410 Paired Shares subject to presently exercisable options.
(10) Includes 9,000 Paired Shares subject to presently exercisable options. Also
includes 2,776,337 Paired Shares and Partnership Units that are
exchangeable for an aggregate of 1,754,007 Paired Shares, all of which are
beneficially owned by Prudential on behalf of Prudential Property
Investment Separate Account II ("PRISA II"); by virtue of his investment
control over PRISA II, Mr. Pratt may be
88
<PAGE> 98
deemed to have an indirect pecuniary interest in these Partnership Units
and Paired Shares. Does not include Paired Shares held by Prudential on
behalf of other accounts.
(11) Includes 27,000 Paired Shares subject to presently exercisable options,
7,087 Paired Shares owned by a trust of which Mr. Quazzo is settlor and
over which he shares investment control, and 397 Paired Shares owned by a
trust of which Mr. Quazzo's wife is settlor and over which she exercises
some investment control.
(12) Includes 6,719 Paired Shares subject to presently exercisable options (all
of which are held for the benefit of The Goldman Sachs Group, L.P. ("GSG"),
pursuant to an agreement between Mr. Rothenberg and GSG). Also includes
6,719 Paired Shares subject to presently exercisable options held for the
benefit of GSG by Barry S. Volpert, a Director of the Corporation, Class A
EPS and Class B EPS that are exchangeable for an aggregate of 4,188,035
Paired Shares and Partnership Units that are exchangeable for an aggregate
of 194,861 Paired Shares, all of which, together with an additional 8,521
Paired Shares, may be deemed to be owned by Goldman Sachs and GSG through
certain investment partnerships; Mr. Rothenberg is a managing director of
Goldman Sachs and may be deemed to have an indirect pecuniary interest in
such securities. Mr. Rothenberg has disclaimed beneficial ownership of
these securities except to the extent of his pecuniary interest therein.
(13) See Note (2) under "Certain Beneficial Owners" above. Includes (i) 477,069
Paired Shares that may be deemed to be beneficially owned by Mr.
Sternlicht, either directly or through entities controlled by him; (ii)
2,579,500 Paired Shares subject to presently exercisable options; (iii)
Class A EPS and Class B EPS that may be deemed to be beneficially owned by
Mr. Sternlicht, either directly or through entities controlled by him, and
that are exchangeable for an aggregate of 4,014,809 Paired Shares; and (iv)
Partnership Units that may be deemed to be beneficially owned by Mr.
Sternlicht, either directly or through entities controlled by him, and that
are exchangeable for an aggregate of 3,978,705 Paired Shares. Mr.
Sternlicht has disclaimed beneficial ownership of all such Paired Shares,
Class A EPS, Class B EPS and Partnership Units except to the extent of his
actual pecuniary interest therein. By virtue of his service as both a
Trustee of the Trust and a Director of the Corporation, Mr. Sternlicht's
Paired Shares, options to purchase Paired Shares, Class A EPS, Class B EPS
and Partnership Units are listed and totaled both here and in the chart
below.
(14) Includes 5,535 Paired Shares subject to presently exercisable options.
(15) Includes 2,991,883 Paired Shares that may be acquired upon the exercise of
presently exercisable options, 8,232,057 Paired Shares issuable upon the
exchange of Class A EPS and Class B EPS and 5,995,870 Paired Shares
issuable upon the exchange of Partnership Units.
89
<PAGE> 99
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
The following table sets forth the beneficial ownership of Paired Shares as
of the Record Date, by each Director and each executive officer of the
Corporation named in the Summary Compensation Table who owns Paired Shares and
by all Directors and current executive officers of the Corporation as a group.
Except as otherwise provided below, each beneficial owner has sole voting and
investment power with respect to all Paired Shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------------ ------------------ ----------
<S> <C> <C>
Brenda C. Barnes........................................ 6,535(2) (3)
Juergen Bartels......................................... 566,166 (3)
Eric A. Danziger........................................ 400,222(4) (3)
Theodore W. Darnall..................................... 206,783(5) (3)
Jonathan D. Eilian...................................... 128,837(6) (3)
Bruce M. Ford........................................... 28,834(7) (3)
Graeme W. Henderson..................................... 29,902(8) (3)
Earle F. Jones.......................................... 36,084(9) (3)
Michael A. Leven........................................ 28,337(10) (3)
Richard D. Nanula....................................... 399,518(11) (3)
Alan M. Schnaid......................................... 30,250(12) (3)
Daniel H. Stern......................................... 113,965(13) (3)
Barry S. Sternlicht..................................... 11,050,083(14) 5.9%
Barry S. Volpert........................................ 4,404,855(15) 2.4%
Daniel W. Yih........................................... 32,761(16) (3)
All Directors and executive officers as a group (15
persons).............................................. 17,246,074(17) 9.0%
</TABLE>
- -------------------------
(1) Based on the number of Paired Shares outstanding on the Record Date,
including any exercise of options to purchase Paired Shares or any exchange
of Class A EPS, Class B EPS or Partnership Units for Paired Shares.
(2) Includes 5,535 Paired Shares subject to presently exercisable options.
(3) Less than 1%.
(4) As of February 1998, the date Mr. Danziger resigned as an officer of the
Corporation, Mr. Danziger's beneficial ownership of Paired Shares included
300,000 Paired Shares subject to exercisable options.
(5) Includes 160,000 Paired Shares subject to presently exercisable options.
(6) Includes 124,500 Paired Shares subject to presently exercisable options.
(7) Includes 27,000 Paired Shares subject to presently exercisable options and
86 Paired Shares owned by Mr. Ford's wife.
(8) Includes 27,000 Paired Shares subject to presently exercisable options.
(9) Includes 16,749 Paired Shares subject to presently exercisable options.
(10) Includes 27,000 Paired Shares subject to presently exercisable options.
(11) Includes 87,500 Paired Shares subject to presently exercisable options,
300,000 Paired Shares subject to a grant of restricted stock units and 100
Paired Shares owned by Mr. Nanula's wife.
(12) Includes 30,250 Paired Shares subject to presently exercisable options.
(13) Includes 27,000 Paired Shares subject to presently exercisable options and
Partnership Units exchangeable for an aggregate of 86,965 Paired Shares.
(14) See Note (2) under "Certain Beneficial Owners" above. Includes (i) 477,069
Paired Shares that may be deemed to be beneficially owned by Mr.
Sternlicht, either directly or through entities
90
<PAGE> 100
controlled by him; (ii) 2,579,500 Paired Shares subject to presently
exercisable options; (iii) Class A EPS and Class B EPS that may be deemed
to be beneficially owned by Mr. Sternlicht, either directly or through
entities controlled by him, and that are exchangeable for an aggregate of
4,014,809 Paired Shares; and (iv) Partnership Units that may be deemed to
be beneficially owned by Mr. Sternlicht, either directly or through
entities controlled by him, and that are exchangeable for an aggregate of
3,978,705 Paired Shares. Mr. Sternlicht has disclaimed beneficial ownership
of all such Paired Shares, Class A EPS, Class B EPS, Partnership Units
except to the extent of his actual pecuniary interest therein. By virtue of
his service as both a Director of the Corporation and a Trustee of the
Trust, Mr. Sternlicht's Paired Shares, options to purchase Paired Shares,
Class A EPS, Class B EPS and Partnership Units are listed and totaled both
here and above.
(15) Includes 6,719 Paired Shares subject to presently exercisable options (all
of which are held for the benefit of GSG pursuant to an agreement between
Mr. Volpert and GSG). Also includes 6,719 Paired Shares subject to
presently exercisable options held for the benefit of GSG by Stuart M.
Rothenberg, a Trustee of the Trust, Class A EPS and Class B EPS that are
exchangeable for an aggregate of 4,188,035 Paired Shares and Partnership
Units that are exchangeable for an aggregate of 194,861 Paired Shares, all
of which, together with an additional 8,521 Paired Shares, may be deemed to
be owned by Goldman Sachs and GSG through certain investment partnerships;
Mr. Volpert is a managing director of Goldman Sachs and may be deemed to
have an indirect pecuniary interest in such securities. Mr. Volpert has
disclaimed beneficial ownership of these securities except to the extent of
his pecuniary interest therein.
(16) Includes 27,000 Paired Shares subject to presently exercisable options.
(17) Includes 3,281,122 Paired Shares that may be acquired upon the exercise of
presently exercisable options, 300,000 Paired Shares subject to a grant of
restricted stock units, 8,202,844 Paired Shares issuable upon the exchange
of Class A EPS and Class B EPS and 4,260,531 Paired Shares issuable upon
the exchange of Partnership Units.
91
<PAGE> 101
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The Trust. The following table provides the before-tax compensation for
Barry S. Sternlicht, Chief Executive Officer of the Trust, and for each other
person who served as an executive officer of the Trust during the year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
RESTRICTED
ANNUAL COMPENSATION STOCK SECURITIES
--------------------- AWARD(S) UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#)(2) COMPENSATION($)
- --------------------------- ---- --------- --------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Barry S. Sternlicht 1997 307,500 2,650,000 400,000
Chairman and Chief 1996 181,252 250,000 956,250(3) 1,554,000
Executive Officer 1995 91,667 150,000 625,500
Gary M. Mendell(4) 1997 319,368 300,000
President
Ronald C. Brown(5) 1997 200,000 250,000 40,000
Senior Vice President and 1996 175,000 100,000 540,000(6) 85,500 163,963(7)
Chief Financial Officer 1995 66,666 65,000 82,500
Steven R. Goldman(8) 1997 200,000 250,000 50,000
Senior Vice President 1996 43,750 75,000 900,000(9) 90,000 44,112(7)
</TABLE>
- -------------------------
(1) Value is calculated by multiplying the number of shares by the closing
market price of the Paired Shares on the date of grant.
(2) For additional information with respect to these options, see "Option
Exercises and Holdings" below.
(3) In February 1996, Mr. Sternlicht received Restricted Stock Awards in the
form of two warrants to purchase an aggregate of 45,000 Paired Shares at an
exercise price of $0.67 per Paired Share. One warrant was exercisable in
full on the grant date; the second warrant became exercisable in full in
January 1997; and the exercisability of both warrants generally was
conditioned upon Mr. Sternlicht's continued employment by the Trust. Mr.
Sternlicht exercised both of these warrants in full in 1997, and the
restricted stock issued upon these exercises has fully vested. Dividends
were paid to Mr. Sternlicht with respect to these Restricted Stock Awards.
The value of such Paired Shares at December 31, 1997 was $2,604,375, based
on the closing price of a Paired Share on the NYSE on such date ($57.875).
(4) Mr. Mendell became an officer of the Trust in January 1997 and resigned such
position in March 1998.
(5) Mr. Brown became an officer of the Trust in July 1995; in March 1998 he
resigned this position to become an executive officer of the Corporation.
(6) Mr. Brown was granted a Restricted Stock Award of 22,500 Paired Shares in
August 1996. Such Restricted Stock Award was originally scheduled to vest in
annual installments during the three years ended August 12, 1999. In
accordance with the change of control provisions of the Trust LTIP, upon the
consummation of the ITT Merger, such Restricted Stock Award vested in full.
Dividends were paid to Mr. Brown with respect to such Restricted Stock
Award. As of December 31, 1997, the value of such 22,500 Paired Shares was
$1,302,188, based on the closing price of the Paired Shares on the NYSE on
such date ($57.875).
(7) Amount shown reflects taxable reimbursement of relocation expenses.
(8) Mr. Goldman became an executive officer of the Trust in September 1996.
Prior to September 1996, Mr. Goldman was an officer of the Corporation. For
services rendered during 1996, the Corporation paid Mr. Goldman $131,250 in
salary and a bonus of $25,000.
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<PAGE> 102
(9) Mr. Goldman was granted a Restricted Stock Award of 37,500 Paired Shares in
August 1996. Such Restricted Stock Award was originally scheduled to vest in
annual installments during the three years ended August 12, 1999. In
accordance with the change of control provisions of the Trust LTIP, upon the
consummation of the ITT Merger, such Restricted Stock Award vested in full.
Dividends were paid to Mr. Goldman with respect to such Restricted Stock
Award. As of December 31, 1997, the value of such 37,500 Paired Shares was
$2,170,313 based on the closing price of the Paired Shares on the NYSE on
such date ($57.875).
The Corporation. The following table provides the before-tax compensation
for Eric A. Danziger, who served as Chief Executive Officer of the Corporation
until his resignation in February 1998, and for each other person who served as
an executive officer of the Corporation during the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
RESTRICTED
ANNUAL COMPENSATION STOCK SECURITIES
-------------------- AWARD(S) UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#)(2) COMPENSATION($)
- --------------------------- ---- --------- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Danziger(3) 1997 365,000 375,000
President and Chief 1996 175,711 150,000 2,455,451(4) 300,000 201,312(5)
Executive Officer
Theodore W. Darnall(6) 1997 269,000 250,000 40,000
Executive Vice-President 1996 191,790 137,500 1,000,011(7) 150,000 41,758(5)
and Chief Operating
Officer
Steven R. Goldman(8) 1996 131,250 25,000
Senior Vice President 1995 114,583 75,000 69,000 19,800(9)
Alan M. Schnaid 1997 110,000 120,000 25,000
Vice President and 1996 85,228 22,500 9,750 69,918(10)
Corporate Controller 1995 55,000 8,500 6,750
</TABLE>
- -------------------------
(1) Value is calculated by multiplying the number of shares by the closing
market price of the Paired Shares on the date of grant.
(2) For information with respect to these options, see "Option Exercises and
Holdings" below.
(3) Mr. Danziger became an officer of the Corporation in July 1996 and resigned
in February 1998.
(4) Mr. Danziger was granted a Restricted Stock Award of 100,222 Paired Shares
in June 1996. Such Restricted Stock Award was originally scheduled to vest
in annual installments over the three years ended June 27, 1999. In
accordance with the provisions of Mr. Danziger's employment contract, upon
the termination of Mr. Danziger's employment with the Corporation, such
Restricted Stock Award vested in full. Dividends were paid to Mr. Danziger
with respect to such Restricted Stock Award. As of December 31, 1997, the
value of such 100,222 Paired Shares was $5,800,348, based on the closing
price of the Paired Shares on the NYSE on such date ($57.875).
(5) Amount shown reflects taxable reimbursement of relocation expenses.
(6) Mr. Darnall became an officer of the Corporation in April 1996.
(7) Mr. Darnall was granted a Restricted Stock Award of 45,283 Paired Shares in
April 1996. Such Restricted Stock Award was originally scheduled to vest in
annual installments over the three years ended April 26, 1999. In
accordance with the change of control provisions of the Corporation LTIP,
upon the consummation of the ITT Merger, such Restricted Stock Award vested
in full. Dividends were paid to Mr. Darnall with respect to such Restricted
Stock Award. As of December 31, 1997, the value of such 45,283 Paired
Shares was $2,620,754, based on the closing price of the Paired Shares on
the NYSE on such date ($57.875).
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(8) Mr. Goldman resigned as an officer of the Corporation in September 1996, at
which time he became an executive officer of the Trust. During 1996, the
Trust paid Mr. Goldman $43,750 in salary and a bonus of $75,000, and
reimbursed Mr. Goldman on a taxable basis for $44,112 of relocation
expenses.
(9) Amount shown reflects cash paid by the Corporation for housing allowance.
(10) Amount shown reflects $46,635 for relocation allowance and $23,303 for
taxable reimbursement of relocation expenses.
OPTION GRANTS
The following table gives more information on Starwood Options granted
during the last fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS/ AT ASSUMED ANNUAL RATES OF
SECURITIES SARS GRANTED STOCK PRICE APPRECIATION
UNDERLYING TO EMPLOYEES EXERCISE FOR OPTION TERM*
OPTIONS/ IN LAST PRICE --------------------------
NAME SARS GRANTED FISCAL YEAR ($/SH.) EXPIRATION DATE 5% ($) 10% ($)
- ---- ------------ ------------ -------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Barry S. 400,000 23.15 53.00 September 25, 2007 13,332,566 33,787,340
Sternlicht.........
Ronald C. Brown...... 40,000 2.32 53.00 September 25, 2007 1,333,257 3,378,734
Steven R. Goldman.... 50,000 2.89 53.00 September 25, 2007 1,666,571 4,223,418
Theodore W.
Darnall............ 40,000 2.32 53.00 September 25, 2007 1,333,257 3,378,734
Alan M. Schnaid...... 10,000 0.58 38.50 March 3, 2007 242,124 613,591
15,000 0.87 53.00 September 25, 2007 499,971 1,267,025
Gary M. Mendell...... 300,000 17.36 37.417 February 14, 2007 7,059,405 17,889,918
</TABLE>
- -------------------------
* The dollar gains under these columns result from calculations assuming 5% and
10% growth rates as set by the SEC and are not intended to forecast future
price appreciation of the Paired Shares. The gains reflect a future value
based upon growth at these prescribed rates. Starwood Hotels did not use an
alternative formula for a grant date valuation, an approach that would state
gains at present, and therefore lower, value. Starwood Hotels is not aware of
any formula that will determine with reasonable accuracy a present value based
on future unknown or volatile factors.
It is important to note that options have value to recipients, including the
listed executives, only if the price of the Paired Shares advances beyond the
grant date price shown in the table during the effective option period.
The exercise price of each Starwood Option listed in the table above is
equal to the fair market value of a Paired Share on the day that option was
granted, as provided in the Trust LTIP and Corporation LTIP. Each of the options
listed in the table above (other than the option granted to Mr. Mendell)
originally was to become exercisable in three equal annual installments
commencing on the first anniversary of the option grant date. In accordance with
the change of control provisions of the Corporation LTIP, upon consummation of
the ITT Merger, the option granted to Mr. Schnaid that expires in March 2007
became immediately exercisable for the full amount of Paired Shares subject to
the option. The option granted to Mr. Mendell originally became exercisable as
to one-fifth of the shares on each of the second, third and fourth anniversaries
of the option grant date, and as to the balance of the shares on the fifth
anniversary of the grant date. In accordance with Mr. Mendell's employment
agreement with the Trust, upon the termination of his employment with the Trust,
the option became exercisable in full.
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<PAGE> 104
OPTION EXERCISES AND HOLDINGS
The following table shows the number and value of stock options (exercised
and unexercised) for the executive officers of the Trust and the executive
officers of the Corporation named in the Summary Compensation Tables above
during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS
YEAR-END (#) AT FISCAL YEAR-END ($)(*)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($)(*) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barry S.
Sternlicht......... 794,001 1,785,499 30,613,742 50,853,584
Gary M. Mendell...... 0 300,000 0 6,126,900
Ronald C. Brown...... 6,153 139,981 64,847 137,000 2,604,987 3,756,318
Steven R. Goldman.... 66,500 142,500 2,710,028 3,618,647
Eric A. Danziger..... 62,500 237,500 2,083,750 7,983,838
Theodore W.
Darnall............ 25,000 165,000 893,918 4,525,660
Alan M. Schnaid...... 5,500 33,750 212,121 594,601
</TABLE>
- -------------------------
(*) Value is calculated by subtracting the exercise price from the assumed fair
market value of the Paired Shares underlying the option at December 31, 1997
and multiplying the result by the number of shares for which the option is
"in the money." Fair market value was calculated based upon the average of
the high and low sales prices of a Paired Share as reported by the NYSE at
December 31, 1997 ($57.84). There is no assurance that if and when any such
option is exercised, the option will have this value.
EMPLOYMENT AND COMPENSATION AGREEMENTS WITH EXECUTIVE OFFICERS
The Trust. In February 1998, Barry S. Sternlicht and the Trust entered
into an amended and restated employment agreement pursuant to which Mr.
Sternlicht has agreed to continue to serve as the Chairman and Chief Executive
Officer of the Trust until at least December 31, 1999. The amended and restated
employment agreement provides that Mr. Sternlicht will receive a minimum annual
base salary of $1,000,000 and a guaranteed minimum bonus for 1998 of $1,325,000.
In addition, the Trust will purchase for Mr. Sternlicht a $10,000,000 life
insurance policy on his life, and will pay to Mr. Sternlicht cash in an amount
equal to the amount of any excise tax imposed on him as a result of the
accelerated vesting of certain outstanding stock options. Mr. Sternlicht also
will receive a cash payment in respect of taxes payable by Mr. Sternlicht as a
result of the vesting of the restricted stock award granted in August 1996 to
Starwood Capital under the Trust LTIP. In connection with such modifications,
Mr. Sternlicht waived the accelerated vesting (as a result of the ITT Merger or
the Westin Acquisition) of all awards to him under the Trust LTIP that otherwise
would have vested in 1998; such awards accordingly will vest in accordance with
their terms, as modified.
Mr. Sternlicht's employment is terminable by the Trust with or without
cause. In the event Mr. Sternlicht's employment by the Trust is terminated by
the Trust other than for "cause" or by Mr. Sternlicht for "good reason" (each as
defined), the Trust has agreed to pay to Mr. Sternlicht as a severance benefit
an amount equal to two times the sum of his annual base salary then in effect
plus the average of his bonus pay for the preceding two years. In addition, all
then unvested awards made to Mr. Sternlicht under the Trust LTIP will vest in
full, subject to certain exceptions.
In connection with the execution and delivery of the amended and restated
employment agreement, the Trust granted to Mr. Sternlicht an option under the
Trust LTIP to purchase 2,500,000 Paired Shares, exercisable at $54.6875 per
Paired Share (the market value of a Paired Share on the date of grant); this
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<PAGE> 105
option vests in three equal annual installments, subject generally to Mr.
Sternlicht's continued employment by the Trust. Until November 30, 1998, and
subject to certain limitations, Mr. Sternlicht is permitted to transfer the
right to purchase an aggregate of up to 500,000 of the Paired Shares subject to
this option.
In connection with a 1997 acquisition by Starwood Hotels, Gary M. Mendell
and the Trust entered into an employment agreement dated as of January 15, 1997,
pursuant to which Mr. Mendell was employed as the President of the Trust and
elected as a member of the Trust Board. Pursuant to the employment agreement,
Mr. Mendell received a minimum base salary of $365,000 and annual incentive
compensation; in addition, he was granted (i) an option to purchase 300,000
Paired Shares exercisable at $37.417 per Paired Share (the market value of a
Paired Share on the date of grant), which option vests in five equal annual
increments beginning on the second anniversary of the grant date, and (ii) a
performance award under the Trust LTIP entitling him to receive all
distributions paid on the Paired Shares if certain performance criteria are
satisfied over the five-year period ended December 5, 2001. Mr. Mendell's
employment by the Trust was terminable by either party with or without cause,
and was terminated by Mr. Mendell in March 1998. As a result of such
termination, Mr. Mendell is entitled to a payment equal to the sum of his most
recent annual base salary plus $255,500 and the immediate vesting of the option
and the related performance award.
As of March 25, 1998, Steven R. Goldman and the Trust entered into a new
employment agreement in connection with Mr. Goldman's assuming the new position
of Executive Vice President, Acquisitions and Development, for the Trust. Under
the new agreement, Mr. Goldman's annual salary will be $325,000, with a bonus to
be determined in accordance with a new plan that is expected to be considered by
the Trust Board, and an additional retention bonus of one year's salary (at the
current base salary level) conditioned upon Mr. Goldman's staying with the Trust
at least one year after the closing of the ITT Merger. Mr. Goldman will also
receive, conditioned upon Mr. Goldman's staying with the Trust for the same
one-year period, a cash payment in respect of taxes payable by Mr. Goldman as a
result of the vesting of the Restricted Stock Award granted to Mr. Goldman in
August 1996. The Trust also undertakes to recommend to the Option Committee of
the Trust Board that Mr. Goldman be granted an option under the Trust LTIP at an
exercise price equal to the fair market value of Paired Shares on the date of
grant; the option will be for such number of Paired Shares as is determined by
the Option Committee and will vest over a three-year period. In addition, the
new agreement calls for the Trust to pay (i) Mr. Goldman's reasonable
out-of-pocket expenses in connection with his relocation to the
Fairfield/Westchester county area, (ii) relocation costs related to a
third-party purchase of Mr. Goldman's home in Phoenix to facilitate an expedient
relocation and (iii) mortgage duplication expenses for a period not to exceed
six months. Mr. Goldman's employment is terminable by the Trust or Mr. Goldman
with or without cause. In the event his employment is terminated by the Trust
without cause or by Mr. Goldman due to breach by the Trust, Mr. Goldman will be
entitled to severance benefits of one year's base salary and the accelerated
vesting of all outstanding options. The Trust also has made a five-year,
non-interest-bearing loan to Mr. Goldman in the amount of $525,000, which is
expected to be secured by a second mortgage on Mr. Goldman's new home in the
Fairfield/Westchester county area.
The Corporation. As of April 1998, Richard D. Nanula and the Corporation
entered into an employment agreement pursuant to which Mr. Nanula has agreed to
serve as the President and Chief Executive Officer of the Corporation until at
least June 1, 2003. The employment agreement provides that Mr. Nanula will
receive a minimum annual base salary of $950,000, with a bonus to be determined
in 1998 by the Corporation Board and in later years to be determined in
accordance with a new bonus plan expected to be considered by the Corporation
Board. In addition, the Corporation will purchase for Mr. Nanula a $10,000,000
life insurance policy on his life. The agreement also calls for the Corporation
to pay Mr. Nanula's reasonable out-of-pocket expenses in connection with his
relocation to the Fairfield/ Westchester county area and any difference between
the third-party purchase price and the appraised price of Mr. Nanula's home in
California (subject to the right of the Corporation to elect to purchase the
home at its appraised value).
As an inducement to Mr. Nanula's entering into the employment agreement,
the Option Committee of the Corporation Board granted to Mr. Nanula a Restricted
Stock Unit Award under the Corporation
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<PAGE> 106
LTIP of 300,000 Restricted Stock Units. The Corporation agreed to pay to Mr.
Nanula an amount equal to dividends or other distributions paid on the Paired
Shares subject to such Restricted Stock Unit Award. This award vests 120 days
after June 1, 1998.
In addition, on April 15, 1998, the Option Committee of the Corporation
Board granted Mr. Nanula Starwood Options to purchase (i) 600,000 Paired Shares
at an exercise price of $53.2875 per Paired Share (which was in excess of the
market value of a Paired Share on the date of grant), (ii) 400,000 Paired Shares
at an exercise price of $53.2875 per Paired Share; (iii) 1,000,000 Paired Shares
at an exercise price of $55.8250 per Paired Share; (iv) 500,000 Paired Shares at
an exercise price of $63.4375 per Paired Share; and (v) 500,000 Paired Shares at
an exercise price of $76.1250 per Paired Share. These options vest in 48 equal
monthly installments beginning on May 1, 1998, subject generally to Mr. Nanula's
continued employment by the Corporation. Each option will terminate one year
after the termination of Mr. Nanula's employment by the Corporation, except that
if his employment is terminated by the Corporation without "cause" or by Mr.
Nanula for "good reason," each option will terminate two years after the
termination of Mr. Nanula's employment. Each of the options (other than the
first for 600,000 Paired Shares) is subject to the approval of the Corporation
LTIP Amendment and Restatement by the stockholders of the Corporation. If the
approval is not obtained by April 15, 1999, the Corporation has agreed to grant
(the "Restorative Grants") to Mr. Nanula (if he is then employed by the
Corporation) on each of May 1, 1999 and January 2, 2000 Starwood Options to
purchase 900,000 Paired Shares and on January 2, 2001 a Starwood Option to
purchase 600,000 Paired Shares, each exercisable at a price equal to the fair
market value of a Paired Share on the date of grant and having the same vesting
period as the options granted on April 15, 1998 (such that the options will be
partially vested on the date of grant and will further vest over the 48 months
beginning May 1, 1998). In the event of a change in control of the Corporation,
the Restricted Stock Unit Award and the Starwood Options granted to Mr. Nanula
shall become fully vested.
Mr. Nanula's employment is terminable by the Corporation with or without
cause. Upon the termination of Mr. Nanula's employment, he will be entitled to
receive all Paired Shares subject to the Restricted Stock Unit Award referred to
above and all Paired Shares underlying incentive compensation awards. If Mr.
Nanula terminates his employment because Mr. Sternlicht has ceased to be
Chairman and Chief Executive Officer of the Trust and Mr. Nanula has not
approved of Mr. Sternlicht's successor, 50% of the Paired Shares underlying Mr.
Nanula's Starwood Options and Restricted Stock Unit Awards shall become vested.
If stockholder approval of the Corporation LTIP Amendment and Restatement is not
obtained and Mr. Nanula's employment with the Corporation is terminated, Mr.
Nanula shall be entitled to receive, upon exercise of an option included in the
Restorative Grants, the excess (if any) of the exercise price per Paired Share
of the Restorative Grant over the exercise price of its hypothetical equivalent
(being in sequential order the options referred to in clauses (ii) through (v)
above) multiplied by the number of Paired Shares purchased. If shareholder
approval is not obtained and Mr. Nanula's employment is terminated prior to
January 2, 2001 by the Corporation without "cause" or by Mr. Nanula for "good
reason," and if the market price of a Paired Share (at the earlier of the second
anniversary of such termination and the date of the last exercise of Starwood
Options granted under Mr. Nanula's employment agreement) exceeds the exercise
price per Paired Share with respect to any of the Restorative Grants that has
not yet been granted, the Corporation shall also pay Mr. Nanula the excess of
the market price over the exercise price multiplied by the number of Paired
Shares that would be vested if the Restorative Grant had been made on April 15,
1998 with the 48-month vesting schedule described above.
As of March 19, 1998, Juergen Bartels and the Corporation entered into an
employment agreement in connection with Mr. Bartels's assuming the new position
of Chief Executive Officer of the Hotel Group for the Corporation. Under the
agreement, Mr. Bartels's annual salary will be $525,000, with a bonus to be
determined in accordance with a new bonus plan expected to be considered by the
Corporation Board. The Corporation also undertakes to recommend to the Option
Committee of the Corporation Board that Mr. Bartels be granted an option under
the Corporation LTIP at an exercise price equal to the fair market value of a
Paired Share on the date of grant; the option will be for such number of Paired
Shares as is determined by the Option Committee and will vest over a three-year
period. In addition, the agreement
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<PAGE> 107
calls for the Corporation to pay (i) Mr. Bartels's reasonable out-of-pocket
expenses in connection with his relocation to the Fairfield/Westchester county
area and (ii) relocation costs relating to a third-party purchase of Mr.
Bartels's home in Seattle to facilitate an expedient relocation. Mr. Bartels's
employment is terminable by the Corporation or Mr. Bartels with or without
cause. In the event his employment is terminated by the Corporation without
cause or by Mr. Bartels due to breach by the Corporation, Mr. Bartels will be
entitled to severance benefits of one year's base salary and the accelerated
vesting of all outstanding options.
Eric A. Danziger and the Corporation entered into an employment agreement
dated as of June 27, 1996, pursuant to which Mr. Danziger was employed as
President and Chief Executive Officer of the Corporation at an annual salary of
$365,000 and was guaranteed a minimum bonus of $150,000 for 1996. Mr. Danziger
also received an option to purchase up to 187,500 Paired Shares at a price of
$24.50 per Paired Share (the fair market value of the Paired Shares on the date
of grant) and a restricted stock award of 100,222 Paired Shares. (See "-- The
Corporation -- Summary Compensation Table" above.) The Corporation also
reimbursed Mr. Danziger for expenses incurred in connection with moving his
residence from Dallas, Texas to Phoenix, Arizona, and provided Mr. Danziger with
a one-year non-interest-bearing loan for $150,000 secured by a second mortgage
on his new residence in Phoenix. This loan was paid in full by Mr. Danziger in
February 1998. As a result of the termination of Mr. Danziger's employment in
February 1998, Mr. Danziger is entitled to severance benefits of one year's base
salary and the immediate vesting of all outstanding options and Restricted Stock
Awards.
As of March 25, 1998, Theodore W. Darnall and the Corporation entered into
a new employment agreement in connection with Mr. Darnall's assuming the new
position of Executive Vice President of Hotel Operations for the Corporation.
Under the new agreement, Mr. Darnall's annual salary will be $350,000, with a
bonus to be determined in accordance with the anticipated new bonus plan, and an
additional retention bonus of one year's salary (at the current base salary
level) conditioned upon Mr. Darnall's staying with the Corporation at least one
year after the closing of the ITT Merger. Mr. Darnall will also receive,
conditioned upon Mr. Darnall's staying with the Corporation for the same
one-year period, a cash payment in respect of taxes payable by Mr. Darnall as a
result of the vesting of the Restricted Stock Award originally granted to Mr.
Darnall in August 1996. The Corporation also undertakes to recommend to the
Option Committee of the Corporation Board that Mr. Darnall be granted an option
under the Corporation LTIP at an exercise price equal to the fair market value
of a Paired Share on the date of grant; the option will be for such number of
Paired Shares as is determined by the Option Committee and will vest over a
three-year period. In addition, the new agreement calls for the Corporation to
pay (i) Mr. Darnall's reasonable out-of-pocket expenses in connection with his
relocation to the Fairfield/Westchester county area and (ii) relocation costs in
connection with a third-party purchase of Mr. Darnall's home in Phoenix to
facilitate an expedient relocation. Mr. Darnall's employment is terminable by
the Corporation or Mr. Darnall with or without cause. In the event his
employment is terminated by the Corporation without cause or by Mr. Darnall due
to breach by the Corporation, Mr. Darnall will be entitled to severance benefits
of one year's base salary and the accelerated vesting of all outstanding
options. The Corporation has also made a five-year, non-interest-bearing loan to
Mr. Darnall in the amount of $600,000, which is expected to be secured by a
second mortgage on Mr. Darnall's new home in the Fairfield/Westchester county
area.
In March 1998, Ronald C. Brown resigned as an officer of the Trust and
became an executive officer of the Corporation. As of March 10, 1998, Mr. Brown
and the Corporation entered into a new employment agreement in connection with
Mr. Brown's assuming the new position of Executive Vice President and Chief
Financial Officer for the Corporation. Under the new agreement, Mr. Brown's
annual salary will be $325,000, with a bonus to be determined in accordance with
the anticipated new bonus plan. Mr. Brown also will receive, conditioned upon
Mr. Brown's staying with the Corporation at least one year after the closing of
the ITT Merger, a cash payment in respect of taxes payable by Mr. Brown as a
result of the vesting of the Restricted Stock Award originally granted to Mr.
Brown in August 1996. The Corporation also undertakes to recommend to the Option
Committee of the Corporation Board that Mr. Brown be granted an option under the
Corporation LTIP at an exercise price equal to the fair market
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<PAGE> 108
value of a Paired Share on the date of grant; the Starwood Option will be for
such number of Paired Shares as is determined by the Option Committee and will
vest over a three-year period. Mr. Brown's employment is terminable by the
Corporation or Mr. Brown with or without cause. In the event his employment is
terminated by the Corporation without cause or by Mr. Brown due to breach by the
Corporation, Mr. Brown will be entitled to severance benefits of one year's base
salary and the accelerated vesting of all outstanding options.
As of March 2, 1998, Susan R. Bolger and the Corporation entered into a new
employment agreement in connection with Ms. Bolger's assuming the new position
of Executive Vice President of Human Resources for the Corporation. Under the
new agreement, Ms. Bolger's annual salary will be $300,000, with a bonus to be
determined in accordance with the anticipated new bonus plan. For 1998 Ms.
Bolger is guaranteed a minimum bonus equal to 50% of her base salary prorated
for the calendar year, an additional bonus of $75,000 in respect of calendar
year 1997, and an additional retention bonus of one year's salary (at the
current base salary level) conditioned upon Ms. Bolger's staying with the
Corporation at least one year after the closing of the ITT Merger. Ms. Bolger
will also receive, conditioned upon Ms. Bolger's staying with the Corporation
for the same one-year period, a cash payment in respect of taxes payable by Ms.
Bolger as a result of the vesting of the Restricted Stock Award granted to Ms.
Bolger in August 1996. The Corporation also undertakes to recommend to the
Option Committee of the Corporation Board that Ms. Bolger be granted an option
under the Corporation LTIP at an exercise price equal to the fair market value
of a Paired Share on the date of grant; the Starwood Option will be for such
number of Paired Shares as is determined by the Option Committee and will vest
over a three-year period. In addition, the new agreement calls for the
Corporation to pay (i) Ms. Bolger's reasonable out-of-pocket expenses in
connection with her relocation to the Fairfield/Westchester county area, (ii)
relocation costs in connection with a third-party purchase of Ms. Bolger's home
in Phoenix to facilitate an expedient relocation and (iii) mortgage duplication
expenses for a period not to exceed six months. Ms. Bolger's employment is
terminable by the Corporation or Ms. Bolger with or without cause. In the event
her employment is terminated by the Corporation without cause or by Ms. Bolger
due to breach by the Corporation, Ms. Bolger will be entitled to severance
benefits of one year's base salary and the accelerated vesting of all
outstanding options. The Corporation also has made a five-year,
non-interest-bearing loan to Ms. Bolger in the amount of $600,000, which is
expected to be secured by a second mortgage on Ms. Bolger's new home in the
Fairfield/Westchester county area.
As of April 8, 1998, Alan M. Schnaid and the Corporation entered into a new
employment agreement pursuant to which Mr. Schnaid continued to be employed as
Vice President and Corporate Controller of the Corporation. Under the new
agreement, Mr. Schnaid will receive an annual salary of $200,000, with a bonus
to be determined in accordance with the anticipated new bonus plan, and an
additional retention bonus of $75,000 conditioned upon Mr. Schnaid's staying
with the Corporation at least one year after the closing of the ITT Merger. The
Corporation also undertakes to recommend to the Option Committee of the
Corporation Board that Mr. Schnaid be granted an option under the Corporation
LTIP at an exercise price equal to the fair market value of a Paired Share on
the date of grant; the Starwood Option will be for such number of Paired Shares
as is determined by the Option Committee and will vest over a three-year period.
Mr. Schnaid's employment is terminable by the Corporation or Mr. Schnaid with or
without cause. In the event his employment is terminated by the Corporation
without cause or by Mr. Schnaid due to breach by the Corporation, Mr. Schnaid
will be entitled to severance benefits of one year's base salary and the
accelerated vesting of all outstanding options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During early 1997, the Compensation Committee of the Trust Board (the
"Trust Compensation Committee") was comprised of Messrs. Sternlicht and Grose
and William E. Simms. Mr. Simms resigned from the Trust Board in June 1997.
Based on informal discussions, the Trust Compensation Committee made
recommendations to the Trust Board regarding the compensation of the Trust's
executive officers other than Mr. Sternlicht. The Option Committee of the Trust
Board (whose members during 1997 were Messrs. Duncan, Quazzo and (from November
1997) Chapus) made recommendations during 1997 to
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such Board regarding Mr. Sternlicht's compensation. Based in part on the
recommendations of the Trust Compensation Committee and, as to Mr. Sternlicht,
the Trust Option Committee, the Trust Board made decisions with respect to the
compensation of the Trust's executive officers. Messrs. Sternlicht and Goldman,
who were executive officers of the Trust and members of the Trust Board, did not
participate at meetings of the Trustees in discussions or votes with respect to
their own compensation. Mr. Grose did not participate at meetings of the
Trustees in discussions or votes with respect to Mr. Sternlicht's compensation.
During most of 1997, the Compensation Committee of the Corporation Board
(the "Corporation Compensation Committee") was made up of Messrs. Sternlicht,
Jones and Chapus. Mr. Chapus resigned from the Corporation Board and became a
Trustee of the Trust in November 1997. The Corporation Compensation Committee
met informally during 1997 to discuss the compensation of the Corporation's
executive officers. Based in part on the recommendations of the Corporation
Compensation Committee, the Corporation Board made decisions with respect to the
compensation of the Corporation's executive officers. Mr. Danziger did not
participate at meetings of the Directors in discussions or votes with respect to
his own compensation.
Mr. Sternlicht, the Chairman and Chief Executive Officer and a Trustee of
the Trust and the Chairman of the Board of Directors of the Corporation, serves
as a director of U.S. Franchise Systems, Inc. Michael A. Leven, a Director of
the Corporation, serves as Chairman of the Board and Chief Executive Officer of
U.S. Franchise Systems, Inc.
Certain Relationships and Related Transactions
Mr. Sternlicht controls and has been the President and Chief Executive
Officer of Starwood Capital since its formation. Mr. Stern is an affiliate of a
limited partner of an affiliate of Starwood Capital, Mr. Quazzo is an affiliate
of a partner of an affiliate of Starwood Capital and Mr. Yih is an affiliate of
a member of a limited liability company that is a member of a limited liability
company of which an affiliate of Starwood Capital is also a member.
Starwood Capital Reimbursement Agreement. Starwood Capital and Starwood
Hotels have agreed that, subject to approval by the independent Trustees or
Directors, as appropriate, until December 31, 1998, Starwood Hotels will
reimburse Starwood Capital for its out-of-pocket expenses and internal costs
(including allocation of overhead) for services provided to Starwood Hotels,
other than internal costs of Starwood Capital for services of senior management
of Starwood Capital (effective August 12, 1997). During 1997 and the nine months
ended September 30, 1998, Starwood Hotels reimbursed Starwood Capital
approximately $620,000 in accordance with this agreement. Starwood Capital's
engagement to act as financial advisor to Starwood Hotels in connection with the
ITT Merger was not subject to this reimbursement limitation.
Starwood Capital Noncompete. In connection with a restructuring of
Starwood Hotels in 1995, Starwood Capital agreed (the "Starwood Capital
Noncompete") that, with certain exceptions, it would not compete within the
United States directly or indirectly with the Realty Partnership or the
Operating Partnership and would present to the Partnerships all acquisitions of
(i) fee or ground interests or other equity interests in hotels in the United
States and (ii) debt interests in hotels in the United States where it is
anticipated that the equity will be acquired by the debt holder within one year
from the acquisition of such debt. During the term of the Starwood Capital
Noncompete, Starwood Capital is not to acquire any such interest. The term of
the Starwood Capital Noncompete is until the later of July 1998 or the time at
which no officer, director, general partner or employee of Starwood Capital is
on either the Trust Board or the Corporation Board (subject to exception for
certain restructurings, mergers or other combination transactions with
unaffiliated parties). During 1997 and 1998, Starwood Hotels declined to invest
and granted a limited number of waivers of the Starwood Capital Noncompete in
connection with the purchase of a fixed stream of lease payments and residuals
in a portfolio of hotels formerly leased to and operated by Red Lion Hotels; the
investment in certain time-share properties in Mexico; the sale of an interest
in the Davidson Hotel Properties 15-hotel portfolio, taking into account the
fact that such a sale would result in the termination of any option Starwood
Hotels might have to purchase such portfolio; the purchase and resale of the
Radisson Golden Triangle Hotel in Raleigh, North Carolina; the proposed purchase
of the
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Hillsborough Days Inn and the acquisition of a mixed use retail and hotel
property in Chevy Chase, Maryland.
As described below, Starwood Capital owned an interest in Westin. Prior to
the Westin Acquisition, the Trust and the Corporation entered into an agreement
with Westin pursuant to which Westin agreed that during the period in which an
officer, director, general partner or employee of Starwood Capital was on either
the Trust Board or the Corporation Board, and Starwood Capital co-controlled
Westin, Westin would not acquire or seek to acquire hotel equity interests in
the United States, other than certain specified acquisitions, including, without
limitation, minority equity investments made in connection with Westin's
acquisition of a management contract and equity investments made in any asset
which was under a management, franchise or representation agreement with Westin
on the date of such agreement and where, at the time the initial equity
investment is made by Westin, the asset remains subject to such management,
franchise or representation agreement. The Trust and the Corporation each waived
the foregoing restriction to the extent applicable with respect to a hotel
property in the U.S. Virgin Islands. The Trust and the Corporation also agreed
that under certain circumstances, if Westin were prohibited from consummating an
opportunity that was not being independently pursued by the Trust and the
Corporation prior to such prohibition, the Trust and the Corporation would not
pursue such opportunity for 270 days after such prohibition. Upon the
consummation of the Westin Acquisition, the agreements with Westin described in
this paragraph were terminated.
Acquisition of Westin. Prior to the Westin Acquisition, Starwood Capital
and certain of its affiliates and certain Trustees, Directors and executive
officers had interests in Westin as follows:
(i) WHWE L.L.C. ("WHWE") held an approximately 50% voting (an
approximately 35.16% interest in profits) Class A membership interest in
W&S LLC (the "LLC"), which owned in excess of 99% of the outstanding equity
securities of Westin Worldwide and the Westin Subsidiaries. The majority of
the interests in WHWE was held by investment funds under the indirect
control of The Goldman Sachs Group, L.P. The Goldman Sachs Group, L.P. may
be deemed to have been the beneficial owners of the shares held by WHWE and
Messrs. Volpert and Rothenberg may be deemed to have been the beneficial
owners of the shares of Westin Worldwide and a similar proportionate number
of shares of the Westin Subsidiaries beneficially owned by WHWE or The
Goldman Sachs Group, L.P. through partnership in or employment by Goldman
Sachs or one or more of its affiliates; however, such beneficial ownership
was disclaimed.
(ii) Starwood Capital, through certain of its affiliates, was the
general partner of Woodstar Investor Partnership, which held an
approximately 50% voting interest (an approximately 35.23% interest in
profits) in the LLC. Starwood Capital and, therefore, Mr. Sternlicht, may
be deemed to have been the beneficial owner of the shares held by Woodstar
Investor Partnership, a privately held real property investment
partnership.
(iii) Mr. Stern was a director of Westin immediately prior to the
Westin Acquisition, and Mr. Sternlicht had been a director of Westin prior
to September 1997.
(iv) Mr. Bartels held a 2.69% Class A membership interest in the
profits of the LLC and accordingly may be deemed to have been the
beneficial owner of 2.69% of Westin Worldwide and the Westin Subsidiaries;
however, Mr. Bartels disclaimed such beneficial ownership.
(v) Messrs. Sternlicht, Grose and Eilian were investors in, and Mr.
Stern was an affiliate of an investor in a partner in Woodstar Investor
Partnership.
In connection with the Westin Acquisition, all of the outstanding shares of
Westin Worldwide were canceled and the members of the LLC received their
proportionate shares (which approximated their respective profit interests in
the LLC) of the shares of Class A EPS and Class B EPS that were issued in the
Westin Acquisition. In connection with the contributions of the Westin
Subsidiaries to the Partnerships, the members received their proportionate
shares (which approximated their profit interests in the LLC ) of the
Partnership Units that were issued in connection with such contributions.
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Other Westin Relationships. Starwood Capital and its affiliates hold a 37%
interest in a golf course management company that currently manages one golf
course that is associated with a Westin hotel and a 20% interest in a Mexican
company that operates timeshare resorts adjacent to the three Westin hotels in
Mexico. Individuals affiliated with Starwood Capital, including individuals who
are Trustees and Directors, and certain other affiliates of Starwood Capital
hold a 75% interest in the company that operates the Westin Innisbrook Resort
and the Tamarron Hilton.
Acquisition of ITT. Starwood Hotels engaged Starwood Capital to act as its
financial advisor in connection with the ITT Merger and related transactions.
Starwood Capital received a fee of $10.5 million in cash and 131,388 Paired
Shares plus a tax gross-up payment of $5 million upon the closing of the ITT
Merger as full consideration for services rendered in connection with the ITT
Merger and related dispositions. Pursuant to its engagement by Starwood Hotels,
the principals of Starwood Capital led the structuring and negotiations of the
ITT 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 contacts with government officials,
coordinated the receipt of gaming regulatory approvals and coordinated legal and
tax advice. In addition, the principals of Starwood Capital have led
negotiations for the disposition of non-strategic ITT assets, including the
disposition of ITT World Directories, and a portion of the Corporation's
interest in ITT Educational Services, Inc.
Trademark License. Starwood Capital has granted to Starwood Hotels an
exclusive, non-transferable, royalty-free license to use the "Starwood" name and
trademarks in connection with the hotel and hospitality services business in
North America, and to use the "Starwood" name in its corporate name worldwide,
in perpetuity.
Aircraft Lease. In February 1998, a subsidiary of the Corporation leased a
Gulfstream III Aircraft from an affiliate of Starwood Capital. The term of the
lease is one year and automatically renews for one-year terms thereafter unless
either party terminates the lease upon 90 days' written notice. The rent for the
aircraft is (i) a monthly rent of 1.25% of the lessor's total costs relating to
the aircraft (approximately $123,000 at the beginning of the lease) which shall
be increased accordingly for additional costs incurred by the lessor plus (ii)
$300 for each hour that the aircraft is in use.
Policies of Board of Trustees and Board of Directors. Pursuant to the
policy of the Trust Board and the Corporation Board that any contract or
transaction between the Trust or the Corporation, as the case may be, and any
other entity in which one or more of its Trustees, Directors or officers are
directors or officers, or have a financial interest, must be approved by a
majority of the disinterested Trustees or Directors after the material facts as
to the relationship or interest and as to the contract or transaction are
disclosed or are known to them, each of the transactions described above between
Starwood Hotels and Starwood Capital was so approved.
Other. Russell Sternlicht, the brother of Barry S. Sternlicht, the
Chairman and Chief Executive Officer of the Trust and the Chairman of the Board
of the Corporation, has been employed by the Corporation since February 1998 as
its Senior Vice President, Corporate Development for a monthly salary of
$30,000.
In July 1998, a timeshare operator in which Starwood Capital is an investor
leased two kiosks at Caesars Palace in Las Vegas. The term of the lease is two
years and may be renewed by the timeshare operator for an additional two-year
term. The rent for the kiosks is $8,500 per month. In addition, the lessor
issues to the timeshare operator for $16,500 330 vouchers, which are initially
for admission to Caesars attractions, credit toward slot machine play or gaming
tokens, for distribution to visitors to the kiosks. In addition, the timeshare
operator has agreed to operate, at its own expense, a shuttle bus to transport
visitors from the timeshare resort and Caesars Palace.
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REPORT ON EXECUTIVE COMPENSATION
During 1997, the Board of Trustees of the Trust and Board of Directors of
the Corporation made decisions (jointly, other than with respect to the
compensation for the Chairman and Chief Executive Officer of the Trust) with
respect to executive compensation for executive officers of the Trust and the
Corporation, based on the recommendations of the respective Compensation
Committees and have furnished the following report on executive compensation.
Although the Board of Trustees of the Trust and the Board of Directors of the
Corporation make independent compensation decisions with respect to their
respective executive officers, as described herein they follow compensation
policies that are similar to one another and measure the performance of their
respective executive officers based in large part on the performance of Starwood
Hotels as a whole because of the current "paired share" structure. (This is not
expected to change after the Restructuring.)
The primary objective of the Board of Trustees of the Trust and Board of
Directors of the Corporation with respect to executive compensation is to
establish programs which attract and retain key managers and align the
compensation received by executive officers with the overall business
strategies, values, performance and financial conditions of Starwood Hotels and
to the achievement of individual performance goals. To this end, the Board of
Directors of the Corporation and the Board of Trustees of the Trust have each
endorsed an executive compensation philosophy which includes the following
considerations:
- A "pay-for-performance" orientation that differentiates compensation
results based upon corporate performance (as measured by the price of
Paired Shares, EBITDA and FFO) and individual performance as evaluated
subjectively by an individual's superiors (with the result that
compensation for individuals who may not apparently contribute
significantly to corporate performance due to their responsibilities or
other factors may reflect superior individual performance);
- An emphasis on stock incentives as a significant component of total
compensation in order to more closely align the interest of Starwood
Hotels executives with the long-term interests of the shareholders;
- An emphasis on total compensation (including incentive programs) vs. cash
compensation, to motivate and reward executives of Starwood Hotels at or
above competitive levels (based primarily on hotel industry surveys and
proxy information for certain other major hotel companies) if performance
is superior. In 1997, the Boards also considered the compensation levels
of executives of Westin prior to its acquisition by Starwood Hotels and
the recommendations of an independent compensation consultant regarding
Starwood Hotels' executive retention program in connection with the then
pending acquisition of Westin.
- Recognition that as an executive's level of responsibility increases, a
greater portion of the total compensation opportunity should be based
upon stock and other performance incentives and less on salary and
employee benefits; and
- An appropriate mix of short-term and long-term compensation which
facilitates retention of talented executives and encourages stock
ownership and capital accumulation.
The primary components of the program are: (a) base salaries, (b) annual
cash incentive opportunities and (c) long-term incentive opportunities in the
form of Paired Options.
Individual compensation is subject to variation based on financial,
strategic and individual performance. The Board of Trustees of the Trust and
Board of Directors of the Corporation consider the total compensation (earned or
potentially earned) in establishing each element of compensation.
The base salary levels of executive officers are determined periodically by
evaluating the performance of the executive officers and their contributions to
the Trust and the Corporation, their responsibilities, experience and potential,
and compensation practices for comparable positions at other companies, based
primarily on hotel industry surveys and proxy information for certain other
major hotel companies, including Wyndham Hotel Corporation, Doubletree
Corporation, Promus Hotel Corporation and Host Marriott Corporation, and, to a
lesser extent, general industry surveys. The annual bonuses are determined
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in the discretion of the respective Boards of the Trust and the Corporation,
based on individual financial performance and the recommendations of the
respective Compensation Committees. The Boards do not take a formulaic approach
in making these determinations. Rather, these amounts are determined largely
based on the advice of the Chief Executive Officer of the Trust and current
Chairman of the Board of the Corporation and the Chief Executive Officer of the
Corporation. The process is a subjective one in which the Chief Executive
Officer of the Trust and Chairman of the Board of the Corporation and the Chief
Executive Officer of the Corporation exercise a wide amount of discretion in
making recommendations to the Boards, after consulting with other senior
executives of Starwood Hotels. In addition, the Boards and the Chief Executive
Officer of the Trust and Chairman of the Board of the Corporation and the Chief
Executive Officer of the Corporation considered the performance of Starwood
Hotels (as reflected in the price of Paired Shares) which significantly exceeded
the performance of Starwood Hotels' peer group and the Standard & Poor's
Corporate Composite -- 500 Stock Index (the "S&P 500 Index") in 1997. The Boards
believe that the base salary levels of executive officers of Starwood Hotels are
competitive at the median levels.
During 1997, the long-term incentive compensation of executive officers
consisted of grants of Paired Options to purchase Paired Shares and Performance
Awards relating to Paired Options. Such grants are designed to develop and
encourage stock ownership by executive officers, to reward long-term business
success and to develop a parallel interest between executive officers and
holders of Paired Shares. Paired Option grants only have value if the market
price of the Paired Shares exceeds the exercise price of the Paired Options or
increases from the date of grant and, in general, vest and become exercisable
over time, in order to encourage retention of the executive officer. Performance
Awards only vest if specified performance measures are attained (unless
otherwise specified, 15% per annum compounded increase in the fair market value
of an investment in Paired Shares on August 12, 1996 at the then fair market
value per Paired Share plus all dividends and distributions paid with respect to
such Paired Shares subsequent to such date and assuming reinvestment in
additional Paired Shares of all such dividends and distributions). A Performance
Award may be settled in cash to the extent that both the applicable Paired
Option has been exercised and the performance period has expired. Restricted
Stock Awards typically vest over time. In determining the amounts and terms of
grants of Paired Options and Performance Awards to individual officers, the
respective Boards of the Trust and Corporation take into account the
responsibilities, performance and anticipated contributions of the officers, as
well as the compensation practices for comparable positions at other companies.
The grants of Paired Options in the fall of 1997 were made in connection with
the Board's discussions of an executive retention program in connection with the
then pending acquisition of Westin. The Trust's Option Committee negotiated Mr.
Sternlicht's award with him. The others were based on recommendations of an
independent compensation consultant regarding Starwood Hotels' executive
retention program in connection with the then pending acquisition of Westin and
on the recommendation of the Chief Executive Officer of the Trust and current
Chairman of the Board of the Corporation and the Chief Executive Officer of the
Corporation, after consulting with other senior executives of Starwood Hotels.
In connection with an acquisition in 1997 by Starwood Hotels, Mr. Mendell and
the Trust negotiated an employment agreement, pursuant to which, among other
things, Mr. Mendell was granted a Paired Option to purchase 300,000 Paired
Shares and a Performance Award related to 300,000 Paired Shares.
Chief Executive Officer Compensation for 1997
Barry S. Sternlicht is the Chairman and Chief Executive Officer of the
Trust and also has served as the Chairman of the Board of the Corporation since
October 1997. Mr. Sternlicht's salary for 1997 was negotiated with Mr.
Sternlicht and his counsel in connection with the employment agreement between
Mr. Sternlicht and the Trust dated as of June 30, 1997. Mr. Sternlicht received
a bonus of $2.65 million for 1997, which amount was negotiated with Mr.
Sternlicht and his counsel and memorialized in an amendment and restatement of
Mr. Sternlicht's employment agreement as of February 1998. In addition, during
1997, Mr. Sternlicht received Paired Options to purchase 400,000 Paired Shares.
In the negotiations over Mr. Sternlicht's compensation and in determining to
award Mr. Sternlicht such options, the Trust Board strongly desired to retain
Mr. Sternlicht, primarily because of his very substantial
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responsibility for the performance of Starwood Hotels (as measured by the price
of Paired Shares), as compared to the S&P 500 Index, the Standard & Poor's
Corporation Hotel/Motel Composite Index (the "S&P Hotel/Motel Index"), and The
National Association of Real Estate Investment Trusts' Total Return Series of
equity REITs (the "NAREIT Equity REIT Index") and the completion of the
acquisitions of Westin and ITT (early in 1998) and the other acquisitions
described in the 1997 10-K.
Eric A. Danziger was the Chief Executive Officer of the Corporation during
1997. Mr. Danziger resigned his employment with the Corporation in February
1998. Mr. Danziger's salary for 1997 was negotiated with Mr. Danziger in
connection with the employment agreement between Mr. Danziger and the
Corporation dated as of June 27, 1996. Mr. Danziger received a bonus of $375,000
for 1997, which amount was determined based primarily on Mr. Danziger's
responsibility for the performance of Starwood Hotels (as measured by the price
of Paired Shares), as compared to the S&P 500 Index, the S&P Hotel/Motel Index
and the NAREIT Equity REIT Index.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS BOARD OF TRUSTEES
(AS OF DECEMBER 1997) (AS OF DECEMBER 1997)
- ------------------------------------------ --------------------------------------
<S> <C> <C> <C>
Eric A. Danziger Michael A. Leven Jean-Marc Chapus George J.
Jonathan D. Eilian Daniel H. Stern Bruce W. Duncan Mitchell
Bruce M. Ford Barry S. Sternlicht Steven R. Goldman Roger S. Pratt
Graeme W. Henderson Daniel W. Yih Madison F. Grose Stephen R. Quazzo
Earle F. Jones Gary M. Mendell Barry S.
Sternlicht
</TABLE>
SHAREHOLDER RETURN PERFORMANCE
Set forth below is a line graph comparing the cumulative total shareholder
return on the Paired Shares against the cumulative total return on the S&P 500
Index and the S&P Hotel/Motel Index for the five fiscal years beginning January
1, 1993 and ending December 31, 1997 and the nine-month period beginning January
1, 1998 and ending September 30, 1998. The graph assumes that the value of the
investments was 100 on December 31, 1991 and that all dividends and other
distributions were reinvested.
<TABLE>
<CAPTION>
Starwood Hotels &
Resorts S&P 500 S&P Hotel-Motel
<S> <C> <C> <C>
12/31/92 100.00 100.00 100.00
12/31/93 262.50 107.06 184.54
12/31/94 287.50 105.41 162.66
12/31/95 495.83 141.36 190.71
12/31/96 918.75 170.01 219.63
12/31/97 1446.88 222.72 296.13
9/30/98 759.38 233.41 194.03
</TABLE>
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PRICE RANGES OF PAIRED SHARES; DISTRIBUTIONS
MARKET INFORMATION
The Paired Shares are traded principally on the NYSE under the symbol
"HOT". The following table sets forth, for the fiscal periods indicated, the
high and low sales prices per Paired Share on the NYSE Composite Transactions
Tape (as adjusted for the three-for-two stock split in January 1997).
<TABLE>
<CAPTION>
RETURN OF
DISTRIBUTIONS CAPITAL GAAP
HIGH LOW MADE BASIS(a)
------- ------- ------------- ------------
<S> <C> <C> <C> <C>
1998
First quarter................................. $ 57.75 $ 51.82 $0.52 --
Second quarter................................ $ 57.56 $ 44.44 $0.52 --
Third quarter................................. $ 49.19 $ 29.19 $0.52 $0.95
Fourth quarter (through December 2, 1998)..... $ 31.38 $ 18.75 N/A N/A
1997
First quarter................................. $ 45.88 $ 34.50 $0.39 $0.21
Second quarter................................ $ 42.81 $ 34.25 $0.39 $0.01
Third quarter................................. $ 58.13 $ 41.38 $0.48 $0.48
Fourth quarter................................ $ 60.38 $ 52.13 $0.48(b) $0.23
1996
First quarter................................. $ 23.25 $ 19.67 $0.31 $0.11
Second quarter................................ $ 25.75 $ 21.17 $0.33 --
Third quarter................................. $ 27.92 $ 22.08 $0.33 $0.14
Fourth quarter................................ $ 36.75 $ 27.42 $0.39(c) $0.22
</TABLE>
- -------------------------
(a) Represents distributions per Paired Share in excess of net income per Paired
Share on a generally accepted accounting principles ("GAAP") basis, and is
not the same as return of capital on a tax basis.
(b) The Trust declared a distribution for the fourth quarter of 1997 to
shareholders of record on December 31, 1997. The distribution was paid in
January 1998.
(c) 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.
On August 26, 1998, the last trading day prior to the first public
announcement of the Restructuring, and on December 2, 1998, the last trading day
prior to the date of this Joint Proxy Statement, the last sale prices per Paired
Share on the NYSE Composite Transactions Tape were $42.50 and $28.63,
respectively.
DISTRIBUTIONS MADE/DECLARED
During the fourth quarter of 1996, the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend payable
to shareholders of record on December 30, 1996. The stock dividend was paid in
January 1997. The Trust declared and paid dividends of $0.52 per share for each
of the first, second and third quarters of 1998 and $0.39, $0.39, $0.48 and
$0.48 per share for the first, second, third and fourth quarters of 1997,
respectively. The Trust declared and paid dividends of $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
Corporation has not paid any cash dividends since its organization and does not
anticipate that it will make any such distributions in the foreseeable future.
Under the terms of Starwood Hotels' current credit facilities, the Trust is
generally permitted to distribute to its shareholders on an annual basis cash in
an amount equal to the greater of (i) 55% of adjusted funds from operations (as
defined) for any four consecutive calendar quarters and (ii) the minimum amount
necessary to maintain the Trust's tax status as a REIT.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STARWOOD CAPITAL
Barry S. Sternlicht, the Chairman and Chief Executive Officer and a Trustee
of the Trust and the Chairman of the Board of the Corporation, controls and has
been the President and Chief Executive Officer of Starwood Capital since its
formation. In addition, Madison F. Grose, a Trustee of the Trust, is the
Co-General Counsel of Starwood Capital, and Messrs. Grose and Jonathan Eilian, a
Director of the Corporation, are Senior Managing Directors of, and hold direct
or indirect interests in, Starwood Capital. As of the Record Date, Starwood
Capital and its affiliates and Mr. Sternlicht beneficially owned 5.9% of the
Paired Shares then outstanding on a fully diluted basis. See "Security Ownership
of Certain Beneficial Owners and Management -- Certain Beneficial Owners."
Daniel H. Stern, a Director of the Corporation, also is an affiliate of a
limited partner of an affiliate of Starwood Capital, Stephen R. Quazzo, a
Trustee of the Trust, is Managing Director, Chief Executive Officer and
one-third owner of a partner of an affiliate of Starwood Capital and Daniel W.
Yih, a Director of the Corporation, is an affiliate of a member of a limited
liability company that is a member of a limited liability company of which an
affiliate of Starwood Capital is also a member. For additional information on
relationships and related transactions involving Starwood Capital, see
"Executive Compensation -- Compensation Committee Interlocks and Insider
Participation."
OTHER
During 1996, the Corporation made a $150,000 non-interest-bearing loan to
Eric A. Danziger, President and Chief Executive Officer of the Corporation,
secured by a second mortgage on Mr. Danziger's residence in Phoenix, Arizona.
The loan was made in connection with Mr. Danziger's employment and is described
under the caption "Executive Compensation -- Employment and Compensation
Agreements with Executive Officers." The loan was repaid in full in February
1998.
During 1996, the Corporation made a $266,000 non-interest-bearing loan to
Theodore W. Darnall, then Executive Vice President and Chief Operating Officer
and currently Executive Vice President of the Hotel Group of the Corporation.
The loan was made in connection with his relocation to the Phoenix, Arizona
area. Upon the sale of Mr. Darnall's home in Pittsburgh in 1997, $116,000 of the
loan was repaid. The unpaid loan balance of $150,000 matures upon termination of
Mr. Darnall's employment with the Corporation.
In addition, during 1998, the Trust made a non-interest-bearing loan to
Steven R. Goldman, Executive Vice President, Acquisitions and Development, and
the Corporation made non-interest-bearing loans to Mr. Darnall and to Susan R.
Bolger, Executive Vice President of Human Resources. Each of these loans was
made in connection with such individual's employment and is described under the
caption "Executive Compensation -- Employment and Compensation Agreements with
Executive Officers."
The wife of Mr. Goldman provides legal services to the Corporation and was
paid $68,200 for such services during 1997 and has been paid $69,000 for such
services through October 30, 1998.
In 1997 and 1998, Starwood Hotels retained the law firm Verner, Liipfert,
Bernhard, McPherson and Hand, of which Senator Mitchell, a Trustee of the Trust,
is Special Counsel.
For additional information on relationships and related transactions, see
"Executive Compensation -- Compensation Committee Interlocks and Insider
Participation."
LEGAL MATTERS
Sidley & Austin, counsel for Starwood Hotels, will pass on certain legal
matters in connection with the Restructuring, including material federal income
tax consequences thereof. Lawyers of Sidley & Austin providing advice on behalf
of such firm to Starwood Hotels in connection with the Restructuring own or hold
options to purchase an aggregate of approximately 25,000 Paired Shares.
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<PAGE> 117
EXPERTS
The separate and combined consolidated financial statements and financial
statement schedules of the Trust and the Corporation as of December 31, 1997,
1996 and 1995 and for each of the three years in the period ended December 31,
1997 appearing in Starwood Hotels' Joint Annual Report on Form 10-K for the year
ended December 31, 1997 have been audited by PricewaterhouseCoopers, LLP,
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 consolidated financial statements of ITT as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
appearing in Starwood Hotels' Joint Current Report on Form 8-K dated February
23, 1998, 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.
The consolidated balance sheet of Westin Hotels & Resorts Worldwide, Inc.
and subsidiaries and certain affiliates as of December 31, 1997, the
consolidated balance sheet of W&S Hotel L.L.C. and subsidiaries as of December
31, 1996, and the related combined and consolidated statements of operations,
changes in shareholders equity (deficit), members' equity and cash flows for the
years ended December 31, 1997 and 1996 and for the period from May 12, 1995
through December 31, 1995, appearing in Starwood Hotels' Joint Current Report on
Form 8-K dated February 23, 1998, 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
If Starwood Hotels does not change the date of its 1999 Annual Meetings by
more than 30 days from the first anniversary of the 1998 Annual Meetings,
shareholder proposals to be considered for inclusion in the proxy solicitation
material for the 1999 Annual Meeting of Shareholders of the Trust or the 1999
Annual Meeting of Stockholders of the Corporation must be received by the Trust
or the Corporation, as applicable, not later than August 5, 1999. If Starwood
Hotels changes the date of the 1999 Annual Meetings by more than 30 days from
the first anniversary of the 1998 Annual Meetings, the deadline for submitting
shareholder proposals to be considered for inclusion in the proxy solicitation
material for the 1999 Annual Meetings would be a reasonable time before Starwood
Hotels begins to print and mail its proxy materials. Starwood Hotels currently
expects to hold its 1999 Annual Meetings during the second quarter of 1999 and
to publicly announce the date of its 1999 Annual Meetings as soon as practicable
after such date has been determined.
In addition, the Trustees' Regulations of the Trust and the Bylaws of the
Corporation establish an advance notice procedure for shareholder proposals to
be brought before any meeting and for nominations of persons for election to the
Trust Board or the Corporation Board to be brought before an annual meeting. A
shareholder or stockholder nomination or proposal intended to be brought before
the Trust Meeting or the Corporation Meeting must be received by the Trust or
the Corporation, as applicable, on or prior to December 15, 1998. No such
nominations or proposals have yet been received by either the Trust or the
Corporation. If Starwood Hotels does not advance the date of the 1999 Annual
Meetings by more than 30 days or delay the date by more than 60 days from the
first anniversary of the 1998 Annual Meetings, under the Trustees' Regulations
of the Trust and the Bylaws of the Corporation, a shareholder proposal or
nomination intended to be brought before the appropriate 1999 Annual Meeting
(whether or not such proposal is included in the proxy solicitation material as
described above) must be received by the Trust or the Corporation, as
applicable, on or after October 24, 1999 and on or prior to November 17, 1999.
If Starwood Hotels holds its 1999 Annual Meetings during the second quarter of
1999, as it
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currently expects, Starwood Hotels will announce such decision in either a
Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed with the SEC
as soon as practicable after such determination is made. The deadline for
Starwood Hotels to receive notice by a shareholder or stockholder for proposals
or nominations intended to be brought before the appropriate 1999 Annual Meeting
will be set forth in such announcement and will be no earlier than fifteen days
after such announcement. All proposals and nominations should be directed to
Shareholder Relations, Starwood Hotels & Resorts, 777 Westchester Avenue, White
Plains, New York 10604, or Shareholder Relations, Starwood Hotels & Resorts
Worldwide, Inc., 777 Westchester Avenue, White Plains, New York 10604, as
applicable. The fact that the Trust or the Corporation may not insist upon
compliance with these requirements should not be construed as a waiver by the
Trust or the Corporation, as the case may be, of its right to do so at any time
in the future.
WHERE YOU CAN FIND MORE INFORMATION
The Trust and the Corporation file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by the Trust or the Corporation
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC, "http://www.sec.gov".
The SEC allows the Trust and the Corporation to "incorporate by reference"
information into this Joint Proxy Statement, which means that the Trust and the
Corporation can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this Joint Proxy Statement, except for any
information superseded by information in this Joint Proxy Statement. This Joint
Proxy Statement incorporates by reference the documents set forth below that the
Trust (SEC File No. 1-6828) and the Corporation (SEC File No. 1-7959) have
previously filed with the SEC. These documents contain important information
about Starwood Hotels and its financial performance.
<TABLE>
<CAPTION>
FILING PERIOD
------ ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarter ended March 31, 1998
Quarter ended June 30, 1998
Quarter ended September 30, 1998 (as
amended by the Form 10-Q/A filed on
November 30, 1998)
Current Reports on Form 8-K January 2, 1998; February 3, 1998;
February 23, 1998 (two reports);
February 24, 1998; April 24, 1998;
and August 26, 1998
</TABLE>
The Trust and the Corporation are also incorporating by reference
additional documents that they file with the SEC between the date of this Joint
Proxy Statement and the date of the Annual Meetings.
If you are a shareholder of the Trust or a stockholder of the Corporation,
you may obtain the documents incorporated by reference (other than exhibits
unless the exhibit is specifically incorporated by
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<PAGE> 119
reference in the document) without charge by requesting them in writing or by
telephone at one of the following addresses:
Shareholder Relations
Starwood Hotels & Resorts
777 Westchester Avenue
White Plains, New York 10604
Telephone Number: (914) 640-8100
or
Shareholder Relations
Starwood Hotels & Resorts Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Telephone Number: (914) 640-8100
In order to ensure timely delivery of the documents before the Annual
Meetings, any request should be made before December 29, 1998.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement to vote on the Restructuring Proposal
and other matters. We have not authorized anyone to provide you with information
that is different from what is contained in this Joint Proxy Statement. This
Joint Proxy Statement is dated December 3, 1998. You should not assume that the
information contained in this Joint Proxy Statement is accurate as of any date
other than such date, and neither the mailing of this Joint Proxy Statement to
shareholders nor the issuance of Class B Shares in the Restructuring shall
create any implication to the contrary.
-------------------------
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The name "Starwood Hotels & Resorts" is the designation of Starwood Hotels
& Resorts 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 must look solely to Starwood Hotels & Resorts'
property for the enforcement of any claims against Starwood Hotels & Resorts, as
the Trustees, officers, agents and security holders of Starwood Hotels & Resorts
assume no personal obligations of Starwood Hotels & Resorts, 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
December 3, 1998
/s/ Sherwin L. Samuels
--------------------------------------
Sherwin L. Samuels
Secretary
By Order of the Board of Directors
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
December 3, 1998
/s/ Thomas C. Janson,Jr.
--------------------------------------
Thomas C. Janson, Jr.
Secretary
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ANNEX A
AGREEMENT AND PLAN OF RESTRUCTURING
AMONG
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,
ST ACQUISITION TRUST
AND
STARWOOD HOTELS & RESORTS
DATED AS OF SEPTEMBER 16, 1998
COMPOSITE CONFORMED, AS AMENDED
<PAGE> 122
AGREEMENT AND PLAN OF RESTRUCTURING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE I................................................................... 1
THE MERGER................................................................ 1
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 Bylaws; Trustees and Officers................... 2
Section 1.5 Conversion of Securities.................................... 2
Section 1.6 Parent to Make Certificates Available; Transfer Taxes....... 2
Section 1.7 Dividends................................................... 3
Section 1.8 Return of Exchange Fund..................................... 3
Section 1.9 No Further Ownership Rights in Trust Shares................. 3
Section 1.10 Closing of Company Transfer Books........................... 3
Section 1.11 Lost Certificates........................................... 3
Section 1.12 Further Assurances.......................................... 4
Section 1.13 Closing..................................................... 4
ARTICLE II.................................................................. 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.......................... 4
Section 2.1 Organization, Standing and Power............................ 4
Section 2.2 Capital Structure........................................... 5
Section 2.3 Authority................................................... 5
Section 2.4 Consents and Approvals; No Violation........................ 6
Section 2.5 SEC Documents and Other Reports............................. 7
Section 2.6 Joint Proxy Statement....................................... 7
Section 2.7 Absence of Certain Changes or Events........................ 7
Section 2.8 Permits and Compliance...................................... 7
Section 2.9 Tax Matters................................................. 8
Section 2.10 Actions and Proceedings..................................... 8
Section 2.11 Compliance with Worker Safety and Environmental Laws........ 8
Section 2.12 Intellectual Property....................................... 9
Section 2.13 Required Vote of Parent Stockholders........................ 9
Section 2.14 State Takeover Statutes..................................... 9
ARTICLE III................................................................. 9
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 9
Section 3.1 Organization, Standing and Power............................ 9
Section 3.2 Capital Structure........................................... 10
Section 3.3 Authority................................................... 10
Section 3.4 Consents and Approvals; No Violation........................ 10
Section 3.5 SEC Documents and Other Reports............................. 11
Section 3.6 Joint Proxy Statement....................................... 11
Section 3.7 Absence of Certain Changes or Events........................ 11
Section 3.8 Permits and Compliance...................................... 11
Section 3.9 Tax Matters................................................. 12
Section 3.10 Actions and Proceedings..................................... 12
Section 3.11 Compliance with Worker Safety and Environmental Laws........ 13
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
Section 3.12 Intellectual Property....................................... 13
Section 3.13 Required Vote of Company Shareholders....................... 13
Section 3.14 State Takeover Statutes..................................... 13
ARTICLE IV.................................................................. 13
COVENANTS RELATING TO CONDUCT OF BUSINESS................................. 13
Section 4.1 Conduct of Business by the Company Pending the Merger....... 13
Section 4.2 Conduct of Business by Parent Pending the Merger............ 14
ARTICLE V................................................................... 14
ADDITIONAL AGREEMENTS..................................................... 14
Section 5.1 Stockholder Meetings........................................ 14
Section 5.2 Preparation of the Joint Proxy Statement.................... 14
Section 5.3 Actions Prior to Closing.................................... 14
Section 5.4 [Deleted]................................................... 14
Section 5.5 Stock Exchange Listings..................................... 14
Section 5.6 Stock Options............................................... 14
Section 5.7 Reasonable Best Efforts..................................... 15
Section 5.8 Public Announcements........................................ 15
Section 5.9 Real Estate Transfer and Gains Tax.......................... 15
Section 5.10 State Takeover Laws......................................... 15
Section 5.11 Indemnification............................................. 15
Section 5.12 Notification of Certain Matters............................. 16
Section 5.13 Employee Benefit Plans and Agreements....................... 16
ARTICLE VI.................................................................. 16
CONDITIONS PRECEDENT TO THE MERGER........................................ 16
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... 16
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger.................................................... 17
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger.................................................... 17
ARTICLE VII................................................................. 17
TERMINATION, AMENDMENT AND WAIVER......................................... 17
Section 7.1 Termination................................................. 17
Section 7.2 Effect of Termination....................................... 18
Section 7.3 Amendment................................................... 18
Section 7.4 Waiver...................................................... 18
ARTICLE VIII................................................................ 18
GENERAL PROVISIONS........................................................ 18
Section 8.1 Non-Survival of Representations and Warranties.............. 18
Section 8.2 Notices..................................................... 18
Section 8.3 Interpretation.............................................. 19
Section 8.4 Counterparts................................................ 19
Section 8.5 Entire Agreement; No Third-Party Beneficiaries.............. 19
Section 8.6 Governing Law............................................... 19
Section 8.7 Assignment.................................................. 19
Section 8.8 Severability................................................ 20
Section 8.9 Enforcement of this Agreement............................... 20
Section 8.10 Trust....................................................... 20
</TABLE>
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AGREEMENT AND PLAN OF RESTRUCTURING
AGREEMENT AND PLAN OF RESTRUCTURING dated as of September 16, 1998 and
amended as of November 30, 1998 (this "Agreement"), among Starwood Hotels &
Resorts Worldwide, Inc., a Maryland corporation ("Parent"), ST Acquisition
Trust, a Maryland real estate investment trust and a wholly owned subsidiary of
Parent ("Sub"), and Starwood Hotels & Resorts, a Maryland real estate investment
trust (the "Company") (Sub and the Company being hereinafter collectively
referred to as the "Constituent Trusts").
W I T N E S S E T H:
WHEREAS the Board of Directors of Parent and the respective Boards of
Trustees of Sub and of the Company have approved and declared advisable the
merger of Sub and the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein, whereby each issued and outstanding common share of
beneficial interest, par value $0.01 per share, of the Company ("Trust Shares")
not owned directly or indirectly by Parent or the Company will be converted into
Class B shares of beneficial interest, par value $.01 per share, in the
Surviving Trust (as hereinafter defined), having substantially the terms
specified in the Declaration of Trust of the Trust as it is proposed to be
amended and restated at the Effective Time (as hereinafter defined) pursuant to
Section 1.4 hereof or as otherwise agreed to by the parties ("Class B Shares");
WHEREAS the Board of Directors of Parent and the Board of Trustees of 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 for federal income tax purposes, it is intended that the Merger
shall qualify in part as a recapitalization within the meaning of Section
368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and
in part as a contribution by the holders of Trust Shares to the capital of
Parent in a transaction qualifying under Section 351(a) of the Code.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Maryland General Corporation Law, as amended
(the "MGCL"), Sub shall be merged with and into the Company at the Effective
Time (as hereinafter defined). Following the Merger, the separate trust
existence of Sub shall cease and the Company shall continue as the surviving
trust (the "Surviving Trust") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the MGCL.
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 MGCL, are filed with and accepted for record by the
State Department of Assessments and Taxation of Maryland; provided, however,
that, upon mutual consent of the Constituent Trusts, 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 and accepted for record. 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
provided for by the Articles of Merger. The filing of the Articles of Merger
shall be made on the date of the Closing (as defined in Section 1.13).
<PAGE> 125
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 8-501.1(n) of the MGCL and this Agreement.
Section 1.4 Charter and Bylaws; Trustees and Officers. (a) At the
Effective Time, the Declaration of Trust of the Company shall be amended and
restated in its entirety to read as set forth on Exhibit 1.4 hereto or as
otherwise agreed to by the parties hereto, and such Declaration of Trust, as so
amended and restated, shall be the Declaration of Trust of the Surviving Trust
until thereafter changed or amended as provided therein or by applicable law. At
the Effective Time, the Trustees' Regulations of the Company, as in effect
immediately prior to the Effective Time, shall be the Trustees' Regulations of
the Surviving Trust until thereafter changed or amended as provided therein or
by the Declaration of Trust of the Surviving Trust.
(b) The trustees of the Company at the Effective Time of the Merger shall
be the trustees of the Surviving Trust until the next annual meeting of
shareholders and until their respective successors are duly elected and
qualified, as the case may be, subject to their earlier resignation or removal.
The officers of the Company at the Effective Time of the Merger shall be the
officers of the Surviving Trust 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 Trusts:
(a) Each issued and outstanding common share of beneficial interest, par
value $.01 per share, of Sub shall be converted into one validly issued, fully
paid and nonassessable Class A share of beneficial interest, par value $.01 per
share, of the Surviving Trust ("Class A Shares").
(b) All Trust Shares that have been acquired by the Company or by any
wholly owned Subsidiary (as defined in Section 2.1) of the Company and any Trust
Shares owned by Parent or any wholly owned Subsidiary of Parent shall no longer
be outstanding and shall automatically be cancelled and restored to the status
of authorized and unissued shares of beneficial interest and no shares of
beneficial interest of the Company or other consideration shall be delivered in
exchange therefor.
(c) Each Trust Share issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled in accordance with Section
1.5(b)) shall be converted into one validly issued, fully paid and nonassessable
Class B Share.
(d) Each Trust Share (other than shares to be cancelled in accordance with
Section 1.5(b)), when converted as provided in Section 1.5(c), 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(b))
theretofore evidencing any such shares shall cease to have any rights with
respect thereto, except the right to receive, upon the surrender of such
Certificate in accordance with Section 1.6, certificates evidencing the Class B
Shares (as well as the shares of common stock, par value $0.01 per share
("Parent Common Stock"), of Parent associated therewith pursuant to the Pairing
Agreement (as hereinafter defined) and Article VI, Section 6.14 of the Company's
Declaration of Trust) into which such shares are converted pursuant to Section
1.5(c).
Section 1.6 Parent to Make Certificates Available; Transfer
Taxes. (a) Parent shall authorize such person or persons as shall be acceptable
to Parent and the Company to act as Exchange Agent hereunder (the "Exchange
Agent"). As soon as practicable after the Effective Time, the Surviving Trust
and Parent shall deposit with the Exchange Agent, in trust for the holders of
Trust Shares converted in the Merger and the shares of Parent Common Stock
evidenced by the Certificates (as hereinafter defined), certificates evidencing
the Class B Shares issuable pursuant to Section 1.5(c) and the shares of Parent
Common Stock evidenced by Certificates to be surrendered pursuant to this
Article I (such Class B Shares being hereinafter referred to as the "Exchange
Fund"). As soon as practicable after the Effective Time, the Exchange Agent
shall deliver the Class B Shares contemplated to be issued pursuant to Section
1.5(c) out of the Exchange Fund as contemplated hereby. As soon as practicable
after the Effective Time, the
2
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Exchange Agent shall mail to each record holder of a certificate or certificates
which immediately prior to the Effective Time evidenced outstanding Trust Shares
converted in the Merger and shares of Parent Common Stock (the "Certificates")
(A) a letter of transmittal in form reasonably acceptable to the Company and
Parent (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
evidencing that number of whole Class B Shares into which the Trust Shares
evidenced by the surrendered Certificate shall have been converted at the
Effective Time pursuant to this Article I and that number of shares of Parent
Common Stock evidenced by the surrendered Certificate, and any Certificate so
surrendered shall forthwith be cancelled. Each Class B Share into which a Trust
Share shall be converted shall be deemed to have been issued at the Effective
Time. If any certificate evidencing Class B Shares and shares of Parent Common
Stock 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 Class B Shares and shares of Parent Common Stock 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.
Section 1.7 Dividends. Subject to the effect of applicable law, all
dividends or other distributions that are declared on or after the Effective
Time on Class B Shares, or are payable to the holders of record thereof on or
after the Effective Time, will be paid, at the appropriate payment date or as
promptly as practicable thereafter, (i) in the case of Class B Shares for which
certificates have already been issued, to the holders of record of such Class B
Shares as of the record date(s) established for such dividends or distributions,
or (ii) in the case of Class B Shares for which certificates have not been
issued, to the holder of record of the Certificate(s) evidencing the Trust
Shares converted into such Class B Shares in the Merger. In no event shall the
person entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions.
Section 1.8 Return of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the former shareholders of the Company for six
months after the Effective Time shall be delivered to Parent and any such former
shareholders who have not theretofore complied with this Article I shall
thereafter look only to Parent for payment of their claim for Class B Shares.
Neither Parent nor the Surviving Trust shall be liable to any former holder of
Trust Shares for any such Class B Shares that are delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 1.9 No Further Ownership Rights in Trust Shares. All Class B
Shares issued upon the surrender for exchange of Certificates in accordance with
the terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to the Trust Shares evidenced by such Certificates, subject,
however, to the Surviving Trust'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 Trust Shares and which remain
unpaid at the Effective Time.
Section 1.10 Closing of Company Transfer Books. At the Effective Time,
the transfer books for the Trust Shares shall be closed and no transfer of Trust
Shares shall thereafter be made on the records of the Company. If, after the
Effective Time, Certificates are presented to the Surviving Trust, the Exchange
Agent or Parent, such Certificates shall be cancelled and exchanged as provided
in this Article I.
Section 1.11 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 Surviving Trust, Parent or the Exchange Agent, the posting by such person of
a
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bond, in such reasonable amount as the Surviving Trust, Parent or the Exchange
Agent may direct 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 Class B Shares issuable pursuant
to Section 1.5(c) and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 1.7.
Section 1.12 Further Assurances. If at any time after the Effective Time
the Surviving Trust 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 Trust its right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of either of the
Constituent Trusts or (b) otherwise to carry out the purposes of this Agreement,
the Surviving Trust 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 Trusts, all such deeds, bills of sale, assignments and
assurances and to do, in the name and on behalf of either Constituent Trust, all
such other acts and things as may be necessary, desirable or proper to vest,
perfect or confirm the Surviving Trust's right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
such Constituent Trust and otherwise to carry out the purposes of this
Agreement.
Section 1.13 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 the later of (i) January 5, 1999 or (ii) 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 AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 2.1 Organization, Standing and Power. Each of Parent and Sub is a
corporation or a real estate investment trust, as the case may be, duly
organized, validly existing and in good standing under the laws of Maryland and
has the requisite power and authority to carry on its business as now being
conducted. All of Sub's outstanding shares of beneficial interest are owned
directly by Parent. Each Subsidiary (as hereinafter defined) of Parent 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 Parent.
Parent 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 Parent.
For 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 Parent
or the Company, as the case may be, means such state of facts, event, change or
effect which has had or would reasonably be expected to have, a materially
adverse effect on the business, properties, results of operations or financial
condition of Parent and its Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, as the case may be. For purposes of this
Agreement, "Subsidiary"means any corporation, partnership, limited liability
company, joint venture or other legal entity of which Parent 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
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venture or other legal entity, (ii) is the general partner, trustee or other
entity performing similar functions or (iii) owns, directly or indirectly, stock
or other equity interests representing more than 50% of the economic interests
of such corporation, partnership, limited liability company, joint venture or
other legal entity.
Section 2.2 Capital Structure. At the date hereof, the authorized stock
of Parent consists of (i) 1,000,000,000 shares of Parent Common Stock, (ii)
200,000,000 shares of preferred stock, par value $0.01 per share (the "Parent
Preferred Stock"), (iii) 50,000,000 shares of excess common stock, par value
$0.01 per share ("Parent Excess Common Stock"), and (iv) 100,000,000 shares of
excess preferred stock, par value $0.01 per share ("Parent Excess Preferred
Stock"). At the close of business on August 15, 1998, 188,569,988 shares of
Parent Common Stock were issued and outstanding and no shares of Parent
Preferred Stock, Parent Excess Common Stock or Parent Excess Preferred Stock
were outstanding. All the outstanding shares of Parent Common Stock are validly
issued, fully paid and nonassessable and free of preemptive rights. As of the
date of this Agreement, except as otherwise previously disclosed by Parent to
the Company, and except for (a) stock options issued pursuant to the Incentive
and Non-Qualified Shares Option Plan (1986) of the Company, the Corporation
Stock Non-Qualified Stock Option Plan (1986) of the Company, the Stock Option
Plan (1986) of Parent, the Trust Shares Option Plan (1986) of Parent, the 1995
Long-Term Incentive Plan of the Company and the 1995 Long-Term Incentive Plan of
Parent (collectively, the "Starwood Stock Plans") covering not in excess of
19,529,390 shares of Parent Common Stock (collectively, the "Parent Stock
Options"), (b) 11,899,314 shares of Parent Common Stock issuable upon the
exchange of units ("SLT Units") in SLT Realty Limited Partnership (the "Realty
Partnership") and units ("SLC Units") in SLC Operating Limited Partnership (the
"Operating Partnership") and (c) 5,519,380 shares of Parent Common Stock
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
or certain similar forward purchase contracts, there are no options, warrants,
calls, rights or agreements to which Parent is a party or by which it is bound
obligating Parent to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of stock of Parent or obligating Parent to grant, extend
or enter into any such option, warrant, call, right or agreement. At the date
hereof, the total number of shares of beneficial interest which Sub has
authority to issue is 1,000, consisting of 1,000 Common Shares, $0.01 par value
per share ("Sub Shares"). At the close of business on September 15, 1998, 100
Sub Shares were issued and outstanding. All the outstanding Sub Shares are
validly issued, fully paid and nonassessable and free of preemptive rights. As
of the date of this Agreement, there are no options, warrants, calls, rights or
agreements to which Sub is a party or by which it is bound obligating Sub to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of beneficial interest in Sub or obligating Sub to grant, extend or enter
into any such option, warrant, call, right or agreement. All the Class B Shares
issuable in exchange for Trust Shares 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.
Section 2.3 Authority. The Board of Directors of Parent and the Board of
Trustees of Sub have duly approved and adopted this Agreement. The Board of
Directors of Parent has declared advisable the amendment and restatement of the
Pairing Agreement, dated as of June 25, 1980, as amended (the "Pairing
Agreement"), between Parent and the Company to read in its entirety as set forth
on Exhibit 2.3 hereto or as otherwise agreed to by the parties (the "Pairing
Agreement Amendment and Restatement"). The Board of Directors of Parent has
resolved to recommend the approval of the Pairing Agreement Amendment and
Restatement by its stockholders. Each of Parent and Sub has all requisite power
and authority to enter into this Agreement, and, subject to approval by the
stockholders of Parent of the Pairing Agreement Amendment and Restatement, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Parent and Sub, subject to approval by the stockholders of
Parent of the Pairing Agreement Amendment and Restatement. This Agreement has
been duly executed and delivered by Parent and Sub and (assuming the valid
authorization, execution and delivery of this Agreement by the Company and the
validity and binding effect hereof on the Company) constitutes the valid and
binding obligation of Parent
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and Sub enforceable against each of them in accordance with its terms. The
Pairing Agreement Amendment and Restatement has been duly authorized by Parent's
Board of Directors.
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.4 have been obtained and all filings and obligations described in this Section
2.4 have been made, and except as otherwise previously disclosed by Parent to
the Company, 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 security interests, liens,
claims, pledges, mortgages, options, rights of first refusal, agreements,
charges or other encumbrances of any nature whatsoever (each, a "Lien") upon any
of the properties, assets or operations of Parent or any of its Subsidiaries
under, any provision of (i) the charter or the Amended and Restated Bylaws of
Parent, (ii) any provision of the comparable charter or organizational documents
of any of Parent's Subsidiaries, (iii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent 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
Parent, materially impair the ability of Parent 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 Parent or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by Parent 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 of 1933, as amended (together with the rules and
regulations promulgated thereunder, 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 and acceptance for
record of the Articles of Merger with and by the State Department of Assessments
and Taxation of Maryland and appropriate documents with the relevant authorities
of other states in which Parent, the Company or any of their respective
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 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 5.9, (v) applicable requirements, if any, of state securities or "blue
sky" laws ("Blue Sky Laws") and The New York Stock Exchange, Inc. (the "NYSE"),
(vi) as may be required under foreign laws, (vii) filings with and approvals by
any regulatory authority with jurisdiction over Parent's and/or its
Subsidiaries' 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"), (viii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as Parent has previously disclosed to the Company and (ix) such other
consents, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made, individually or in the aggregate, would
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not reasonably be expected to have a Material Adverse Effect on Parent,
materially impair the ability of Parent or Sub to perform its respective
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
Section 2.5 SEC Documents and Other Reports. Parent has filed all
required documents with the SEC since January 1, 1998 (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.
Section 2.6 Joint Proxy Statement. None of the information to be supplied
by Parent or Sub for inclusion or incorporation by reference in the joint proxy
statement (together with any amendments or supplements thereto, the "Joint Proxy
Statement") relating to the Stockholder Meetings (as defined in Section 5.1)
will, 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 Parent, its officers and directors or any of its
Subsidiaries shall occur that is required to be described in the Joint Proxy
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 shareholders of the Company. The
Joint Proxy Statement will comply (with respect to Parent) 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
Parent SEC Documents filed prior to the date of this Agreement, since December
31, 1997, (A) Parent 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 Parent and (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
Parent.
Section 2.8 Permits and Compliance. Each of Parent 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 Parent 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 "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 Parent, 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 Parent (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 Parent. Neither Parent 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 Parent or any of its 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 Parent. 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 Parent and its
Subsidiaries, taken as a whole. 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 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, contractual license or other
agreement or instrument to which Parent or any of its Subsidiaries is a party or
by which Parent or any
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such Subsidiary is bound or to which any of the properties, assets or operations
of Parent 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 Parent. For purposes of this
Agreement, the term "Knowledge" when used with respect to Parent means the
actual knowledge of the senior executive officers of Parent.
Section 2.9 Tax Matters. Except as otherwise previously disclosed by
Parent to the Company, (i) Parent and each of its Subsidiaries have filed all
material federal, state, local, foreign and provincial Tax Returns required to
have been filed on or prior to the date hereof, or appropriate extensions
therefor have been properly obtained, and such Tax Returns are correct and
complete, except to the extent that any failure to so file or any failure to be
correct and complete, individually or in the aggregate, has not had, and would
not reasonably be expected to have, a Material Adverse Effect on Parent; (ii)
all Taxes shown to be due on such Tax Returns have been timely paid or
extensions for payment have been properly obtained, or such Taxes (as defined
below) are being timely and properly contested; (iii) Parent 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 Parent; (iv) neither Parent nor any of its Subsidiaries has
waived any statute of limitations in respect of its federal, state, local,
foreign or provincial income or franchise Taxes, except to the extent that any
such waiver, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on Parent; (v) all
federal income Tax Returns referred to in clause (i) for all years through 1994
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 such Tax Returns referred to in clause (i) by any taxing
authority have been paid in full or are being timely and properly contested. 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 Parent or any of its Subsidiaries, or
against or involving any of the directors, officers or employees of Parent or
any of its Subsidiaries, as such, or any of its or their properties, assets or
business that, individually or in the aggregate, have had, or would reasonably
be expected to have, a Material Adverse Effect on Parent. 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
Parent, threatened against or involving Parent or any of its Subsidiaries or any
of their directors, officers or employees, as such, or any of its or their
properties, assets or business that, individually or in the aggregate, have had,
or would reasonably be expected to have, a Material Adverse Effect on Parent. 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 Parent, threatened against or affecting Parent
or any of its 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. The
properties, assets and operations of Parent and its Subsidiaries are in
compliance with all applicable federal, state, local and
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foreign laws, rules and regulations, orders, decrees, judgments, permits and
licenses relating to public and worker health and safety (collectively, "Worker
Safety Laws") and the protection and clean-up of the environment and activities
or conditions related thereto, including, without limitation, those relating to
the generation, handling, disposal, transportation or release of hazardous
materials (collectively, "Environmental Laws"), except for any violations that,
individually or in the aggregate, have not had, or would not reasonably be
expected to have, a Material Adverse Effect on Parent. With respect to such
properties, assets and operations, including any previously owned, leased or
operated properties, assets or operations, there are no events, conditions,
circumstances, activities, practices, incidents, actions or plans of Parent 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, or would not reasonably be expected to have, a Material
Adverse Effect on Parent.
Section 2.12 Intellectual Property. Parent and its Subsidiaries own or
have the right to use all patents, 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 Parent and its Subsidiaries, taken as a whole, except where
the failure to have such Intellectual Property Rights has not had, and would not
reasonably be expected to have, a Material Adverse Effect on Parent. Neither
Parent 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 Parent.
Section 2.13 Required Vote of Parent Stockholders. The affirmative vote
of a majority of the outstanding shares of Parent Common Stock is required to
approve the Pairing Agreement Amendment and Restatement. No other vote of the
stockholders of Parent is required by law, the NYSE, the charter or the Amended
and Restated By-Laws of Parent or otherwise in order for Parent to consummate
the Merger and the transactions contemplated hereby.
Section 2.14 State Takeover Statutes. The Board of Directors of Parent
has, to the extent such statutes are applicable, taken all action (including
appropriate approvals of the Board of Directors of Parent) necessary to exempt
Parent, its Subsidiaries and affiliates, the Merger, this Agreement and the
transactions contemplated hereby from Sections 3-601 through 3-603 and Sections
3-701 through 3-709 of the MGCL or to satisfy the requirements thereof. To the
Knowledge of Parent, no other state takeover statutes are applicable to the
Merger, this Agreement and the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. The Company is a real
estate investment trust duly organized, validly existing and in good standing
under the laws of the State of Maryland and has the requisite trust 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.
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Section 3.2 Capital Structure. As of the date hereof, the authorized
beneficial interest of the Company consists of (i) 1,000,000,000 Trust Shares,
(ii) 200,000,000 Excess Trust Shares, par value $0.01 per share ("Excess Trust
Shares"), (iii) 100,000,000 Trust Preferred Shares, par value $0.01 per share
("Trust Preferred Shares"), and (iv) 50,000,000 Excess Preferred Shares, par
value $0.01 per share ("Excess Trust Preferred Shares"). Pursuant to Exhibit A
to Articles of Merger dated January 2, 1998, 30,000,000 shares of beneficial
interest were classified and designated as Class A Exchangeable Preferred
Shares, par value $0.01 per share ("Class A EPS"), and 15,000,000 shares of
beneficial interest were classified and designated as Class B Exchangeable
Preferred Shares, par value $0.01 per share ("Class B EPS"). At the close of
business on August 15, 1998, (i) 188,569,988 Trust Shares were issued and
outstanding, (ii) 4,901,261 shares of Class A EPS were issued and outstanding
and (iii) 4,405,126 shares of Class B EPS were issued and outstanding and (iv)
no excess Trust Shares or Excess Trust Preferred Shares were outstanding. All
the outstanding Trust Shares, Class A EPS and Class B EPS are validly issued,
fully paid and non-assessable and free of preemptive rights. As of the date of
this Agreement, except as otherwise previously disclosed by the Company to
Parent, and except for (a) this Agreement, (b) stock options issued pursuant to
the Starwood Stock Plans covering not in excess of 19,529,390 Trust Shares
(collectively, the "Company Stock Options"), (c) 16,800,575 Trust Shares
issuable upon the exchange of SLT Units, SLC Units and Class A EPS, (d)
4,405,126 Class A EPS issuable upon the conversion of Class B EPS, (e) 783,050
Class B EPS issuable upon the exchange of SLT Units and SLC Units and (f)
5,519,380 Trust Shares issuable pursuant to the Forward Purchase Contract or
certain similar forward purchase contracts, there are no options, warrants,
calls, rights or agreements to which the Company is a party or by which it is
bound obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of beneficial interest of the Company or
obligating the Company to grant, extend or enter into any such option, warrant,
call, right or agreement.
Section 3.3 Authority. The Board of Trustees of the Company has duly
approved and adopted this Agreement and has declared advisable this Agreement,
the Merger and the Pairing Agreement Amendment and Restatement. The Board of
Trustees of the Company has resolved to recommend the approval of this Agreement
and the Pairing Agreement Amendment and Restatement by its shareholders. The
Company has all requisite trust power and authority and, subject to approval by
the shareholders of the Company of this Agreement and the Pairing Agreement
Amendment and Restatement, 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 trust action on the part of the Company, subject to approval by
the shareholders of the Company of this Agreement and the Pairing Agreement
Amendment and Restatement. This Agreement has been duly executed and delivered
by the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub and the validity and binding effect hereof on
Parent and Sub) constitutes the valid and binding obligation of the Company
enforceable against it in accordance with its terms. This Agreement and the
Pairing Agreement Amendment and Restatement have been duly authorized by the
Company's Board of Trustees.
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 otherwise disclosed by the Company to Parent,
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
Company or any of its Subsidiaries under, any provision of (i) the Declaration
of Trust or the Amended and Restated Trustees' Regulations of the Company, (ii)
any provision of the comparable charter or organizational documents of any of
the Company's Subsidiaries, (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
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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 and acceptance for record of the
Articles of Merger with and by the State Department of Assessments and Taxation
of Maryland and appropriate documents with the relevant authorities of other
states in which Parent, the Company or any of their respective 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
pertaining to any notification, disclosure or required approval triggered by the
Merger or the transactions contemplated by this Agreement, (iv) such filings as
may be required in connection with the taxes described in Section 5.9, (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 by any regulatory
authority with jurisdiction over Parent's and/or its Subsidiaries' gaming
operations required under any Gaming Law, (viii) such other consents, approvals,
orders, authorizations, registrations, declarations and filings as the Company
has previously disclosed to Parent and (ix) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company, materially impair the
ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
Section 3.5 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1998 (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.
Section 3.6 Joint Proxy Statement. None of the information to be supplied
by the Company for inclusion or incorporation by reference in the Joint Proxy
Statement will, 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, 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 shareholders of
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, 1997, (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) 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.
Section 3.8 Permits and Compliance. Each of the Company and its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents,
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certificates, approvals and orders of any Governmental Entity necessary for the
Company or any of its Subsidiaries to own, lease and operate its properties or
to carry on its business as it is now being conducted (the "Company Permits"),
except where the failure to have any of the Company Permits, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company, and, as of the date of this Agreement,
no suspension or cancellation of any of the Company Permits is pending or, to
the Knowledge of the Company (as hereinafter defined), threatened, except where
the suspension or cancellation of any of the Company Permits, individually or in
the aggregate, 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 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, have 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. 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 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, contractual 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 senior executive
officers of the Company.
Section 3.9 Tax Matters. Except as otherwise previously disclosed by the
Company to Parent, (i) the Company and each of its Subsidiaries have filed all
material federal, state, local, foreign and provincial Tax Returns required to
have been filed on or prior to the date hereof, or appropriate extensions
therefor have been properly obtained, and such Tax Returns are correct and
complete, except to the extent that any failure to so file or any failure to be
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 shown to be due on such Tax Returns have been timely paid or
extensions for payment have been properly obtained, or such Taxes are being
timely and properly contested; (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 any
statute of limitations in respect of its federal, state, local, foreign or
provincial income or franchise Taxes, except to the extent that any such waiver,
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 1994 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 such Tax Returns referred to in Clause (i) by any taxing
authority have been paid in full or are being timely and properly contested.
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,
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or any of its or their properties, assets or business that, individually or in
the aggregate, have had, or would reasonably be expected to have, a Material
Adverse Effect on the Company. 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 their directors,
officers or employees, as such, or any of their properties, assets or business
that, individually or in the aggregate, have had, or would reasonably be
expected to have, a Material Adverse Effect on the Company. 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 their officers, directors or employees, as such, or
any of their properties, assets or business relating to the transactions
contemplated by this Agreement.
Section 3.11 Compliance with Worker Safety and Environmental Laws. The
properties, assets and operations of the Company and its Subsidiaries are in
compliance with all applicable Worker Safety Laws and 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 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.
Section 3.12 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 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 3.13 Required Vote of Company Shareholders. The affirmative vote
of the holders of a majority of the outstanding Trust Shares, Class A EPS and
Class B EPS (voting together as a single class) is required to adopt this
Agreement and the Pairing Agreement Amendment and Restatement. No other vote of
the shareholders of the Company is required by law, the NYSE, the Declaration of
Trust or the Amended and Restated Trustees' Regulations of the Company or
otherwise in order for the Company to consummate the Merger and the transactions
contemplated hereby.
Section 3.14 State Takeover Statutes. The Board of Trustees of the
Company has, to the extent such statutes are applicable, taken all action
(including appropriate approvals of the Board of Trustees of the Company)
necessary to exempt the Company, its Subsidiaries and affiliates, the Merger,
this Agreement and the transactions contemplated hereby from Sections 3-601
through 3-603 and Sections 3-701 through 3-709 of the MGCL or to satisfy the
requirements thereof. To the Knowledge of the Company, no other state takeover
statutes are applicable to the Merger, this Agreement and the transactions
contemplated hereby.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. Except
with the prior consent of Parent, during the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause each of its
Subsidiaries to, in all material respects 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 reasonable efforts to
keep available the services of its current officers and
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employees and preserve its relationships with customers, suppliers, licensors
and lessors and others having business dealings with it to the end that its
goodwill and ongoing business shall be unimpaired at the Effective Time.
Section 4.2 Conduct of Business by Parent Pending the Merger. Except with
the prior consent of the Company, during the period from the date of this
Agreement to the Effective Time, Parent shall, and shall cause each of its
Subsidiaries to, in all material respects 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 reasonable efforts to
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers, licensors and lessors and others
having business dealings with it to the end that its goodwill and ongoing
business shall be unimpaired at the Effective Time.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meetings. Parent and the Company 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 "Parent Stockholder Meeting" and the "Company Shareholder
Meeting" and, collectively, the "Stockholder Meetings") for the purpose of
considering the approval of this Agreement and the Merger (in the case of the
Company) and the Pairing Agreement Amendment and Restatement (in the case of
Parent and the Company). The Company and Parent will, through their respective
Board of Trustees or Board of Directors, recommend to their respective
shareholders or stockholders, as the case may be, approval of such matters and
shall not withdraw such recommendation except as, and to the extent, required by
their fiduciary obligations. The Company and Parent shall coordinate and
cooperate with respect to the timing of such meetings and shall use their
reasonable best efforts to hold such meetings on the same day.
Section 5.2 Preparation of the Joint Proxy Statement. The Company and
Parent shall promptly prepare and file with the SEC the Joint Proxy Statement.
Each of Parent and the Company shall use reasonable efforts to resolve the
comments of the SEC relating to the Joint Proxy Statement. As promptly as
practicable after resolving the comments of the SEC, each of Parent and the
Company shall mail the Joint Proxy Statement to its respective stockholders or
shareholders. The Company shall also take any action reasonably required to be
taken under any applicable state securities laws in connection with the issuance
of Class B Shares in the Merger and upon the exercise of the Substitute Options
(as defined in Section 5.6), and the Company shall furnish all information
concerning the Company and the holders of Trust Shares as may be reasonably
requested in connection with any such action.
Section 5.3 Actions Prior to Closing. Prior to or after the Closing,
Parent and Company shall use their reasonable best efforts to transfer a
sufficient number of the leases relating to real property leased from the
Company, the Realty Partnership or any of their respective Subsidiaries to
Parent so as to avoid the termination of the Trust's status as a "real estate
investment trust" under the Code, to amend and restate the limited partnership
agreements of the Realty Partnership and the Operating Partnership in connection
with the transactions contemplated hereby, and to recapitalize certain corporate
Subsidiaries of which Parent holds 95% of the voting securities and the Company
owns the remaining 5% of the voting securities; however, such actions shall not
be a condition to the Closing.
Section 5.4 [Deleted]
Section 5.5 Stock Exchange Listings. The Company and Parent shall use
their reasonable best efforts to list on the NYSE, upon official notice of
issuance, the Class B Shares to be issued in connection with the Merger, such
Class B Shares to trade together as a unit with shares of Parent Common Stock.
Section 5.6 Stock Options. As of the Effective Time, each stock option (a
"Starwood Stock Option") that is outstanding immediately prior to the Effective
Time pursuant to the Starwood Stock
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Plans shall become and represent an option to purchase (a "Substitute Option")
the number of Class B Shares equal to the number of Trust Shares subject to such
Starwood Stock Option immediately prior to the Effective Time and the number of
shares of Parent Common Stock equal to the number of shares of Parent Common
Stock subject to such Starwood Stock Option immediately prior to the Effective
Time. After the Effective Time, except as provided above in this Section 5.6,
each Substitute Option shall be exercisable upon the same terms and conditions
as were applicable under the related Starwood Stock Option immediately prior to
or at the Effective Time. Parent and the Company shall use all reasonable
efforts to obtain any necessary consents of holders of Starwood Stock Options
and take such other actions as may be necessary to effect this Section 5.6.
Section 5.7 Reasonable Best Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
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, as
soon as 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 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.
Section 5.8 Public Announcements. Parent 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 the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange.
Section 5.9 Real Estate Transfer and Gains Tax. Parent and the Company
agree that either the Company or the Surviving Trust 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"), and any penalties or interest with
respect to the Gains Taxes, payable in connection with the consummation of the
Merger. The Company and Parent 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
determined by Parent in its reasonable discretion.
Section 5.10 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 and the Company and their respective Board of Directors and Board of
Trustees 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 5.11 Indemnification. For six years from and after the Effective
Time, Parent agrees to cause the Surviving Trust to, and shall guarantee the
obligation of the Surviving Trust to, indemnify and hold harmless all past and
present officers and trustees of the Company and of its Subsidiaries to the same
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extent such persons are indemnified as of the date of this Agreement by the
Company pursuant to the Company's Declaration of Trust, Amended and Restated
Trustees' Regulations or agreements in existence on the date hereof for acts or
omissions occurring at or prior to the Effective Time.
Section 5.12 Notification of Certain Matters. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, 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 Parent 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 has had, or would reasonably be expected to have, a Material
Adverse Effect on Parent or the Company, as the case may be; provided, however,
that the delivery of any notice pursuant to this Section 5.12 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 5.13 Employee Benefit Plans and Agreements. Parent agrees that it
will cause the Surviving Trust to maintain for a period of twelve months
immediately following the Effective Time, employee benefit plans, programs,
agreements, policies and arrangements for employees of the Company and its
Subsidiaries which in the aggregate are no less favorable than the employee
benefit plans, programs, agreements, policies and arrangements of the Company
and its Subsidiaries in effect on the Effective Time, and that it will cause the
Surviving Trust to honor all employment agreements entered into by the Company
prior to the date hereof; provided, however, that nothing in this Agreement
shall be interpreted as limiting the power of Parent or the Surviving Trust to
amend or terminate any employee benefit plan, program, agreement, policy or
arrangement or as requiring Parent or the Surviving Trust to offer to continue
(other than as required by its terms) any written employment contract.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement, the Merger and the Pairing
Agreement Amendment and Restatement shall have been duly approved by the
requisite vote of shareholders of the Company in accordance with applicable
law and the Declaration of Trust and Amended and Restated Trustees'
Regulations of the Company and the Pairing Agreement (in the case of the
Pairing Agreement Amendment and Restatement), and the Pairing Agreement
Amendment and Restatement shall have been approved by the requisite vote of
the stockholders of Parent in accordance with the terms of the Pairing
Agreement, applicable law and the charter and Amended and Restated By-Laws
of Parent.
(b) Stock Exchange Listings. The Class B Shares issuable in the
Merger 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 Parent or 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.
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(d) No Order. No court or other Governmental Entity having
jurisdiction over the Company or Parent, 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.
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 at or prior to the Effective Time of the additional condition
that each of Parent and Sub 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 and Sub contained in this Agreement that is qualified by 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 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 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 and Sub by its
Chief Executive Officer and its Chief Financial Officer to such effect.
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional condition
that 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 by 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 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 in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its Chief
Financial Officer to such effect.
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 any approval of the matters
presented in connection with the Merger by the shareholders of the Company or
the stockholders of Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent 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 20 business days following receipt by the breaching party of
notice of such breach from the non-breaching party;
(c) by Parent or the Company if: (i) the Merger has not been effected
on or prior to the close of business on June 30, 1999; provided, however,
that the right to terminate this Agreement pursuant to this Section
7.1(c)(i) shall not be available to any party whose failure to fulfill any
of its obligations contained in this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior to the
aforesaid date; or (ii) any court or other Governmental Entity having
jurisdiction over a party hereto or any of their respective Subsidiaries
shall have
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enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order or taken any other action
permanently enjoining, restraining or otherwise prohibiting or making illegal
the transactions contemplated by this Agreement and such law, rule, regulation,
executive order, decree, injunction or other order or other action shall have
become final and nonappealable;
(d) by Parent or the Company if the shareholders of the Company do not
approve this Agreement, the Merger or the Pairing Agreement Amendment and
Restatement at the Company Shareholder Meeting or at any adjournment or
postponement thereof; or
(e) by Parent or the Company if the stockholders of Parent do not
approve the Pairing Agreement Amendment and Restatement at the Parent
Stockholder Meeting or at any adjournment or postponement thereof.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either Parent 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, Sub or their respective officers, directors
or trustees; provided, however, that nothing contained in this Section 7.2 shall
relieve any party hereto from any liability for any willful breach of a
representation or warranty contained in this Agreement or the breach of any
covenant contained in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their Board of Directors or Board of
Trustees, as the case may be, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Parent
and the shareholders of 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 an overnight courier or when
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telecopied (with a confirmatory copy sent by overnight courier) or delivered by
hand 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 or Sub, to
Starwood Hotels & Resorts Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Attention: Richard D. Nanula
Facsimile No.: (914) 640-8310
with a copy to:
Sidley & Austin
555 W. Fifth St.
40th Floor
Los Angeles, California 90013
Attention: Sherwin L. Samuels, Esq.
Facsimile No.: (213) 896-6600
(b) if to the Company, to
Starwood Hotels & Resorts
777 Westchester Avenue
White Plains, New York 10604
Attention: Barry S. Sternlicht
Facsimile No.: (914) 640-8310
with a copy to:
Sidley & Austin
555 W. Fifth St.
40th Floor
Los Angeles, California 90013
Attention: Sherwin L. Samuels, Esq.
Facsimile No.: (213) 896-6600
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."
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 constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof. Except for the provisions of Sections 5.6 and 5.11, and
injunctive relief in respect of Section 5.9, this Agreement 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 Maryland 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)
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without the prior written consent of the other parties except that Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned Subsidiary of Parent. This Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
Section 8.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
Section 8.10 Trust. The name "Starwood Hotels & Resorts" is the
designation of the Company 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 the Company must look solely to the Company's property
for the enforcement of any claims against the Company, as the Trustees,
officers, agents and security holders of the Company assume no personal
obligations of the Company, and their respective properties shall not be subject
to claims of any person relating to such obligation.
20
<PAGE> 144
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 HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ RICHARD D. NANULA
------------------------------------
Name: Richard D. Nanula
Title: President and Chief
Executive Officer
ST ACQUISITION TRUST
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Chief Executive Officer
STARWOOD HOTELS & RESORTS
By: /s/ BARRY S. STERNLICHT
------------------------------------
Name: Barry S. Sternlicht
Title: Chairman and Chief
Executive Officer
21
<PAGE> 145
ANNEX B
MARKED COPY
AMENDED AND RESTATED DECLARATION OF TRUST
OF
STARWOOD HOTELS & RESORTS
<PAGE> 146
AMENDED AND RESTATED DECLARATION OF TRUST
OF
STARWOOD HOTELS & RESORTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I. The Trust; Definitions...................................... 1
1.1 Name........................................................ 1
1.2 Place of Business........................................... 1
1.3 Nature of Trust............................................. 1
1.4 Definitions................................................. 1
ARTICLE II. Trustees.................................................... 4
2.1 Number, Term of Office, Qualifications of Trustees.......... 4
2.2 Compensation and Other Remuneration......................... 5
2.3 Resignation, Removal and Death of Trustees.................. 5
2.4 Vacancies................................................... 5
2.5 Successor and Additional Trustees........................... 5
2.6 Actions by Trustees......................................... 6
2.7 Executive Committee......................................... 6
2.8 Names and Addresses of Trustees............................. 6
2.9 Non-Affiliated Trustees..................................... 6
ARTICLE III. Trustees' Powers............................................ 6
3.1 Power and Authority of Trustees............................. 6
3.2 Specific Powers and Authorities............................. 6
3.3 Bylaws...................................................... 9
3.4 Additional Powers........................................... 9
3.5 Incorporation............................................... 9
ARTICLE IV. Advisor; Limitation on Operating Expenses................... 10
4.1 Employment of Advisor....................................... 10
4.2 Term........................................................ 10
4.3 Restrictions on Advisor..................................... 10
4.4 Limitation on Operating Expenses............................ 10
4.5 Sale of Shares of the Advisor............................... 12
ARTICLE V. Investment Policy........................................... 12
5.1 General Statement of Policy................................. 12
5.2 Obligor's Default........................................... 13
5.3 Changes Investment Policies and Restrictions................ 13
ARTICLE VI. The Shares and Shareholders................................. 13
6.1 Shares...................................................... 13
6.2 Legal Ownership of Trust Estate............................. 14
6.3 Shares Deemed Personal Property............................. 14
6.4 Share Record: Issuance and Transferability Shares........... 14
6.5 Dividends or Distributions to Shareholders.................. 15
6.6 Transfer Agent, Dividend Distributing Agent and Registrar... 15
6.7 Shareholders' Meeting....................................... 15
</TABLE>
i
<PAGE> 147
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.8 Proxies..................................................... 16
6.9 Reports to Shareholders..................................... 16
6.10 Fixing Record Date.......................................... 16
6.11 Notice to Shareholders...................................... 16
6.12 Restrictions on Transfer.................................... 16
6.13 Excess Shares............................................... 20
6.14 Intercompany Agreement...................................... 22
6.15 Class A Exchangeable Preferred Shares....................... 22
6.16 Class B Exchangeable Preferred Shares....................... 36
6.17 Redemption.................................................. 53
6.18 Class A Shares.............................................. 53
6.19 Class B Shares.............................................. 56
ARTICLE VII. Liability of Trustees, Shareholders and Officers, and Other
Matters..................................................... 62
7.1 Exculpation of Trustee and Officers......................... 62
7.2 Limitation of Liability of Shareholders, Trustees and
Officers.................................................... 62
7.3 Express Exculpatory Clauses and Instruments................. 62
7.4 Indemnification of Trustees, Officers, Employees and Other
Agents...................................................... 63
7.5 Right of Trustees and Officers to Own Shares or Other
Property and to Engage in Other Business.................... 63
7.6 Transactions Between the Trustees and the Trust............. 63
7.7 Restriction of Duties and Liabilities....................... 65
7.8 Persons Dealing with Trustees or Officers................... 65
7.9 Reliance.................................................... 65
7.10 Income Tax Status........................................... 65
ARTICLE VIII. Duration, Amendment, Termination and Qualification of
Trust....................................................... 65
8.1 Duration of Trust........................................... 65
8.2 Termination of Trust........................................ 65
8.3 Amendment Procedure......................................... 66
8.4 Qualification Under the REIT Provisions of the Internal
Revenue Code................................................ 66
ARTICLE IX. Miscellaneous............................................... 66
9.1 Applicable Law.............................................. 66
9.2 Index and Headings for Reference Only....................... 66
9.3 Successors in Interest...................................... 66
9.4 Inspection of Records....................................... 66
9.5 Counterparts................................................ 67
9.6 Provisions of the Trust in Conflict with Law or
Regulations................................................. 67
9.7 Certifications.............................................. 67
9.8 Recording and Filing........................................ 67
9.9 Resident Agent.............................................. 67
</TABLE>
ii
<PAGE> 148
AMENDED AND RESTATED DECLARATION OF TRUST*
ARTICLE I.
THE TRUST; DEFINITIONS
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.
1.2 Place of Business. The principal office of the Trust shall be in the
State of [Maryland] NEW YORK. However, the Trustees may, from time to time,
change such location and maintain other offices or places of business.
1.3 Nature of Trust. The Trust is a real estate investment trust
organized under [Article 78C] TITLE 8 OF THE CORPORATIONS AND ASSOCIATIONS
ARTICLE of the Annotated Code of the State of Maryland. It is intended that the
Trust shall carry on business as a "real estate investment trust" (hereinafter
called "REIT" or "Real Estate Investment Trust") as described in the REIT
Provisions of the Internal Revenue Code. The Trust is not a general partnership,
limited partnership, LIMITED LIABILITY COMPANY, joint venture, corporation or
joint stock company or association (but nothing herein shall preclude the Trust
from being taxed as an association under the REIT Provisions of the Internal
Revenue Code) nor shall the Trustees or Shareholders or any of them for any
purpose be, or be deemed to be treated in any way whatsoever to be, liable or
responsible hereunder as partners or joint [ventures] VENTURERS. The
relationship of the Shareholders to the Trustees shall be solely that of
beneficiaries of the Trust and their rights shall be limited to those conferred
upon them by this Declaration.
1.4 Definitions. The terms defined in this Section 1.4 whenever used in
this Declaration shall, unless the context otherwise requires, have the
respective meanings hereinafter specified in this Section 1.4. In this
Declaration, words in the singular number include the plural and in the plural
number include the singular.
(a) Accommodations Field. "Accommodations Field" shall mean the hotel,
motel, motor inn, restaurant, and lodgings field generally, and shall also be
deemed to include activities, undertakings and businesses directly allied or
connected with, or directly related to, hotels, motels, motor inns, restaurants
or lodgings.
(b) Advisor. "Advisor" shall mean the Person, IF ANY, employed by the
Trustees under the provisions of Article IV.
(c) Affiliate. "Affiliate" shall mean (i) with respect to any Person, any
other Person (A) which such Person directly or indirectly controls, is
controlled by, or is under common control with or (B) of which such Person is a
director, officer, employee, partner or trustee or (C) of which such Person
directly or indirectly owns, controls or holds with power to vote five percent
(5%) or more of the outstanding voting securities or (D) which directly or
indirectly owns, controls or holds with power to vote five percent (5%) or more
of the outstanding voting securities of such Person and (ii) with respect to the
Trust, the Advisor and any other investment adviser, manager or independent
contractor (as that term is defined in Section 856(d)(3) of the Internal Revenue
Code) of the Trust.
(d) Annual Meeting of Shareholders. "Annual Meeting of Shareholders" shall
have the meaning set forth in the first sentence of Section 6.7.
(e) Annual Report. "Annual Report" shall have the meaning set forth in
Section 6.9.
(f) Appraisal. "Appraisal" shall mean the fair market value, as of the date
of the appraisal, of Real Property in its existing state or in a state as to be
created or improved, as determined by the Trustees or as determined by any bank,
insurance company or other Person which makes appraisals in connection with its
- ---------------
* This copy of the Amended and Restated Declaration of Trust is marked to show
the proposed amendments. Additions are shown in bold; deletions are shown as
stricken through.
<PAGE> 149
lending or services activities or as determined by a disinterested Person having
no interest in the Real Property, provided, however, that, any such Person, is,
in the sole judgment of the Trustees, properly qualified to make a
determination; provided further, that an appraisal shall be included within the
meaning of the term Appraisal as used herein upon which the Trustees may in good
faith rely if it is made on behalf of a Person or Persons other than the Trust
at or prior to the time of the investment by the Trust if the Trust is acquiring
an interest (either in whole or in part) in the investment with respect to which
such appraisal is or has been made.
(g) BYLAWS. "BYLAWS" SHALL HAVE THE MEANING SET FORTH IN SECTION 3.3.
(h) Construction Loans. "Construction Loans" shall mean Mortgage Loans
incurred to finance all or part of the cost of acquiring and improving land
(including leaseholds therein) and the construction or improvement of buildings
and other improvements thereon.
[(h)](i) Declaration. "Declaration" shall mean this Declaration of Trust
and all amendments or modifications thereof. References in this Declaration to
"herein" and "hereunder" shall be deemed to refer to this Declaration and shall
not be limited to the particular text, article or section in which such words
appear.
[(i)](j) Development Loans. "Development Loans" shall mean Mortgage Loans
incurred to finance all or part of the cost of acquiring and improving vacant
land and developing it into a site or sites suitable for the construction of
buildings thereon or suitable for other residential, commercial, industrial or
public uses.
[(j)](k) Equity Investments. "Equity Investments" shall mean investments in
Real Property (other than Mortgage Loans), or in borrowing or leasing entities
or other organizations owning, operating or managing Real Property.
[(k)](l) Equity Participations. "Equity Participations" shall mean
participations acquired in connection with making any Real Property Investment,
including, but not limited to, participations in contingent [interest] INTERESTS
based upon operating revenues, participations in the ownership of Real Property,
participations in rental based upon operating revenues or based upon a
percentage of sales or room rents, or participations in the ownership of
borrowing or leasing entities or other organizations owning, operating or
managing Real Property.
[(l)](m) First Mortgage. "First Mortgage" shall mean a Mortgage which takes
priority or precedence over all other charges or liens upon the Real Property
and which must be satisfied before such other charges are entitled to
participate in the proceeds of any sale. Such priority shall not be deemed as
abrogated by liens for taxes, or assessments which are not delinquent or remain
payable without penalty, contracts (other than contracts for repayment of
borrowed moneys), or leases, mechanic's and materialman's liens for work
performed and materials furnished which are not in default or are in good faith
being contested and other claims normally deemed in the same local jurisdiction
not to abrogate the priority of a first mortgage.
[(m)](n) First Mortgage Loans. "First Mortgage Loans" shall mean Mortgage
Loans secured or collateralized at the time of acquisition thereof by the Trust
by First Mortgages.
[(n)](o) Interim Loans. "Interim Loans" shall mean Mortgage Loans secured
or collateralized by Mortgages made on improved properties and having a maturity
of three years or less.
(p) INTERNAL REVENUE CODE. "INTERNAL REVENUE CODE" SHALL MEAN THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED FROM TIME TO TIME.
(q)[(o)] Junior Mortgage. "Junior Mortgage" shall mean any Mortgage (other
than a Mortgage securing a Wrap-Around Mortgage Loan or a Mortgage securing the
junior portion of a Mortgage Loan with respect to which a Senior Participation
has been issued) which has the same priority or precedence over all charges or
encumbrances on Real Property as is required for a First Mortgage, except that
it is subject to the priority of one or more Mortgages which must be satisfied
before such Junior Mortgage is entitled to participate in the proceeds of any
sale or other disposition of such Real Property.
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[(p)](r) Junior Mortgage Loans. "Junior Mortgage Loans" shall mean Mortgage
Loans (other than Wrap-Around Mortgage Loans and the junior portion of Mortgage
Loans with respect to which a Senior Participation has been sold) secured or
collateralized by Junior Mortgages.
[(q)](s) Long Term. "Long Term" shall mean, when used with respect to a
Mortgage Loan, a Mortgage Loan other than an Interim Loan or a Construction Loan
and, when used with respect to any other Real Property Investment, shall mean
such an investment which is not expected to be amortized in full within a period
of three years from the date on which such investment is made.
[(r)](t) Mortgage Loans. "Mortgage Loans" shall mean notes, debentures,
bonds and other evidence of indebtedness or obligation which are negotiable or
non-negotiable and which are secured or collateralized by Mortgages.
[(s)](u) Mortgages. "Mortgages" shall mean mortgages, deeds of trust or
other security deeds on Real Property or rights or interests in Real Property.
[(t)](v) National Hotel Companies. "National Hotel Companies" shall mean
Hilton Hotels Corporation, Marriott Corporation, Holiday Inns, Inc., TraveLodge
International, Inc. and any other nationally known hotel companies which are
engaged in operations in the Accommodations Field or the granting of franchises
to other Persons with respect to such operations and the Affiliates of any of
them.
[(u)](w) Net Assets. "Net Assets" shall mean the "Total Assets of the
Trust", after deducting therefrom all liabilities of the Trust; provided,
however, that depreciable assets shall be included in such Assets at the lesser
of either:
(i) the cost of such Assets on the books of the Trust less
depreciation thereof on a straight-line basis over the useful life of such
Assets in accordance with generally accepted accounting principles, and in
making such calculation the useful life of such Assets shall correspond to
the useful life used as the basis of depreciation on the Trust's federal
income tax returns; or
(ii) fair market value of such Assets, in the judgment of the
Trustees.
[(v)](x) Person. "Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, LIMITED LIABILITY COMPANIES, joint
stock companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land TRUSTS, REAL ESTATE INVESTMENT trusts,
business trusts, or other entities and governments and agencies and political
subdivisions thereof.
[(w)](y) Real Property. "Real Property" shall mean and include land, rights
in land, leasehold interests (including but not limited to interests of a lessor
or lessee therein), and any building, structures, improvements, fixtures and
equipment located on or used in connection with land, leasehold interests and
rights in land or interest therein, but does not include Mortgages, Mortgage
Loans or interests therein.
[(x)](z) Real Property Investments. "Real Property Investments" shall mean
and include investments in Real Property or in obligations secured, directly or
indirectly, by liens on Real Property, including, but not limited to, Long-Term
Mortgage Loans (with or without Equity Participations), Interim Loans,
Development Loans, Construction Loans, First Mortgage Loans, Junior Mortgage
Loans, Wrap-Around Mortgage Loans and Equity Investments in Real Property
(including, but not limited to, land leaseback and leasehold mortgage loans, net
lease financings and sale and leaseback transactions).
[(y)](aa) REIT Provisions of the Internal Revenue Code. "REIT Provisions of
the Internal Revenue Code" shall mean Part II, Subchapter M of Chapter 1, of the
Internal Revenue Code of [1954] 1986, as now enacted or hereafter amended, or
successor statutes and regulations promulgated thereunder.
[(z)](bb) Securities. "Securities" shall mean any stock, shares, voting
trust certificates, bonds, debentures, notes, or other evidences of
indebtedness, or in general any instruments commonly known as "securities" or
any certificates of interest, shares or participations in temporary or interim
certificates for, receipts for, guarantees of, or warrants, options or rights to
subscribe to, purchase or acquire any of the foregoing.
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[(aa)](cc) Senior Participation. "Senior Participation" shall mean a
participation or interest which shall have been sold by the Trust in a Mortgage
Loan, on terms and conditions satisfactory to the Trustees, pursuant to which
the participation sold takes priority or precedence as to charges and liens upon
the mortgaged property and satisfaction out of the proceeds of any sale over the
junior portion of the Mortgage Loan retained by the Trust; provided, however,
that a participation sold in a Mortgage Loan shall not be deemed to be a Senior
Participation as such term is used in this Declaration unless such Mortgage
Loan, considered as a single Mortgage Loan including the junior portion retained
by the Trust, would satisfy all of the requirements relating to the investment
by the Trust in a First Mortgage Loan.
[(bb)](dd) Shares. "Shares" shall mean the shares of beneficial interest of
the Trust as described in Section 6.1.
[(cc)](ee) Shareholders. "Shareholders" shall mean, as of any particular
time, all holders of record of outstanding Shares at such time.
[(dd)](ff) Total Assets of the Trust. "Total Assets of the Trust" shall
mean the value of all the assets of the Trust Estate as such value appears on
the most recent quarterly balance sheet of the Trust available to the Trustees.
[(ee)](gg) Trust. "Trust" shall mean the Trust created by this Declaration.
[(ff)](hh) Trustees. "Trustees" shall mean, as of any particular time
Trustees holding office under this Declaration at such time, whether they be the
Trustees named herein or additional or successor Trustees, and shall not include
the officers, representatives or agents of the Trust, or the Shareholders, but
nothing herein shall be deemed to preclude the Trustees from also serving as
officers, representatives, or agents of the Trust, or owning Shares.
[(gg)](ii) Trust Estate. "Trust Estate" shall mean, as of any particular
time, any and all property, real, personal, or otherwise, tangible or
intangible, which is owned or held by the Trust or the Trustees, including, but
not limited to, property which is transferred, conveyed or paid to the Trust or
Trustees, and all rents, income, profits and gains therefrom.
[(hh) Trustees' Regulations. "Trustees' Regulations" shall have the meaning
set forth in Section 3.3.]
[(ii)](jj) Wrap-Around Mortgage Loans. "Wrap-Around Mortgage Loans" shall
mean Mortgage Loans which are subject to prior First Mortgages (which have been
created prior to or simultaneously with the creation of the Wrap-Around Mortgage
Loan) and are made on the basis of the current values of the mortgaged
properties without regard to and without discharging the prior First Mortgages;
provided, however, that a Mortgage Loan shall not be included in the term
Wrap-Around Mortgage Loan for purposes of this Declaration unless the
indebtedness evidenced by the Wrap-Around Mortgage Loan when added to the
indebtedness evidenced by the prior First Mortgage and considered as a single
First Mortgage Loan would comply in all respects with the requirements relating
to an investment by the Trust in such a First Mortgage Loan.
ARTICLE II.
TRUSTEES
2.1 Number, Term of Office, Qualifications of Trustees. There shall be no
less than three (3) nor more than fifteen (15) Trustees. The initial Trustees
shall be the signatories to this Declaration as originally executed. Within the
limits set forth in this Section 2.1, the number of Trustees may be fixed,
increased or decreased from time to time by the Trustees or by the Shareholders
at any particular time; provided, however, that, subject to the provisions of
section 2.3, each Trustee shall hold office until the expiration of his term and
until the election and qualification of his successor. Trustees may be
re-elected. The Trustee shall be an individual at least twenty-one (21) years of
age who is not under legal disability. [Such individual shall qualify as a
Trustee when he has either signed the Declaration or agreed in writing to be
bound by it.] Unless otherwise required by law, no Trustee shall be required to
give bond, surety or
4
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security in any jurisdiction for the performance of any duties or obligations
hereunder. The Trustees, in their capacity as trustees, shall not be required to
devote their entire time to the business and affairs of the Trust.
The Trustees shall be divided, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
reasonably possible, with the term of office of the first class to expire at the
[1995] 1999 Annual Meeting of Shareholders, the term of office of the second
class to expire at the [1996] 2000 Annual Meeting of Shareholders and the term
of office of the third class to expire at the [1997] 2001 Annual Meeting of
Shareholders, with each Trustee to hold office until his or her successor shall
have been duly elected and qualified. At each Annual Meeting of Shareholders,
commencing with the [1995] 1999 Annual Meeting, (i) Trustees elected to succeed
those Trustees whose terms then expire shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Shareholders after their
election, with each Trustee to hold office until his or her successor shall have
been duly elected and qualified, and (ii) if authorized by a resolution of the
Board of Trustees, Trustees may be elected to fill any vacancy on the Board of
Trustees, regardless of how such vacancy shall have been created.
2.2 Compensation and Other Remuneration. The Trustees shall be entitled
to receive such reasonable compensation for their services as Trustees as they
may determine from time to time. The Trustees, either directly or indirectly,
shall also be entitled to receive remuneration for services rendered to the
Trust in any other capacity. Such services may include, without limitation,
services as an officer of the Trust, legal, accounting or other professional
services, or services as a broker, transfer agent or underwriter, whether
performed by a Trustee or any person affiliated with a Trustee. Notwithstanding
the foregoing, except as provided in Section 7.6, no Trustee shall receive any
fee or other remuneration, directly or indirectly, as a result of any sale of
property to or purchase of property from the Trust.
2.3 Resignation, Removal and Death of Trustees. A Trustee may resign at
any time by giving written notice in recordable form to the remaining Trustees
at the principal office of the Trust. Such resignation shall take effect on the
date such notice is given, or at any later time specified in the notice, without
need for prior accounting. A Trustee may be removed at any time, with or without
cause, by vote or written consent of holders of two-thirds ( 2/3rds) of the
outstanding Shares entitled to vote thereon, or with cause by all remaining
Trustees. A Trustee judged incompetent, or for whom a guardian or conservator
has been appointed, shall be deemed to have resigned as of the date of such
adjudication or appointment. Upon the resignation or removal of any Trustee, or
his otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining [Trustee] TRUSTEES shall require for the conveyance
of any Trust property held in his name, and shall account to the remaining
Trustee or Trustees, as they require, for all property which he holds as
Trustee, and shall thereupon be discharged as Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall perform the acts set forth
in the preceding sentence and the discharge mentioned therein shall run to such
legal representative and to the incapacitated Trustee or the estate of the
deceased Trustee, as the case may be.
2.4 Vacancies. If any or all of the Trustees cease to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees, if any (even
though less than three (3)), may exercise the powers of the Trustees hereunder.
Vacancies occurring among the Trustees (including vacancies created by increases
in number) may be filled by a majority of the remaining Trustees, though less
than a quorum, or by a sole remaining Trustee, and the person so appointed shall
hold office for a term expiring at the Annual Meeting of Shareholders at which
the term of office of the class to which they have been appointed expires and
until his successor is elected and qualified. If at any time there shall be no
Trustees in office, successor Trustees shall be elected by the Shareholders as
provided in Section 6.7.
2.5 Successor and Additional Trustees. [The] ANY right, title and
interest of the Trustees in and to the Trust Estate shall also vest in successor
and additional Trustees upon their qualification, and they shall thereupon have
all the rights and obligations of Trustees hereunder. [Such] ANY SUCH right,
title and interest
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shall vest in the Trustees, whether or not conveyance documents have been
executed and delivered pursuant to Section 2.3, or otherwise.
2.6 Actions by Trustees. A quorum for all meetings of the Trustees shall
be a majority of the Trustees. Common or interested Trustees may be counted in
determining the presence of a quorum at a meeting of the Trustees. Unless
specifically provided otherwise in this Declaration, the Trustees may act by a
vote or resolution at a meeting at which a quorum is present, or without a
meeting by a written vote, resolution, or other writing consenting to said
action, signed by [a majority of] the Trustees. Any agreement, deed, mortgage,
lease or other instrument or writing executed by one or more of the Trustees, or
by any authorized person, shall be valid and binding upon the Trustees and upon
the Trust when ratified by action of the Trustees.
2.7 Executive Committee. The Trustees may appoint from among their own
number an executive committee of two or more [persons] TRUSTEES to whom they may
delegate from time to time such of the powers [herein given to] OF the Trustees
as they may deem advisable.
2.8 Names [and Addresses] of Trustees [and Officers]. The names [and
addresses] of the Trustees [and officers] of the Trust on the date hereof are as
follows:
[Names of prior Trustees omitted.]
[Table]
[S] [C]
JEAN-MARC CHAPUS STEPHEN R. QUAZZO
BRUCE W. DUNCAN STUART M. ROTHENBERG
MADISON F. GROSE BARRY S. STERNLICHT
GEORGE J. MITCHELL RAYMOND S. TROUBH
ROGER S. PRATT
[/Table]
2.9 Non-Affiliated Trustees. Affiliates of the Advisor and of any
National Hotel Company may be Trustees; however, there shall at all times be at
least a majority of the Trustees who are not Affiliates of the Advisor or of any
National Hotel Company or Affiliates of such Affiliates. If at any time, by
reason of one or more vacancies, there shall not be at least a majority of such
Trustees who are not such Affiliates, then within sixty (60) days after such
vacancy occurs, the continuing Trustee or Trustees then in office shall
[appoint] ELECT, pursuant to Section 2.4, a sufficient number of other Persons
who are not such Affiliates so that there shall be at least a majority of such
Trustees in office.
ARTICLE III.
TRUSTEES' POWERS
3.1 Power and Authority of Trustees. The Trustees, subject only to the
specific limitations contained in this Declaration, shall have without further
or other authorization, and free from any power or control on the part of the
Shareholders, full, absolute and exclusive power, control and authority over the
Trust Estate and over the business and affairs of the Trust to the same extent
as if the Trustees were the sole owners thereof in their own right, and to do
all such acts and things as in their sole judgment and discretion are necessary
or incidental to, or desirable, for the carrying out of any of the purposes of
the Trust or conducting the business of the Trust. Any determination made in
good faith by the Trustees of the purposes of the Trust or the existence of any
power or authority hereunder shall be conclusive. In construing the provisions
of this Declaration, presumption shall be in favor of the grant of powers and
authority to the Trustees. The enumeration of any specific power or authority
herein shall not be construed as limiting the general powers or authority or any
other specified power or authority conferred herein upon the Trustees.
3.2 Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees without any
action or consent by the Shareholders shall have and may exercise at any time
and from time to time the following powers and authorities which may or may not
be exercised by them in their sole judgment and
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discretion and in such manner and upon such terms and conditions as they may
from time to time deem proper:
(a) To retain, invest and reinvest the capital or other funds of the Trust
in real or personal property of any kind, all without regard to whether any such
property is authorized by law for the investment of trust funds and to possess
and exercise all the rights, powers and privileges appertaining to the ownership
of the Trust Estate and to increase the capital of the Trust at any time by the
issuance of additional Shares for such consideration as they deem appropriate.
(b) For such consideration as they deem proper, to invest in, purchase or
otherwise acquire for cash or other property or through the issuance of Shares
or through the issuance of notes, debentures, bonds or other obligations of the
Trust and hold for investment the [entire] ENTIRETY of any participating
interest in notes, bonds, or other obligations which are secured by Mortgages.
In connection with any such investment, purchase or acquisition, the Trustees
shall have the power to acquire a share of rents, lease payments or other gross
income from or a share of the profits from or a share in the equity or ownership
of Real Property, either directly or through joint venture, general or limited
partnership, or other lawful combinations or associations; to invest in loans
secured by the pledge or transfer of mortgage obligations; to develop, operate,
pool, utilize, grant production payments out of or lease or otherwise dispose of
mineral, oil and gas properties and rights.
(c) To sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, pledge, hypothecate, grant security interests in, encumber, negotiate,
convey, transfer or otherwise dispose of any and all of the Trust Estate by
deeds, trust deeds, assignments, bills of sale, transfers, leases, mortgages,
financing statements, security agreements and other instruments for any of such
purposes executed and delivered for and on behalf of the Trust or the Trustees
by one or more of the Trustees or by a duly authorized officer, employee, agent
or any nominee of the Trust.
(d) To issue Shares, bonds, debentures, notes or other evidences of
indebtedness which may be secured or unsecured and may be subordinated to any
indebtedness of the Trust and may be convertible into Shares and which may
include options, warrants and rights to subscribe to, purchase or acquire any of
the foregoing, all without vote of or other action by the Shareholders to such
Persons for such cash, property or other consideration (including Securities
issued or created by, or interest in any Person) at such time or times and on
such terms as the Trustees may deem advisable and to list any of the foregoing
Securities issued by the Trust on any securities exchange and to purchase or
otherwise acquire, hold, cancel, reissue, sell and transfer any of such
Securities.
(e) To enter into leases, contracts, obligations, and other agreements for
a term extending beyond the term of office of the Trustees and beyond the
possible termination of the Trust or for a lesser term.
(f) To borrow money and give negotiable or non-negotiable instruments
therefor; to guarantee, indemnify or act as surety with respect to payment or
performance of obligations of third parties; to enter into other obligations on
behalf of the Trust; and to assign, convey, transfer, mortgage, subordinate,
pledge, grant security interests in, encumber or hypothecate the Trust Estate to
secure any of the foregoing.
(g) To lend money, whether secured or unsecured.
(h) To create reserve funds for any purpose.
(i) To incur and pay out of the Trust Estate any charges or expenses, and
disburse any funds of the Trust, which charges, expenses or disbursements are,
in the opinion of the Trustees, necessary or incidental to or desirable for the
carrying out of any of the purposes of the Trust or conducting the business of
the Trust, including, without limitation, taxes and other governmental levies,
charges and assessments, of whatever kind, or nature, imposed upon or against
the Trustees in connection with the Trust or the Trust Estate or upon or against
the Trust Estate or any part thereof, and for any of the purposes herein.
(j) To deposit funds of the Trust in banks, trust companies, savings and
loan associations and other depositories, whether or not such deposits will draw
interest, the same to be subject to withdrawal on such
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terms and in such manner and by such Person or Persons (including any one or
more Trustees, OR officers, agents or representatives) as the Trustees may
determine.
(k) To possess and exercise all the rights, powers and privileges
appertaining to the ownership of all or any Mortgages or Securities, issued or
created by, or interests in, any Person, forming part of the Trust Estate, to
the same extent that an individual might, and, without limiting the generality
of the foregoing, to vote or give any consent, request or notice, or waive any
notice, either in person or by proxy or power of attorney, with or without power
of substitution, to one or more Persons, which proxies and powers of attorney
may be for meetings or action generally or for any particular meeting or action,
and may include the exercise of discretionary powers.
(l) To cause to be organized or assist in organizing any Person under the
laws of any jurisdiction to acquire the Trust Estate or any part or parts
thereof or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate,
assign, exchange or transfer the Trust Estate or any part or parts thereof to or
with any such Person in exchange for the Securities thereof or otherwise, and to
lend money to, subscribe for the Securities of, and enter into any contracts
with, any such Person in which the Trust holds or is about to acquire Securities
or any other interest.
(m) To enter into joint ventures, general or limited partnerships and any
other lawful combinations or associations.
(n) To elect, appoint, engage or employ officers for the Trust (including a
President, Secretary, Treasurer and such Vice Presidents and other officers as
the Trustees may determine), who may be removed or discharged at the discretion
of the Trustees, such officers to have such powers and duties, and to serve such
terms, as may be prescribed by the Trustees or by the [Trustees' Regulations]
BYLAWS; to engage or employ any Persons (including, subject to the provisions of
Sections 7.5 and 7.6, any Trustee or officer and any Person in which any Trustee
or officer is directly or indirectly interested or with which he is directly or
indirectly connected) as agents, representatives, employees, or independent
contractors (including, without limitation, real estate advisors, investment
advisors, transfer agents, registrars, underwriters, accountants, attorneys at
law, real estate agents, managers, appraisers, brokers, architects, engineers,
construction managers, general contractors or otherwise) in one or more
capacities, and to pay compensation from the Trust for services in as many
capacities as such Person may be so engaged or employed; and, except as
prohibited by law, to delegate any of the powers and duties of the Trustees to
any one or more Trustees, agents, representatives, officers, employees,
independent contractors or other Persons. The Trustees may elect one of the
Trustees as Chairman, to preside at meetings of the Trustees and exercise such
other powers and duties as the Trustees may from time to time assign to him;
provided that the Chairman shall not be or act as an officer of the Trust.
(o) To determine whether moneys, Securities or other assets received by the
Trust shall be charged or credited to income or capital or allocated between
income and capital, including the power to amortize or fail to amortize any part
or all of any premium or discount, to treat any part [of] OR all of the profit
resulting from the maturity or sale of any asset, whether purchased at a premium
or at a discount, as income or capital, or apportion the same between income and
capital, to apportion the sales price of any asset between income and capital,
and to determine in what manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of the power and
authority conferred by this subsection such moneys, Securities or other assets
would be regarded as income or as capital or such expense or disbursement would
be charged to income or to capital; to treat any dividend or other distribution
on any investment as income or capital or apportion the same between income and
capital; to provide or fail to provide reserves for depreciation, amortization
or obsolescence in respect of all or any part of the Trust Estate subject to
depreciation, amortization or obsolescence in such amounts and by such methods
as they shall determine; and to determine the method or form in which the
accounts and records of the Trust shall be kept and to change from time to time
such method or form.
(p) To determine from time to time, the value of all or any part of the
Trust Estate and of any services, Securities, property or other consideration to
be furnished to or acquired by the Trust, and from
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time to time to revalue all or any part of the Trust Estate in accordance with
such appraisals or other information as are, in the Trustees' sole judgment,
necessary and/or satisfactory.
(q) To collect, sue for, and receive all sums of money coming due to the
Trust, and to engage in, intervene in, prosecute, join, defend, compound,
compromise, abandon or adjust, by arbitration or otherwise, any actions, suits,
proceeding, disputes, claims, controversies, demands or other litigation
relating to the Trust, the Trust Estate or the Trust's BUSINESS AND affairs, to
enter into agreements therefor, whether or not any suit is commenced or claim
accrued or asserted and, in advance of any controversy, to enter into agreements
regarding arbitration, adjudication or settlement thereof.
(r) To renew, modify, release, compromise, extend, consolidate, or cancel,
in whole or in part, any obligation to or of the Trust.
(s) To purchase and pay for out of the Trust Estate insurance contracts and
policies insuring the Trust Estate against any and all risks and insuring the
Trust and/or any or all of the Trustees, the Shareholders or officers against
any and all claims and liabilities of every nature asserted by any Person
arising by reason of any action alleged to have been taken or omitted by the
Trust or by the Trustees, Shareholders, or officers.
(t) To cause legal title to any of the Trust Estate to be held by and/or in
the name of the Trustees, or except as prohibited by law, by and/or in the name
of the Trust or one or more of the Trustees or any other Person, on such terms,
in such manner, with such powers in such Person as the Trustees may determine,
and with or without disclosure that the Trust or Trustees are interested
therein.
(u) To adopt a fiscal year for the Trust, and from time to time to change
such fiscal year.
(v) To adopt and use a seal (but the use of a seal shall not be required
for the execution of instruments or obligations of the Trust).
(w) To make, perform, and carry out, or cancel and rescind, contracts of
every kind for any lawful purpose without limit as to amount, with any person,
firm, trust, association, corporation, municipality, county, parish, state,
territory, government or other municipal or governmental subdivision. These
contracts shall be for such duration and upon such terms as the Trustees in
their sole discretion shall determine.
(x) To do all other such acts and things as are incident to the foregoing,
and to exercise all powers which are necessary or useful to carry on the
business of the Trust, to promote any of the purposes for which the Trust is
formed, and to carry out the provisions of this Declaration.
3.3 [Trustees Regulations] BYLAWS. The Trustees may make, adopt, amend or
repeal regulations (the ["Trustees' Regulations")] "BYLAWS") containing
provisions relating to the business of the Trust, the conduct of its BUSINESS
AND affairs, its rights or powers and the rights or powers of its Shareholders,
Trustees or officers not inconsistent with law or with this Declaration.
3.4 Additional Powers. The Trustees shall additionally have and MAY
exercise all the powers conferred by the laws of the State of Maryland upon real
estate investment trusts formed under such laws, insofar as such laws are not in
conflict with the provisions of this Declaration.
3.5 Incorporation. With the approval of the holders of a majority of the
[shares] SHARES ENTITLED TO VOTE IN THE MATTER, the Trustees may cause to be
organized or assist in organizing a corporation or corporations under the laws
of any jurisdiction or any other trust, partnership, association, or other
[organization] PERSON to take over the Trust property or any part or parts
thereof or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
property or any part or parts thereof to any such corporation, trust,
association, or [organization] OTHER PERSON in exchange for the shares or
securities thereof or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
association, or [organization] OTHER PERSON, or any corporation, trust,
partnership, association, or [organization] OTHER PERSON in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto and
any such corporation, TRUST,
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ASSOCIATION OR OTHER PERSON if and to the extent permitted by law, provided that
under the law then in effect, the federal income tax benefits available to Real
Estate Investment Trusts, or substantially similar benefits, are also available
to such corporation, trust, association or [organization] OTHER PERSON.
ARTICLE IV.
ADVISOR; LIMITATION ON OPERATING EXPENSES
4.1 Employment of Advisor. The Trustees are responsible for the general
policies of the Trust and for such general supervision of the business AND
AFFAIRS of the Trust conducted by all officers, agents, employees, advisors,
managers or independent contractors of the Trust as may be necessary to insure
that such business [conforms to the provisions of] AND AFFAIRS CONFORM TO this
Declaration. However, the Trustees shall not be required personally to conduct
the business AND AFFAIRS of the Trust, and consistent with their ultimate
responsibility as stated above, the Trustees shall have the power to appoint,
employ or contract with such Person or Persons (including one or more of
themselves or any corporation, partnership, [or] trust OR OTHER PERSON in which
one or more of them may be directors, officers, stockholders, partners or
trustees) as the Trustees may deem necessary or proper for the transaction of
the business AND AFFAIRS of the Trust. The Trustees may therefor employ or
contract with such Person (herein referred to as the "Advisor") as an investment
adviser and administrator of the affairs of the Trust and may grant or delegate
such authority to the Advisor as the Trustees may in their sole discretion deem
necessary or desirable without regard to whether such authority is normally
granted or delegated by Trustees.
The Trustees shall have the power to determine the terms and compensation
of the Advisor or any other Person whom they may employ or with whom they may
contract; provided, however, that any determination to employ or contract with
any Trustee or any Person in which a Trustee may be a director, officer,
stockholder, partner, employee or trustee, shall be valid only if made, approved
or ratified by a majority of the other Trustees. The Trustees may exercise broad
discretion in allowing the Advisor to administer and regulate the operations of
the Trust, to act as agent for the Trust, to execute documents on behalf of the
Trustees, and to make executive decisions which conform to general policies and
general principles previously established by the Trustees.
4.2 Term. The Trustees shall not enter into any contract with the Advisor
unless such contract has an initial term [expiring at the end of the Trust's
fiscal year commencing in 1971] OF ONE YEAR and provides for annual renewal or
extension thereafter. The Trustees shall not enter into such a contract with any
Person unless such contract provides for renewal or extension thereof only by
the affirmative vote of a majority of the [other Trustees] TRUSTEES WHO ARE NOT
AFFILIATED WITH THE ADVISOR. Any such contract shall provide that it may be
terminated (a) by the Trust upon sixty (60) days' written notice by unanimous
vote of the Trustees who are not affiliated with the Advisor, (b) by the Advisor
upon one hundred twenty (120) days' written notice by unanimous vote of the
directors of the Advisor who are not Trustees or (c) by the holders of more than
a majority of the shares of the Trust ENTITLED TO VOTE ON THE MATTER.
4.3 Restrictions on Advisor. The Advisor may administer the Trust as its
sole and exclusive function or engage in other activities including the
rendering of advice to other investors and the management of other investments.
The Advisor shall not, however, without prior written consent of a majority of
the Trustees, render advice or service to any other Real Estate Investment
Trust, except that the Advisor may, with respect to any loan or other investment
in which the Trust may participate or allot a participation, render advice and
service, with or without remuneration, to each and every participant in such
loan or other investment.
4.4 Limitation on Operating Expenses. Each contract made with the Advisor
shall provide that, within 120 days after the end of any Fiscal Year which
begins on a date following the effective date of the Trust's first Registration
Statement filed under the Securities Act of 1933, the Advisor will refund to the
Trust (or, at the election of the Trustees, reduce its compensation payable by)
(A) the amount, if any, by which the Operating Expenses of the Trust during such
Fiscal Year exceed the lesser of (a) 1.2% of the Average Value of Invested
Assets for such Fiscal Year or (b) the greater of (i) 1.2% of the Month-end
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Average Net Assets of the Trust for such Fiscal Year or (ii) 25% of the Net
Income of the Trust for such Fiscal Year and (B) the amount, if any, by which
the aggregate of fees and expenses (including travel expenses and other
out-of-pocket expenses) paid to Trustees who are not affiliates of the Advisor
and expenses of the type referred to in clause (m) of the definition of
Operating Expenses contained in this Section 4.4 during such Fiscal Year
exceeded 0.3% of the Average Value of Invested Assets for such Fiscal Year.
For purposes of this Section 4.4 the following terms shall have the
meanings set forth below:
(a) "Average Value" for any period shall mean the arithmetic average of the
aggregate Value of the assets reflected in the computation at the close of the
last business day of each month during the period to which such computation
relates.
(b) "Average Value of Invested Assets" shall mean the Average Value of the
Trust's total assets (without deduction of any liabilities) plus the undisbursed
commitments of the Trust in respect of closed loans or other closed investments,
but excluding good will and other intangible assets, cash, cash items and
obligations of municipal, state and the federal governments and governmental
agencies (other than obligations secured by a lien on real property owned, or to
be acquired, by such governments or governmental agencies and securities of the
Federal Housing Administration, the Federal National Mortgage Administration,
and other governmental agencies issuing securities backed by a pool of
mortgages).
(c) "Value" of an asset or assets shall mean the value of such asset or
assets on the books of the Trust, reduced by provision for amortization,
depreciation or depletion but before deducting any indebtedness or other
liability in respect thereof. Depreciable assets shall be valued at the lesser
[or] OF fair market value (in the judgment of the Trustees) or cost less
straight line depreciation.
(d) "Fiscal Year" shall mean any period for which an income tax return is
submitted to the Internal Revenue Service and which is treated by the Internal
Revenue Service as a reporting period.
(e) "Net Income" for any period shall mean the net income of the Trust for
such period computed on the basis of its results of operations for such period,
after deduction of all expenses other than the regular, incentive and additional
compensation payable to the Advisor or fees payable to any mortgage service, and
excluding extraordinary items and gains and losses from the disposition of
assets of the Trust.
(f) "Month-End Average Net Assets" shall mean the Average Value of all the
assets of the Trust minus all the liabilities of the Trust reflected in the
computation at the close of each month during the period to which such
computation relates.
(g) "Operating Expenses" during any Fiscal Year shall mean the aggregate
annual expenses of every character regarded as operating expenses in accordance
with generally accepted accounting principles, as determined by the independent
public or certified accountants who shall have reported on the financial
statements of the Trust at the end of and for such Fiscal Year but excluding:
[(a)](1) interest, discount and other costs of borrowed money;
[(b)](2) taxes on income and taxes and assessments on real property
and all other taxes (including license fees) applicable to the Trust;
[(c)](3) legal, audit, accounting, underwriting, brokerage, listing,
registration and other fees, printing, engraving and other expenses and
taxes incurred in connection with the issuance, distribution, transfer,
registration and stock exchange listing of the Trust's securities;
[(d)](4) fees and expenses (including travel expenses and other
out-of-pocket expenses) paid to Trustees (other than fees paid to Trustees
who are affiliates of the Advisor), independent contractors, consultants,
managers, closing and disbursement agents, and other agents employed by or
on behalf of the Trust (other than the Advisor);
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[(e)](5) expenses connected with the acquisition, disposition and
ownership of real estate interests or mortgage loans or other property
(including the costs of closing, foreclosure, insurance premiums, legal
services, brokerage and sales commissions, maintenance, repair and
improvement of property);
[(f)](6) expenses of maintenance, up-keep and management of real
estate equity interests and processing and servicing mortgage, construction
and other loans;
[(g)](7) insurance as required by the Trustees (including Trustees'
liability insurance);
[(h)](8) the expenses of organizing, revising, amending, converting,
modifying or terminating the Trust;
[(i)](9) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the
Trustees to holders of securities of the Trust;
[(j)](10) all expenses connected with communications to holders of
securities of the Trust and the other bookkeeping and clerical work
necessary in maintaining relations with holders of securities, including
the cost of printing and mailing certificates for securities and proxy
solicitation materials and reports to holders of the Trust's securities;
[(k)](11) the cost of any accounting, statistical, or bookkeeping
equipment necessary for the maintenance of the books and records of the
Trust;
[(l)](12) transfer agent's, registrar's and indenture trustee's fees
and charges;
[(m)](13) legal, accounting and auditing fees and expenses incurred in
connection with the administration and operation of the business of the
Trust in the ordinary course of its business and not included in clauses
[(a)](1) through [(1)](12) of this definition; and
[(n)](14) depletion, depreciation, amortization and losses on
disposition of investments and reserves therefor.
All calculations made in accordance with this Section 4.4 shall be based
upon statements (which may be unaudited, except as provided herein) prepared on
an accrual basis consistent with generally accepted accounting principles,
regardless of whether the Trust may also prepare statements on a different
basis.
4.5 [Initial Advisor. Hotel Advisors, Inc. shall serve as the initial
Advisor. 4.6] Sale of Shares of the Advisor. Any advisory agreement entered
into by the Trustees with an Advisor shall contain, among other provisions, a
provision permitting any transfer, directly or indirectly, of securities of the
Advisor without the consent of the Trust or its shareholders and a waiver to the
fullest extent permitted by law of any rights which the Trust or its
shareholders might have to any income or profits realized on any such direct or
indirect transfer by the transferor of such securities. By purchasing Shares of
the Trust, each shareholder shall be deemed to have consented to any such
transfer and to have expressly and irrevocably waived any interest in or rights
to any such income or profits. Such waiver shall not be effective as to any
transfer of a majority of the voting stock of the Advisor unless such transfer
shall have been consented to by the holders of a majority of the Shares of the
Trust ENTITLED TO VOTE ON THE MATTER.
ARTICLE V.
INVESTMENT POLICY
5.1 General Statement of Policy. The Trust has been established to
provide investors with the opportunity to invest in a portfolio of Real Property
Investments consisting primarily of Long-Term Mortgage Loans with Equity
Participations and Equity Investments in Real Property made in transactions not
relating to the Trust's lending activities. The Trust may also make Construction
Loans primarily in connection with Long-Term Real Property Investments. It is
the policy of the Trust to concentrate its Real Property Investments in the
Accommodations Field; however, other types of income producing Real Property
Investments may be made by the Trust if, in the opinion of the Trustees, such
investments are more advantageous to the Trust than available Real Property
Investments in the Accommodations Field.
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In addition to the foregoing the Trust is empowered to make any other
investment or engage in any other activity which does not adversely affect the
Trust's status as a [real estate investment trust] REAL ESTATE INVESTMENT TRUST
under the REIT Provisions of the Internal Revenue Code. In each case the
Trustees may make the Trust's investments or engage in an activity alone or in
participation with others, including the granting of Senior Participations to
other lenders.
5.2 [[Deleted.] 5.3 [Deleted.] 5.4] Obligor's Default. Notwithstanding
any provision of this Declaration, when an obligor to the Trust is in default
under the terms of any obligation to the Trust, the Trustees shall have the
power to pursue any remedies permitted by law which in their sole judgment are
in the interest of the Trust, and the Trustees shall have the power to enter
into any necessary investment, commitment or obligation of the Trust which
results from the pursuit of such remedies or which is necessary or desirable to
dispose of property acquired in the pursuit of such remedies.
[5.5]5.3 Changes Investment Policies and Restrictions. Notwithstanding
the foregoing provisions of this Article 5, the investment policies and the
restrictions thereon set forth in Sections 5.1 through [5.6] 5.3 of this
Declaration may be altered or modified by the Trustees, or additional or
substitute policies or restrictions may be adopted by the Trustees if they shall
determine, and so specify in a duly adopted resolution, that the alteration or
modification of such policies or restrictions or the adoption of additional or
substitute policies or restrictions are in the best interests of the Trust and
its Shareholders and are not prohibited by the [Real Estate Investment Trust
provisions] REIT PROVISIONS of the Internal Revenue Code and no consent or
approval of, or other action by, Shareholders shall be required for any such
alteration, modification or adoption. Any policy or restriction altered,
modified, or adopted pursuant to this Section [5.8] 5.3 shall be subject to
subsequent alteration or modification only with the consent of Shareholders
holding a majority of the outstanding Shares entitled to vote on such alteration
or modification if the Trustees shall so specify in the resolution adopted with
respect to such policy or restriction. Any resolution adopted by the Trustees
pursuant to this Section [5.8] 5.3 shall be recorded within the State of
Maryland in such public offices as this Declaration and any amendments hereto
shall have been recorded in accordance with Section 9.8 of this Declaration.
[5.6 [Deleted.]]
ARTICLE VI.
THE SHARES AND SHAREHOLDERS
6.1 Shares. The [units into which the] beneficial [interests] INTEREST in
the Trust [will be] IS divided [shall be designated as] INTO Shares consisting
ONLY of (a) [1,000,000,000 Trust] 5,000 CLASS A 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] THE RIGHTS PROVIDED IN THIS ARTICLE VI,
(b) 1,000,000,000 CLASS B Shares with a par value of $0.01 per share and having
the rights provided in THIS Article VI [hereof], (c) [100 million] 200,000,000
EXCESS Trust [Preferred] Shares with a par value of $0.01 per share and having
the rights provided in THIS Article VI [hereof and (d) 50,000,000 Excess], (d)
30,000,000 CLASS A EXCHANGEABLE Preferred Shares with a par value of $0.01 per
share and having the rights provided in [Article VI hereof,] THIS ARTICLE VI,
(e) 15,000,000 CLASS B EXCHANGEABLE PREFERRED SHARES WITH A PAR VALUE OF $0.01
PER SHARE AND HAVING THE RIGHTS PROVIDED IN THIS ARTICLE VI, (f) 45,000,000
TRUST PREFERRED SHARES WITH A PAR VALUE OF $0.01 PER SHARE AND HAVING SUCH
RIGHTS AS ARE SPECIFIED BY THE TRUSTEES PURSUANT TO THE PROVISO TO THIS SENTENCE
AND (g) 50,000,000 EXCESS PREFERRED SHARES WITH A PAR VALUE OF $0.01 PER SHARE
AND HAVING THE RIGHTS PROVIDED IN ARTICLE VI HEREOF; provided, however, that the
Trustees may, in their discretion, [create and authorize the issuance of]
CLASSIFY OR RECLASSIFY ANY UNISSUED 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] CLASS, BY
SETTING OR CHANGING THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS,
LIMITATIONS AS TO DIVIDENDS OR DISTRIBUTIONS, QUALIFICATIONS, OR TERMS OR
CONDITIONS OF REDEMPTION, as shall not be prohibited by this Declaration or the
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[Real Estate Investment Trust provisions] REIT 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]
ARTICLES SUPPLEMENTARY 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] CLASS A SHARES, CLASS B Shares, Excess Trust Shares, CLASS A
EXCHANGEABLE PREFERRED SHARES, CLASS B EXCHANGEABLE PREFERRED 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] BYLAWS. 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
canceled and restored to the status of] CONSTITUTE authorized [and] BUT unissued
Shares UNLESS OTHERWISE PROVIDED 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 is sued 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] BYLAWS.
6.2 Legal Ownership of Trust Estate. The legal ownership of the Trust
Estate and the right to conduct the business AND AFFAIRS of the Trust are vested
exclusively in the Trustees and the Shareholders shall have no interest therein
other than beneficial interest in the Trust conferred by their Shares issued
hereunder and they shall have no right to compel any partition, division,
dividend or distribution of the Trust or any of the Trust Estate.
6.3 Shares Deemed Personal Property. The Shares shall be personal
property and shall confer upon the holders thereof only the interest and rights
specifically set forth in this Declaration. The death, insolvency or incapacity
of a Shareholder shall not dissolve or terminate the Trust or affect its
continuity nor give his legal representative any rights whatsoever, whether
against or in respect of other Shareholders, the Trustees or the Trust Estate or
otherwise except the sole right to demand and, subject to the provisions of this
Declaration, the [Trustees' Regulations] BYLAWS and any requirements of law, to
receive a new certificate for Shares registered in the name of such legal
representative, in exchange for the certificate held by such Shareholder.
6.4 Share Record: Issuance and Transferability Shares. Records shall be
kept by or on behalf of and under the direction of the Trustees, which shall
contain the names and addresses of the Shareholders, the number of Shares held
by them respectively, and the numbers of the certificates representing the
Shares, and in which there shall be recorded all transfers of Shares.
Certificates shall be issued, listed and transferred in accordance with the
[Trustees, Regulations] BYLAWS. The Persons in whose names certificates are
registered on the records of the Trust shall be deemed the absolute owners of
the [shares] SHARES represented thereby for all purposes of this Trust; but
nothing herein shall be deemed to preclude the Trustees or officers, or their
agents or representatives, from inquiring as to the actual ownership of Shares.
Prior to due presentment for registration of transfer, the Trustees shall not be
affected by any notice of such transfer, either actual or constructive. The
receipt by the person in whose name any Shares are registered on the records of
the Trust or of the duly authorized agent of such Person, or if such Shares are
so registered in the names of more than one Person, the receipt of any one of
such Persons, or of the duly
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authorized agent of such Person, shall be a sufficient discharge for all
dividends or distributions payable or deliverable in respect of such Shares and
from all liability to see to the application thereof.
Shares shall be transferable on the records of the Trust only by the record
holder thereof or by his agent thereunto duly authorized in writing upon
delivery to the Trustees or a transfer agent of the certificate or certificates
therefor, properly endorsed or accompanied by duly executed instruments of
transfer and accompanied by all necessary documentary stamps together with such
evidence of the genuineness of each such endorsement, execution or authorization
and of other matters as may reasonably be required by the Trustees or such
transfer agent. Upon such delivery, the transfer shall be recorded in the
records of the Trust and a new certificate for the Shares so transferred shall
be issued to the transferee and in case of a transfer of only a part of the
Shares represented by any certificate, a new certificate for the balance shall
be issued to the transferor. Any Person becoming entitled to any Shares in
consequence of the death of a Shareholder or otherwise by operation of law shall
be recorded as the holder of such Shares and shall receive a new certificate
therefor but only upon delivery to the Trustees or a transfer agent of
instruments and other evidence required by the Trustees or the transfer agent to
demonstrate such entitlement, the existing certificate for such Shares and such
necessary releases from applicable governmental authorities. In case of the
loss, mutilation or destruction of any certificate for Shares, the Trustees may
issue or cause to be issued a replacement certificate on such terms and subject
to such rules and regulations as the Trustees may from time to time prescribe.
Nothing in this Declaration shall impose upon the Trustees or a transfer agent a
duty or limit their rights to inquire into adverse claims.
6.5 Dividends or Distributions to Shareholders. The Trustees may from
time to time [declare] AUTHORIZE and THE TRUST MAY pay to Shareholders such
dividends or 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 sale of portions of the Trust
Estate or from any other source as the Trustees in their discretion shall
determine. Shareholders shall have no right to any dividend or distribution
unless and until [declared] AUTHORIZED by the Trustees. The Trustees shall
furnish the Shareholders at the time of each such distribution with a statement
in writing advising as to the source of [the] funds so distributed or, if the
source [thereof] THEREON has not then been determined, the communication shall
so state and in such event the statement as to such source shall be sent to the
Shareholders not later than sixty (60) days after she the close of the fiscal
year in which the distribution was made.
6.6 Transfer Agent, Dividend Distributing Agent and Registrar. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents and registrars and to authorize them on behalf of the Trust to
keep records, to hold and disburse any dividends and distributions, and to have
and perform in respect of all original issues and transfers of Shares, dividends
and distributions and reports and communications to Shareholders, the powers and
duties usually had and performed by transfer agents, dividend disbursing agents
and registrars of a Maryland corporation.
6.7 Shareholders' Meeting. There shall be an [Annual Meeting] ANNUAL
MEETING of the Shareholders (THE "ANNUAL MEETING OF SHAREHOLDERS") which shall
be held at the principal office of the Trust, or at such other convenient
location as may be determined by the Trustees or by the written consent of all
Shareholders entitled to vote thereat, at such time as the Trustees shall
determine, at which the Trustees shall be elected and any other proper business
may be conducted. The Annual Meeting OF SHAREHOLDERS shall be held after
delivery to the Shareholders of the Annual Report. At least ten (10) days and
not more than forty (40) days notice shall be given of the time and place of the
Annual Meeting of the Shareholders. Special meetings of Shareholders may be
called by the Trustees and shall be called upon the written request of
Shareholders holding not less than twenty-five percent (25%) of the outstanding
Shares of the Trust entitled to vote in the manner provided in the [Trustees'
Regulations] BYLAWS. If there shall be no Trustees, the officers of the Trust
shall promptly call a special meeting of the Shareholders for the election of
successor Trustees. Notice of any special meeting shall state the purposes of
the meeting. [A] HOLDERS OF A majority of the outstanding Shares entitled to
vote at any meeting represented in person or by proxy shall constitute a quorum
at any such meeting. Whenever any action is to be taken by the Shareholders,
such action shall, except as otherwise required by this Declaration or by law,
be authorized by a majority of the votes cast at a meeting of Shareholders by
holders of Shares entitled to vote thereon.
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Notwithstanding anything in this Declaration to the contrary, the Trust shall
not consummate a merger, the shareholder approval of which is required by the
applicable [law] LAWS, unless such transaction is approved by the shareholders
by the affirmative vote of a majority of all the votes entitled to be cast on
the matter.
The affirmative vote at a meeting of Shareholders of the holders of a
majority of all outstanding Shares ENTITLED TO VOTE ON THE MATTER shall be
required to approve the principal terms of the transaction and the nature and
amount of the consideration involving any sale, lease, exchange or other
disposition of more than 50% of the Trust Estate. Whenever Shareholders are
required or permitted to take any action, such action may be taken without a
meeting on written consent setting forth the action so taken, signed by the
holders of a majority of all outstanding Shares entitled to vote thereon, or
such larger proportion thereof as would be required for a vote of Shareholders
at a meeting. The vote or consent of Shareholders shall not be required for the
pledging, hypothecating, granting security interest in, mortgaging, or
encumbering of all or any of the Trust Estate, or for the sale, lease, exchange
or other disposition of less than 50% of the Trust Estate.
6.8 Proxies. Whenever the vote or consent of Shareholders is required or
permitted under this Declaration, such vote or consent may be given [either
directly] by the Shareholder EITHER DIRECTLY or to a proxy in the form
prescribed in the [Trustees Regulations,] BYLAWS. The Trustees may solicit such
proxies from the Shareholders or any of them in any manner requiring or
permitting the Shareholders' vote or consent.
6.9 Reports to Shareholders. Not later than ninety (90) days after the
close of each fiscal year of the Trust, the Trustees shall mail a report of the
business and operation of the Trust during such fiscal year to the Shareholders,
which report shall constitute the accounting of the Trustees for such fiscal
year. The report (herein "Annual Report") shall be in such form and have such
content as the Trustees deem proper. The Annual Report shall include a balance
sheet and a statement of income and surplus of the Trust. Such financial
statement shall be accompanied by a certificate of an independent certified
public accountant thereon, based on a full examination of the books and records
of the Trust and made in accordance with generally accepted auditing procedure.
A manually signed copy of the accountant's certificate shall be filed with the
Trustees. A signed copy of the Annual Report and accountant's certificate shall
be filed with the STATE Department of Assessments and Taxation [of the State] of
Maryland within ninety (90) days after the close of each fiscal year.
6.10 Fixing Record Date. The [Trustees' Regulations] BYLAWS may provide
for fixing or, in the absence of such provision, the Trustees may fix, in
advance, a date as the record date for determining the Shareholders entitled to
notice of or to vote at any meeting of Shareholders or to express consent to any
proposal without a meeting, or for the purpose of determining Shareholders
entitled to receive payment of any dividend or distribution (whether before or
after termination of the Trust) or any Annual Report or other communication from
the Trustees, or for any other purpose. The record date so fixed shall be not
less than five (5) days nor more than fifty (50) days prior to the date of the
meeting or event for the purposes of which it is fixed.
6.11 Notice to Shareholders. Any notice of meeting or other notice,
communication or report to any Shareholder shall be deemed duly delivered to
such Shareholder when such notice, communication or report is deposited, with
postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Trust or is
delivered in person to such Shareholder.
6.12 Restrictions on Transfer.
(a) Definitions. The following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Shares by a Person who
would be treated as an owner of such Shares directly, indirectly or
constructively through the application of Section 318(a) of the Code, as
modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as
modified by Section 856(h) of the Code. The terms "Beneficial Owner",
"Beneficially Owns" and "Beneficially Owned" shall have correlative
meanings.
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"Charitable Beneficiary" shall mean the organization or organizations
described in Section 170(c)(2) and 501(c)(3) of the Code selected by the
Excess Share Trustee.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Excess Shares" shall mean the Excess Trust Shares and the Excess
Preferred Shares.
"Excess Share Trust" shall mean the trust created pursuant to Section
6.13 hereof.
"Excess Share Trust Beneficiary" shall mean a beneficiary of the
Excess Share Trust as determined pursuant to Section 6.13 hereof.
"Excess Share Trustee" shall mean Nina Matis or any successor
appointed pursuant to Section 6.13 hereof.
"Market Price" of any class of Shares on any date shall mean the
average of the Closing Price for the five (5) consecutive trading days
ending on such date, or if such date is not a trading date, the five
consecutive trading days preceding such date. The "Closing Price" on any
date shall mean (i) the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange, or (ii) if such
class of Shares is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which such class of Shares is listed or admitted to
trading, or (iii) if such class of Shares is not listed or admitted to
trading on any national securities exchange, the last quoted price, or if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is
no longer in use, the principal other automated quotations system that may
then be in use, or (iv) if such class of Shares is not quoted by any such
organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in such class of Shares
selected by the Trustees.
"Ownership Limit" shall mean (i) in the case of a Person other than an
Existing Holder (as defined below) Beneficial Ownership of more than eight
percent (8.0%), by value, vote or number, of the Shares and (ii) in the
case of a Person who or which was the Beneficial Owner, as of February 1,
1995 (the "Amendment Date"), of more than 8.0% (by vote, value or number)
of the Shares (any such Person being referred to as an "Existing Holder"),
a percentage (by vote, value or number) equal to the lesser of (a) 9.9% and
(b) the percentage of Shares Beneficially Owned by such Existing Holder as
of the Amendment Date; provided, that if, at any time and from time to time
after the Amendment Date, the percentage of Shares Beneficially Owned by an
Existing Holder shall decrease (whether by reason of a disposition by such
Existing Holder, an increase in the number of outstanding Shares or
otherwise), then from and after the time of such decrease the Ownership
Limit in the case of such Existing Holder shall be a percentage (by vote,
value or number) equal to the greater of (x) 8.0% and (y) the percentage of
Shares Beneficially Owned by such Existing Holder after giving effect to
such decrease.
"Purported Beneficial Holder" shall mean, with respect to any event
(other than a purported Transfer) which results in Excess Shares, the
Person for whom the Purported Record Holder held Shares that were, pursuant
to Section 6.12(c) hereof, automatically converted into Excess Shares upon
the occurrence of such event.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, the purported beneficial
transferee for whom the Purported Record Transferee would have acquired
Shares if such Transfer had been valid under Section 6.12(b) hereof.
"Purported Record Holder" shall mean, with respect to any event (other
than a purported Transfer) which results in Excess Shares, the record
holder of the Shares that were, pursuant to
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Section 6.12(c) hereof, automatically converted into Excess Shares upon the
occurrence of such event.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, the record holder of the
Shares if such Transfer had been valid under Section 6.12(b) hereof.
"Restriction Termination Date" shall mean the first day of the taxable
year for which the Trustees have determined to terminate the Trust's status
as a REIT.
"Transfer" shall mean any sale, transfer, gift, hypothecation, pledge,
assignment, devise or other disposition of Shares (including (i) the
granting of any option or interest similar to an option (including an
option to acquire an option or any series of such options) or entering into
any agreement for the sale, transfer or other disposition of Shares or (ii)
the sale, transfer, assignment or other disposition of any securities or
rights convertible into or exchangeable for Shares), whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. For purposes of this definition, whether
securities or rights are convertible or exchangeable for Shares shall be
determined in accordance with Sections 318 and 544 of the Code.
(b) Restrictions of Transfers and Other Events. On or after the Restriction
Termination Date, the provisions of Sections 6.12 and 6.13 hereof shall be of no
further force and effect. Prior to the Restriction Termination Date and except
as provided in Section 6.12(i) hereof:
(1) No Person shall Beneficially Own Shares in excess of the Ownership
Limit;
(2) Any Transfer that, if effective, would result in any Person
Beneficially Owning Shares in excess of the Ownership Limit shall be void
ab initio as to the Transfer of that number of Shares which would be
otherwise Beneficially Owned by such Person in excess of the Ownership
Limit and the intended transferee shall acquire no rights in such Shares in
excess of the Ownership Limit;
(3) Any Transfer that, if effective, would result in the Shares being
Beneficially Owned by fewer than one hundred (100) Persons (determined
without reference to any rules of attribution) shall be void ab initio and
the intended transferee shall acquire no rights in such Shares; and
(4) Any Transfer of Shares that, if effective, would result in the
Trust being "closely held" within the meaning of Section 856(h) of the Code
shall be void ab initio as to the Transfer of that number of Shares which
would cause the Trust to be "closely held" within the meaning of Section
856(h) of the Code and the intended transferee shall acquire no rights in
such Shares.
(c) Conversion into Excess Shares.
(1) If, notwithstanding the other provisions contained in this Article
VI, at any time prior to the Restriction Termination Date, there is a
purported Transfer or other event such that any Person would Beneficially
Own Shares in excess of the Ownership Limit, then, except as otherwise
provided in Section 6.12(i) hereof, such Shares which would be in excess of
the Ownership Limit (rounded up to the nearest whole share), shall
automatically be converted into that number of shares of Excess Trust
Shares or Excess Preferred Shares, as appropriate, equal to the number of
Shares being converted, as further described in Section 6.12(c)(3) hereof.
Such conversion shall be effective as of the close of business on the
business day prior to the date of the Transfer or other event.
(2) If, notwithstanding the other provisions contained in this Article
VI, at any time prior to the Restriction Termination Date, there is a
purported Transfer or other event which, if effective, would cause the
Trust to become "closely held" within the meaning of Section 856(h) of the
Code, then the Shares being Transferred or which are otherwise affected by
such event and which, in either case, would cause, when taken together with
all other Shares, the Trust to be "closely held" within the meaning of
Section 856(h) of the Code (rounded up to the nearest whole share) shall
automatically be converted into that number of Excess Trust Shares or
Excess Preferred Shares, as appropriate, equal to the number of Shares
being converted, as further described in Section 6.12(c)(3) hereof.
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Such conversion shall be effective as of the close of business on the
business day prior to the date of the Transfer or change in capital
structure.
(3) Upon conversion of Trust Shares or Preferred Shares into Excess
Shares pursuant to this Section 6.12(c), Trust Shares shall be converted
into Excess Trust Shares and Preferred Shares shall be converted in Excess
Preferred Shares.
(d) Remedies for Breach. If the Trustees or their designees shall at any
time determine in good faith that a purported Transfer or other event has taken
place in violation of Section 6.12(b) hereof or that a Person intends to acquire
or has attempted to acquire Beneficial Ownership of any Shares in violation of
Section 6.12(b) hereof, the Trustees or their designees may take such action as
they deem advisable to refuse to give effect to or to prevent such Transfer or
other event, including, but not limited to, refusing to give effect to such
Transfer or other event on the books of the Trust or instituting proceedings to
enjoin such Transfer or other event or transaction; provided, however, that any
Transfers or attempted Transfers (or, in the case of events other than a
Transfer, Beneficial Ownership) in violation of Section 6.12(b) hereof shall be
void ab initio and automatically result in the conversion described in Section
6.12(c)(3) hereof, irrespective of any action (or non-action) by the Trustees or
their designees.
(e) Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire Shares in violation of Section 6.12(b) hereof, or any Person who is a
purported transferee such that Excess Shares result under Section 6.12(c)
hereof, shall immediately give written notice to the Trust of such Transfer,
attempted Transfer or other event and shall provide to the Trust such other
information as the Trust may request in order to determine the effect, if any,
of such Transfer or attempted Transfer or other event on the Trust's status as a
REIT.
(f) Owners Required to Provide Information. Prior to the Restriction
Termination Date:
(1) Every Beneficial Owner of five percent (5%) or more, by vote,
value or number, or such lower percentages as required pursuant to
regulations under the Code, of the outstanding Shares shall, before January
30 of each year, give written notice to the Trust stating the name and
address of such Beneficial Owner, the general ownership structure of such
Beneficial Owner, the number of shares of each class of Shares Beneficially
Owned, and a description of how such Shares are held.
(2) Each Person who is a Beneficial Owner of Shares and each Person
(including the shareholder of record) who is holding Shares for a
Beneficial Owner shall provide on demand to the Trust such information as
the Trust may request from time to time in order to determine the Trust's
status as a REIT and to ensure compliance with the Ownership Limit and the
REIT requirements of the Code and the regulations published thereunder.
(g) Remedies Not Limited. Subject to Section 6.12(l) hereof, nothing
contained in this Article VI shall limit the authority of the Trustees to take
such other action as they deem necessary or advisable to protect the Trust and
the interests of its Shareholders by preservation of the Trust's status as a
REIT and to ensure compliance with the Ownership Limit.
(h) Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Section 6.12 or Section 6.13, including any definition
contained in Section 6.12(a) hereof, the Trustees shall have the power to
determine the application of the provisions of this Section 6.12 and Section
6.13 with respect to any situation based on the facts known to them.
(i) Exception. The Trustees 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 Ownership Limit if
the Trustees obtain such representations and undertakings from such Person as
are reasonably necessary to ascertain that such Person's Beneficial Ownership of
Shares will not jeopardize the Trust's status as a REIT.
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(j) Legend. Until the Restriction Termination Date, each certificate for
the respective class of Shares shall bear the following legend:
The Shares represented by this certificate are subject to restrictions
on transfer. Unless excepted by the Trustees, no Person may (1)
Beneficially Own Shares in excess of 8.0% of the outstanding Shares, by
value, vote or number, determined as provided in the Trust's Declaration of
Trust, as the same may be amended from time to time (the "Declaration"),
and computed with regard to all outstanding Shares and, to the extent
provided by the Code, all Shares issuable under existing options and
exchange rights that have not been exercised; or (2) Beneficially Own
Shares which would result in the Trust being "closely held". Unless so
excepted, any acquisition of Shares and continued holding of ownership
constitutes a continuous representation of compliance with the above
limitations, and any Person who attempts to Beneficially Own Shares in
excess of the above limitations has an affirmative obligation to notify the
Trust immediately upon such attempt. If the restrictions on transfer are
violated, the transfer will be void ab initio and the Shares represented
hereby will be automatically converted into Excess Shares that will be held
in trust. Excess Shares may not be transferred at a profit and may be
purchased by the Trust. In addition, certain Beneficial Owners must give
written notice as to certain information on demand and on an annual basis.
All terms not defined in this legend have the meanings provided in the
Declaration. The Trust will mail without charge to any requesting
shareholder a copy of the Declaration, including the express terms of each
class and series of the authorized Shares of the Trust, within five (5)
days after receipt of a written request therefor.
(k) Severability. If any provision of this Article VI or any application of
any such provision is determined to be invalid by any Federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected, and other applications of such provision shall be
affected only to the extent necessary to comply with the determination of such
court.
(l) New York Stock Exchange Transactions. Nothing in this Article VI shall
preclude the settlement of any transaction entered into through the facilities
of the New York Stock Exchange.
(m) Amendment of Sections 6.12 or 6.13
Notwithstanding any other provisions of this Declaration or any provision
of law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of Shares
required by law or this Declaration, the affirmative vote of the holders of at
least two-thirds ( 2/3) of the voting power of all the then outstanding Shares,
voting together as a single class, shall be required to alter, amend or repeal
this Section 6.12 or Section 6.13.
6.13 Excess Shares.
(a) Ownership In Trust. Upon any purported Transfer or other event that
results in Excess Shares pursuant to Section 6.12(c) hereof, such Excess Shares
shall be deemed to have been transferred to Nina Matis (or any successor Excess
Share Trustee), as Excess Share Trustee of the Excess Share Trust for the
benefit of such Excess Share Trust Beneficiary or Beneficiaries and the
Charitable Beneficiary effective as of the close of business on the business day
prior to the date of the Transfer or other event. Excess Shares so held in trust
shall be issued and outstanding shares of the Trust. The Purported Record
Transferee or Purported Record Holder shall have no rights in such Excess
Shares. The Purported Beneficial Transferee or Purported Beneficial Holder shall
have no rights in such Excess Shares except as provided in Section 6.13(e). Nina
Matis, or any successor Excess Share Trustee, may resign by appointing a person
independent of the Trust, the Corporation (as defined in Section 6.14) or any
Excess Share Trust Beneficiary as the Excess Share Trustee. The Excess Share
Trustee shall, from time to time, designate one or more charitable organization
or organizations as the Charitable Beneficiary.
(b) Dividend Rights. Excess Shares shall be entitled to the same dividends
determined as if no conversion into Excess Shares had occurred. Any dividend or
distribution paid prior to the discovery by the Trust that the Shares have been
converted into Excess Shares shall be repaid to the Excess Share Trust upon
demand. Any dividend or distribution declared but unpaid shall be paid to the
Excess Share Trust.
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All dividends received or other income earned by the Excess Share Trust shall be
paid over to the Charitable Beneficiary.
(c) Rights Upon Liquidation. Excess Shares shall not be entitled to receive
any portion of the assets of the Trust on the liquidation or dissolution of the
Trust. Upon conversion of Excess Shares into Shares pursuant to Section 6.13(e)
hereof, such shares shall be entitled to receive their pro rata share of the
assets of the Trust as a result of the liquidation or dissolution of the Trust.
(d) Voting Rights. The Excess Share Trustee shall vote the Excess Shares
which shall have the same voting rights as the Shares into which they are to be
converted pursuant to Section 6.13(e) hereof. Any vote cast by the Purported
Beneficial Transferee or Purported Record Transferee will, at the election of
the Excess Share Trustee, be void ab initio.
(e) Restrictions On Transfer; Designation of Excess Share Trust
Beneficiary.
(1) Excess Shares shall not be transferrable. The Excess Share Trustee
may freely designate an Excess Share Trust Beneficiary of all or any
portion of the beneficial interest in the Excess Share Trust (representing
the number of Excess Shares held by the Excess Share Trust attributable to
a purported Transfer or other event that results in Excess Shares and
designated as to number and class of shares pursuant to the notice
provision of this Section 6.13(e)(1)), if the Excess Shares held in the
Excess Share Trust would not be Excess Shares in the hands of such Excess
Share Trust Beneficiary. If the Excess Shares resulted from a purported
Transfer, the Purported Beneficial Transferee shall receive a payment from
the Excess Share Trustee that reflects a price per share for such Excess
Shares equal to the lesser of (A) the price per share received by the
Excess Share Trustee and (B) (x) the price per share such Purported
Beneficial Transferee paid for the Share of Beneficial Interest in the
purported Transfer that resulted in the Excess Shares, or (y) if the
Purported Beneficial Transferee did not give value for such shares of
Excess Shares (through a gift, devise or other transaction) a price per
share of Excess Shares equal to the Market Price of the Shares on the date
of the purported Transfer that resulted in the Excess Shares. If the Excess
Shares resulted from an event other than a purported Transfer, the
Purported Beneficial Holder shall receive a payment from the Excess Share
Trustee that reflects a price per share of Excess Shares equal to the
lesser of (A) the price per share received by the Excess Share Trustee and
(B) the Market Price of the Shares on the date of the event that resulted
in Excess Shares. Upon such transfer of an interest in the Excess Share
Trust, the corresponding shares of Excess Shares in the Excess Share Trust
shall be automatically converted into such number of Shares (of the same
class as the shares that were converted into such Excess Shares) as is
equal to the number of shares of Excess Shares, and such Shares shall be
transferred of record to the Excess Share Trust Beneficiary of the interest
in the Excess Share Trust designated by the Excess Share Trustee as
described above if such Shares would not be Excess Shares in the hands of
such Excess Share Trust Beneficiary. Prior to any transfer of any interest
in the Excess Share Trust, the Trust must have waived in writing its
purchase rights, if any, under Section 6.13(f) hereof. Any funds received
by the Excess Share Trustee in excess of the funds payable to the Purported
Beneficial Holder or the Purported Beneficial Transferor shall be paid to
the Charitable Beneficiary. The Trust shall pay the costs and expenses of
the Excess Share Trustee.
(2) Notwithstanding the foregoing, if a Purported Beneficial
Transferee, Purported Beneficial Holder or Excess Share Trustee receives a
price for designating an Excess Share Trust Beneficiary of an interest in
the Excess Share Trust that exceeds the amounts allowable under Section
6.13(e) (1) hereof, such Purported Beneficial Transferee or Purported
Beneficial Holder shall be personally liable to, and shall pay, or cause
the Excess Share Trust Beneficiary of the interest in the Excess Share
Trust to pay, such excess to the Excess Share Trustee who shall pay over
such excess to the Charitable Beneficiary.
(3) Notwithstanding the foregoing, if the provisions of this Section
6.13(e) are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the Purported Beneficial
Transferee or Purported Beneficial Holder of any shares of Excess Shares
may be deemed, at the
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option of the Trust, to have acted as an agent on behalf of the Trust, in
acquiring or holding such Excess Shares and to hold such Excess Shares on
behalf of the Trust.
(f) Purchase Right in Excess Shares. Excess Shares shall be deemed to have
been offered for sale by the Excess Share Trustee to the Trust, or its designee,
at a price per Excess Share equal to (i) in the case of Excess Shares resulting
from a purported Transfer, the lesser of (A) the price per share of the Shares
in the transaction that created such Excess Shares (or, in the case of devise or
gift, the Market Price of the Shares at the time of such devise or gift), or (B)
the lowest Market Price of the class of Shares which resulted in the Excess
Shares at any time after the date such shares were converted into Excess Shares
and prior to the date the Trust, or its designee, accepts such offer or (ii) in
the case of Excess Shares resulting from an event other than a purported
Transfer, the lesser of (A) the Market Price of the Shares on the date of such
event or (B) the lowest Market Price for Shares which resulted in the Excess
Shares at any time from the date of the event resulting in such Excess Shares
and prior to the date the Trust, or its designee, accepts such offer. The Trust
shall have the right to accept such offer for a period of ninety (90) days after
the later of (i) the date of the Transfer which resulted in such Excess Shares
and (ii) the date the Trustees determine in good faith that a Transfer or other
event resulting in Excess Shares has occurred, if the Trust does not receive a
notice of such Transfer or other event pursuant to Section 6.12(e) hereof.
[6.14 Pairing. Beginning at the time that the payment of a distribution in
kind to the Shareholders of the Trust of the shares of common stock of Starwood
Lodging Corporation, a Maryland corporation ("Corporation"), shall have occurred
("effective time of the restriction"), and continuing thereafter until such time
as the limitation on transfer provided for in the Pairing Agreement to be
entered into by the Trust and the Corporation shall be terminated:]
[(a) The Trust Shares having a par value of $0.01 per share shall not be
transferable, and shall not be transferred on the books of the Trust, unless (1)
a simultaneous transfer is made by the same transferor to the same transferee,
or (2) such transfer has previously arranged with the Corporation for the
acquisition by the transferee, of a like number of shares of the Corporation and
such shares and Trust Shares are paired with one another.]
[(b) Each certificate evidencing ownership of Trust Shares issued and not
canceled prior to the effective time of the restriction shall be deemed to
evidence a like number of shares of common stock of the Corporation.]
[(c) Any registered holder of a certificate evidencing ownership of Trust
Shares issued prior to the effective time of the restriction may, upon request
and presentation of said certificate to the Corporations transfer agent, obtain
in substitution therefor a certificate or certificates registered in such
holder's name evidencing the same number of shares of common stock of the
Corporation and a like number of Trust Shares.]
[(d) A legend shall be placed on the face of each certificate evidencing
ownership of Trust Shares issued after the effective time of the restriction,
referring to the restrictions on transfer set forth herein.]
6.14 INTERCOMPANY AGREEMENT. UNTIL THE AMENDED AND RESTATED INTERCOMPANY
AGREEMENT DATED AS OF , 1999 (AS AMENDED FROM TIME TO TIME, THE
"INTERCOMPANY AGREEMENT"), BETWEEN THE TRUST AND STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., A MARYLAND CORPORATION (THE "CORPORATION"), IS TERMINATED, THE
TRUST SHALL COMPLY IN ALL MATERIAL RESPECTS WITH THE RESTRICTIONS ON TRANSFER OF
ITS SHARES OF BENEFICIAL INTEREST AND ALL OTHER PROVISIONS SET FORTH IN THE
INTERCOMPANY AGREEMENT.
6.15 Class A Exchangeable Preferred Shares Articles Supplementary
6.15.1. NUMBER OF SHARES AND DESIGNATION.
The class of shares of beneficial interest in the Trust being created by
these Articles Supplementary shall be designated as "Class A Exchangeable
Preferred Shares", par value $.01 per share ("Class A EPS"), and 30,000,000
shall be the number of shares of Class A EPS constituting such class.
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6.15.2. DEFINITIONS.
For purposes of the Class A EPS, the following terms have the meanings
indicated:
"Affiliate" shall mean with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"Articles Supplementary" shall mean either this Article 6.15 or
Article 6.16, as the case may be, of the Declaration [of Trust].
"Board of Trustees" shall mean the Board of Trustees of the Trust or
any committee authorized by the Board of Trustees from time to time to
exercise any of its powers or perform any of its responsibilities with
respect to the Class A EPS.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York,
New York are not required to be open.
"Cash Equivalent" of Paired Shares or any other shares of beneficial
interest or other securities of the Trust or any other issuer as of any
date shall mean an amount of cash equal to (i) the average of the daily
Current Market Prices per unit of such Paired Shares or other shares or
securities during the five (5) consecutive Trading Days immediately
preceding such date or (ii) if the Paired Shares or such other shares or
securities are not publicly traded on such date, the fair market value of
such Paired Shares or other securities as of such date as determined by the
Board of Trustees in good faith (subject to the rights of the holders of
the Class A EPS to request a valuation from a nationally recognized
investment banking firm as provided in paragraph (g)(v) of Article 6.15.5
hereof).
"Class A Articles Supplementary" shall mean this Article 6.15.
"Class A Dividend Replacement Shares" shall have the meaning set forth
in paragraph (d)(v) of Article 6.15.5 hereof.
"Class A EPS" shall have the meaning set forth in Article 6.15.1
hereof.
"Class A Exchange Notice" shall have the meaning set forth in
paragraph (a)(i) of Article 6.15.5 hereof.
"Class A Exchange Right" shall have the meaning set forth in paragraph
(a)(i) of Article 6.15.5 hereof.
"Class A Liquidation Preference" shall have the meaning set forth in
paragraph (b) of Article 6.15.4 hereof.
"Class A Liquidation Participation Right" shall have the meaning set
forth in paragraph (a) of Article 6.15.4 hereof.
"Class A Participation Dividend" shall have the meaning set forth in
paragraph (a) of Article 6.15.3 hereof.
"Class A Preferred Dividend" shall have the meaning set forth in
paragraph (a) of Article 6.15.3 hereof.
"Class A Underlying Corporation Shares" as of any time shall mean the
Corporation Shares component of the Class A Underlying Paired Shares as of
such time.
"Class A Underlying Paired Shares" as of any time shall mean the
Paired Shares (including, unless otherwise expressly provided herein,
fractional units of Paired Shares) for which each share of Class A EPS is
then exchangeable upon exercise of the Class A Exchange Right but excluding
(except for the purposes of an actual exercise of the Class A Exchange
Right) any Class A Dividend Replacement Shares.
"Class A Underlying Trust Shares" as of any time shall mean the Trust
Shares component of the Class A Underlying Paired Shares as of such time.
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"Class B Articles Supplementary" shall mean Article 6.16 of the
Declaration of Trust pursuant to which the Trust has classified and
designated 15,000,000 shares of beneficial interest in the Trust as "Class
B Exchangeable Preferred Shares".
"Class B EPS" shall mean the Class B Exchangeable Preferred Shares,
par value $0.01 per share, of the Trust created pursuant to the Class B
Articles Supplementary.
"Class B Liquidation Preference" shall have the meaning set forth in
paragraph (b) of [Articles] ARTICLE 6.16.4 hereof.
"Class B Liquidation Participation Right" shall have the meaning set
forth in paragraph (a) of Article 6.16.4 hereof.
"Class B Participation Dividend" shall have the meaning set forth in
paragraph(a) of Article 6.16.3 hereof.
"Class B Preferred Dividend" shall have the meaning set forth in
paragraph (a) of Article 6.16.3 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Conditionally Declared Class A Dividend" shall have the meaning set
forth in paragraph (b)(i) of Article 6.15.3 hereof.
"Constituent Person" shall have the meaning set forth in paragraph
(e)(ii) of Article 6.15.5 hereof.
"Corporation" shall mean Starwood Lodging Corporation, a Maryland
corporation, and any successor.
"Corporation Common Adjustment Event" shall mean any of the following
events that occurs after the Issue Date:
(i) The payment by the Corporation of a dividend on the outstanding
Corporation Shares that is payable in additional Corporation Shares;
(ii) The subdivision of the outstanding Corporation Shares into a
greater number of shares (whether by share split or otherwise);
(iii) The combination of the outstanding Corporation Shares into a
smaller number of shares (whether by reverse share split or otherwise);
or
(iv) The issuance of any shares of stock of the Corporation by
reclassification of the Corporation Shares.
"Corporation Common Distribution" shall mean any dividend or
distribution paid or made by the Corporation (including, without
limitation, any distribution of assets on any liquidation, dissolution or
winding up of the Corporation) in respect of the Corporation Shares, other
than a dividend or distribution that constitutes a Corporation Common
Adjustment Event. In addition, a distribution to the holders of Corporation
Shares of rights to subscribe for or purchase additional Corporation Shares
under a shareholders protective rights plan or agreement shall not be
deemed to constitute a Corporation Common Distribution to the extent that
the Corporation makes provision so that such rights, to the extent still
outstanding with respect to the outstanding Corporation Shares, shall be
issued to the holders of any Corporation Shares issued upon exercise of the
Class A Exchange Right (and, to the extent applicable, shall attach to such
Corporation Shares) in an amount and manner and to the extent provided in
such shareholders protective rights plans or agreements with respect to
already outstanding Corporation Shares.
"Corporation Shares" shall mean the shares of common stock, par value
$.01 per share, of the Corporation or any stock of the Corporation into
which such common stock may hereafter be changed.
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"Current Market Price" of publicly traded Paired Shares or any other
shares of beneficial interest or other securities of the Trust or any other
issuer as of any Trading Day shall mean the last reported sales price,
regular way, on such day, or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day, regular
way, in either case as reported on the NYSE or, if such shares or other
securities are not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such shares or other
securities are listed or admitted for trading or, if not listed or admitted
for trading on any national securities exchange, on the NASDAQ National
Market or, if such shares or other securities are not quoted on such NASDAQ
National Market, the average of the closing bid and asked prices on such
day in the over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such shares or other securities on such day shall not have
been reported through NASDAQ, the average of the bid and asked prices on
such day as furnished by any NYSE member firm regularly making a market in
such shares or other securities selected for such purpose by the Chief
Executive Officer or Chief Financial Officer of the Trust or the Board of
Trustees.
"Declaration" shall mean the Amended and Restated Declaration of Trust
of the Trust, as amended from time to time.
"Delivered Shares" shall have the meaning set forth in paragraph
(a)(ii) of Article 6.15.5 hereof.
"Dividend Correspondence Ratio" shall have the meaning set forth in
paragraph (b)(i) of Article 6.15.3 hereof.
"Excess Shares" shall have the meaning set forth in paragraph (a)(ii)
of Article 6.15.5 hereof.
"Exchange Election Notice" shall have the meaning set forth in
paragraph (a)(i) of Article 6.15.5 hereof.
"Exchange Issuance Date" shall have the meaning set forth in paragraph
(b) of Article 6.15.5 hereof.
"Exchange Promissory Note" shall mean an unsecured promissory note of
the Trust in such form as the Trust shall reasonably prescribe with a
maturity date ninety (90) days after the date of issuance of such note.
Such Exchange Promissory Note shall bear interest in [a] 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 number of Excess
Shares for which such Exchange Promissory Note is being substituted
pursuant to paragraph (a)(ii) of Article 6.15.5 hereof, which interest
shall be payable on the dates of payment of the corresponding dividends.
"Exchange Ratio" shall have the meaning set forth in paragraph (d)(i)
of Article 6.15.5 hereof.
"Issue Date" shall mean the first date on which any shares of Class A
EPS are issued by the Trust.
"Junior Dividend" means a dividend payable in respect of any class or
series of shares of beneficial interest in the Trust over which the Class A
Preferred Dividends have preference or priority as to the payment of
dividends, including, without limitation, any Trust Common Dividend, any
Class A Participation Dividend and any Class B Participation Dividend.
"Junior Liquidating Distribution" shall mean any distribution of
assets of the Trust in connection with a Liquidation Event to holders of
any class or series of shares of beneficial interest in the Trust over
which the Class A Liquidation Preference has preference or priority in the
distribution of assets upon the occurrence of such Liquidation Event,
including, without limitation, any such distribution of assets to holders
of Trust Shares or in respect of the Class A Liquidation Participation
Right or the Class B Liquidation Participation Right.
"Junior Shares" shall mean the Trust Shares and any other class or
series of shares of beneficial interest in the Trust now or hereafter
issued and outstanding over which the Class A Preferred
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Dividends have full preference or priority in the payment of dividends or
over which the Class A Liquidation Preference has full preference or
priority in the distribution of assets on the occurrence of any Liquidation
Event, including, without limitation, the Trust Shares but excluding the
Class B EPS.
"Liquidation Date" shall have the meaning set forth in paragraph (a)
of Article 6.15.4 hereof.
"Liquidation Event" shall mean any liquidation, dissolution or winding
up of the affairs of the Trust, whether voluntary or involuntary. For the
purposes hereof, (i) a consolidation or merger of the Trust with one or
more entities, (ii) a statutory share exchange and (iii) a sale or transfer
of all or substantially all of the Trust's assets shall not be deemed to be
a Liquidation Event.
"Non-Electing Shares" shall have the meaning set forth in paragraph
(e)(ii) of Article 6.15.5 hereof.
"NYSE" shall mean the New York Stock Exchange.
"Offered Shares" shall have the meaning set forth in paragraph (a)(ii)
of Article 6.15.5 hereof.
"Ownership Limit" shall have the meaning set forth in Section 6.12 of
the Declaration.
"Paired Shares" shall mean units consisting of one Trust Share paired
with one Corporation Share (subject to adjustment as contemplated provided
in paragraph (e) of Article 6.15.5 hereof) and represented by a single
share certificate, as provided in the Pairing Agreement dated as of June
25, 1980, between the Trust and the Corporation, as amended from time to
time.
"Paired Shares Adjustment Event" shall have the meaning set forth in
paragraph (d)(i) of Article 6.15.5 hereof.
"Parity Liquidation Preference" shall mean the liquidation preference
of any class or series of shares of beneficial interest in the Trust that
ranks on a parity with the Class A Liquidation Preference.
"Parity Preferred Dividend" shall mean any dividend payable in respect
of any class or series of shares of beneficial interest in the Trust that
ranks on a parity in right of payment with the Class A Preferred Dividends,
whether or not the dividend rate, dividend payment dates, liquidation
preference, redemption rights, conversion or exchange rights or other
features of such class or series are different from those of the Class A
EPS.
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Registered Sale Option" shall have the meaning set forth in paragraph
(a)(ii) of Article 6.15.5 hereof.
"REIT Rules" shall mean the requirements (i) for the Trust to qualify
as a real estate investment trust under the Code as set forth in Sections
856(a)(5) and 856(a)(6) of the Code and (ii) for the Corporation or any
affiliate of the Corporation which is a tenant of the Trust to not be
treated as a related party pursuant to Section 856(d)(2)(B) of the Code.
"Requested Shares" shall have the meaning set forth in paragraph
(a)(ii) of Article 6.15.5 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
a declaration of dividends or other distribution by the Board of Trustees,
the allocation of funds to be so paid on any series or class of shares of
beneficial interest of the Trust; provided, however, that if any funds for
any class or series of Junior Shares or any class or series of shares of
beneficial interest of the Trust ranking on a parity with the Class A EPS
as to the payment of dividends are placed in a separate account of the
Trust or delivered to a disbursing, paying or other
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similar agent, then "set apart for payment" with respect to the Class A EPS
shall mean placing such funds in a separate account or delivering such funds to
a disbursing, paying or similar agent.
"Trading Day" with respect to publicly traded Paired Shares or any
other shares of beneficial interest or other securities of the Trust or any
other issuer shall mean any day on which the shares or other securities in
question are traded on the NYSE, or if such shares or other securities are
not listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such shares or other securities are listed or
admitted, or if not listed or admitted for trading on any national
securities exchange, on the NASDAQ National Market, or if such shares or
other securities are not quoted on such NASDAQ National Market, in the
applicable securities market in which such shares or other securities are
traded.
"Transaction" shall have the meaning set forth in paragraph (e)(ii) of
Article 6.15.5 hereof.
"Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C.
(or any successor thereof), or such other agent or agents of the Trust as
may be designated by the Board of Trustees or their designee as the
transfer agent for the Class A EPS and the Class B EPS.
"Trust" shall mean Starwood Lodging Trust, a Maryland real estate
investment trust, and any successor.
"Trust Common Adjustment Event" shall mean any of the following events
that occurs after the Issue Date:
(i) The payment by the Trust of a dividend on the outstanding Trust
Shares that is payable in additional Trust Shares;
(ii) The subdivision of the outstanding Trust Shares into a greater
number of shares (whether by share split or otherwise);
(iii) The combination of the outstanding Trust Shares into a
smaller number of shares (whether by reverse share split or otherwise);
or
(iv) The issuance of any shares of beneficial interest in the Trust
by reclassification of the Trust Shares.
"Trust Common Dividend" shall mean any dividend or distribution paid
or made by the Trust pro rata on the outstanding Trust Shares other than
(i) a distribution of assets of the Trust upon the occurrence of a Trust
Liquidation Event or (ii) on a dividend or distribution that constitutes a
Trust Common Adjustment Event. In addition, a distribution to the holders
of shares of beneficial interest in the Trust of rights to subscribe for or
purchase additional Trust Shares under a shareholders protective rights
plan or agreement or any similar plan or agreement shall not be deemed to
constitute a Trust Common Dividend to the extent that the Trust makes
provision so that such rights, to the extent still outstanding with respect
to the outstanding Trust Shares, shall be issued to the holders of any
Trust Shares issued upon exercise of the Class A Exchange Right (and, to
the extent applicable, shall attach to such Trust Shares) in an amount and
manner and to the extent provided in such plans or agreements with respect
to already outstanding Trust Shares.
"Trust Shares" shall mean the common shares of beneficial interest in
the Trust, par value $.01 per share, or any shares of beneficial interest
in the Trust into which such common shares may be changed.
"Westin Transaction Agreement" shall mean the Transaction Agreement
dated as of September 8, 1997 among 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., the Trust, SLT Realty Limited Partnership, the Corporation
and SLC Operating Limited Partnership, as such agreement may be amended
from time to time.
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"Westin Transaction Securities" shall mean, with respect to a holder
of Class A EPS or an Affiliate thereof, any shares of Class A EPS, shares
of Class B EPS, Starwood Operating Partnership Units and Starwood Realty
Partnership Units (as such terms are defined in the Westin Transaction
Agreement) received by such holder or Affiliate pursuant to the Westin
Transaction Agreement, together with any shares of Class B EPS, Class A EPS
or Paired Shares (or other securities) issued upon exchange or conversion
of any such Westin Transaction Securities.
6.15.3. DIVIDENDS.
(a) In General. The holders of Class A EPS will be entitled (i) to receive
a preferred dividend payable as described in paragraph (b) below (a "Class A
Preferred Dividend"), when, as and if declared by the Board of Trustees out of
assets of the Trust legally available for that purpose, based on the payment of
any Corporation Common Distribution and (ii) to participate on the basis
described in paragraph (c) below in any Trust Common Dividend, when, as and if
declared by the Board of Trustees out of assets of the Trust available for that
purpose (a "Class A Participation Dividend").
(b) Class A Preferred Dividend.
(i) Upon the payment by the Corporation of any Corporation Common
Distribution prior to the occurrence of a Liquidation Event, the right to
receive a Class A Preferred Dividend will automatically accrue with respect to
each share of Class A EPS as of the payment date for such Corporation Common
Distribution in an amount equal to the value of the Corporation Common
Distribution paid on each Corporation Share multiplied by the applicable
Dividend Correspondence Ratio described below. To the extent that any
Corporation Common Distribution consists of securities or other property (other
than cash), the Trust will have the option of paying the corresponding Class A
Preferred Dividend either (A) in the same form as such Corporation Common
Distribution (i.e., by delivery of the same type of securities or other property
as distributed in the Corporation Common Distribution), (B) in cash in an amount
equal to the fair market value of such securities or other property as
determined in good faith by the Board of Trustees (subject to the rights of the
affected holders of Class A EPS to request a valuation from a nationally
recognized investment banking firm as provided in paragraph (g)(v) of Article
6.15.5 hereof) or (C) a combination thereof. Each Class A Preferred Dividend
will be cumulative from the payment date for the related Corporation Common
Distribution and will be payable to holders of record of Class A EPS on such
record date as shall be fixed by the Board of Trustees, which record date shall
be the same as the record date for the corresponding Class B Preferred Dividend
that will have accrued or will accrue based on such Corporation Common
Distribution and not earlier than the record date for such Corporation Common
Distribution. The Board of Trustees may, at any time between the declaration of
a Corporation Common Distribution and the related payment date, declare a
corresponding Class A Preferred Dividend conditioned on the actual payment of
such Corporation Common Distribution (any such Class A Preferred Dividend being
sometimes referred to herein as a "Conditionally Declared Class A Dividend"
until such time as the corresponding Corporation Common Distribution is paid, at
which time it will no longer be a Conditionally Declared Class A Dividend but
will instead be deemed to be an accrued Class A Preferred Dividend). The
"Dividend Correspondence Ratio" for the purposes of determining the amount of
any Class A Preferred Dividend shall mean the number of Class A Underlying
Corporation Shares for which each share of Class A EPS is exchangeable as of the
record date for the related Corporation Common Distribution upon exercise of the
Class A Exchange Right, as such number shall be proportionately adjusted to
reflect any share dividend, share split, reverse share split or other
combination or subdivision of the Class A EPS that becomes effective between
(or, if the record date for such event is different from the effective date
therefor, that has a record date that falls between) (A) the record date for the
Corporation Common Distribution and (B) the date of payment of such Corporation
Common Distribution or, if earlier, the record date for such Class A Preferred
Dividend.
(ii) So long as any shares of Class A EPS are outstanding: (A) no Junior
Dividend may be declared or paid or set apart for payment unless all accrued
Class A Preferred Dividends and Conditionally Declared Class A Dividends have
been or are concurrently declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment, (B) no Parity Preferred Dividend
shall be
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declared or paid or set aside for payment unless a ratable portion of all
accrued but unpaid Class A Preferred Dividends and Conditionally Declared Class
A Dividends has been or is concurrently declared and paid, or declared and a sum
sufficient for the payment thereof set apart for payment (with such ratable
portion being based on the portion of the accrued but unpaid Parity Preferred
Dividends being paid) and (C) no Junior Shares may be redeemed, purchased or
otherwise acquired by the Trust (other than a redemption, purchase or other
acquisition of Trust Shares made for purposes of and in compliance with
requirements of an employee incentive or benefit plan of the Trust or any
subsidiary or upon any exchange or redemption of other securities at the option
of the holders thereof, or as required or permitted under Article VI of the
Declaration) for consideration (or any moneys paid or made available for a
sinking fund for the redemption of any Junior Shares), directly or indirectly
(except for conversion into or exchange for Junior Shares) unless all accrued
Class A Preferred Dividends and Conditionally Declared Class A Dividends have
been or are concurrently declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment.
(c) Class A Participation Dividend. No Trust Common Dividend may be
declared in respect of the Trust Shares unless the Board of Trustees
concurrently declares a Class A Participation Dividend entitling each share of
Class A EPS to receive an amount equal to the amount of the Trust Common
Dividend declared on each Trust Share multiplied by the number of Class A
Underlying Trust Shares for which each share of Class A EPS is then exchangeable
upon exercise of the Class A Exchange Right as of the record date for such Trust
Common Dividend. Such Class A Participation Dividend shall be payable on the
same date on which the corresponding Trust Common Dividend is payable, shall be
payable in the same form as the corresponding Trust Common Dividend and shall be
paid to holders of record of the Class A EPS on the same record date as is fixed
by the Board of Trustees for the payment of such Trust Common Dividend.
6.15.4. LIQUIDATION RIGHTS.
(a) In General. Upon the occurrence of any Liquidation Event, 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 the making of any Junior Liquidating
Distribution, a liquidating distribution in an amount equal to the Class A
Liquidation Preference described in paragraph (b) below determined as of the
effective date of such Liquidation Event or, if no effective date is provided,
as of the record date of the first liquidating distribution relating to such
Liquidation Event (in either such case, the "Liquidation Date") and (ii) to
participate on the basis described in paragraph (c) below in any liquidating
distribution to holders of Trust Shares (the "Class A Liquidation Participation
Right"). In determining whether a distribution (other than upon the occurrence
of a Liquidation Event), by dividend, redemption or other acquisition of shares
of beneficial interest in the Trust or otherwise, is permitted under Maryland
law, amounts that would be needed, if the Trust were to be dissolved at the time
of the distribution, to satisfy the preferential rights upon dissolution of the
holders of Class A EPS whose preferential rights upon dissolution are senior to
those receiving the distribution shall not be added to the Trust's total
liabilities.
(b) Class A Liquidation Preference. The "Class A Liquidation Preference" of
a share of Class A EPS as of the applicable Liquidation Date shall mean the sum
of (A) the fair market value (as determined in good faith by the Board of
Trustees, subject to the right of the holders of Class A EPS to request a
valuation from a nationally recognized investment banking firm pursuant to
paragraph (g)(v) of Article 6.15.5 hereof) 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 (B) the amount
of any accrued but unpaid Class A Preferred Dividends in respect of each share
of Class A EPS as of such date (other than any such accrued but unpaid Class A
Preferred Dividends that have been declared with a record date prior to such
Liquidation Date, which the Trust shall separately be obligated to pay to the
holders of record of the Class A EPS as of such record date). Until each holder
of shares of Class A EPS has received distributions equal to the Class A
Liquidation Preference, no Junior Liquidating Distributions may be paid to
holders of any other class or series of shares of beneficial interest in the
Trust. Subject to the rights of the holders of shares of beneficial interest in
the Trust with
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liquidation preferences ranking prior to or on a parity with the Class A
Liquidation Preference, after payment shall have been made in full of the Class
A Liquidation Preference as provided in this paragraph (b), Junior Liquidating
Distributions may be paid to the holders of any shares of beneficial interest
entitled to receive such distributions and the holders of the Class A EPS shall
not be entitled to share therein except as provided in paragraph (c) of this
Article 6.15.4. In the event that the assets of the Trust available for
liquidating distributions to holders of shares of beneficial interest in the
Trust in connection with any Liquidation Event are insufficient to pay the Class
A Liquidation Preference on all outstanding Class A EPS and any Parity
Liquidation Preferences in respect of any other classes or series of shares of
beneficial interest in the Trust, then the holders of the Class A EPS and such
other classes and series of shares of beneficial interest in the Trust shall
share ratably in any such distribution of assets in proportion to the Class A
Liquidation Preference and the Parity Liquidation Preferences to which they
would otherwise be respectively entitled.
(c) Class A Liquidation Participation Right. In addition to being entitled
to receive the Class A Liquidation Preference, upon the occurrence of any
Liquidation Event the holders of Class A EPS shall 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 for which
each share of Class A EPS could be exchanged upon exercise of the Class A
Exchange Right as of the record date for such distribution.
6.15.5. EXCHANGE RIGHT.
(a) Class A Exchange Right. (i) A holder of shares of Class A EPS shall
have the right to exchange such shares in whole or in part at any time for fully
paid and non-assessable Paired Shares to the extent described below (the "Class
A Exchange Right"). A holder of shares of Class A EPS desiring to exchange such
shares for Paired Shares shall surrender the certificate or certificates
evidencing such shares, duly endorsed or assigned to the Trust or in blank, to
the Transfer Agent together with a duly completed and executed exchange notice
(a "Class A Exchange Notice") in such form as the Trust shall prescribe from
time to time and such related certifications as the Trust may reasonably
prescribe from time to time. Unless any Paired Shares to be issued in exchange
for such shares of Class A EPS are to be issued in the same name as the name in
which such shares of Class A EPS are registered, each share certificate
surrendered shall be accompanied by instruments of transfer, in form reasonably
satisfactory to the Trust, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any applicable transfer or
similar tax (or evidence reasonably satisfactory to the Trust demonstrating that
such taxes have been paid). As promptly as practicable (and in any event within
five (5) Business Days after receipt of a Class A Exchange Notice and such
required certificates and documents, the Trust shall elect, pursuant to an
election notice given to the exchanging holder (an "Exchange Election Notice"),
to either: (i) deliver to such holder the number of Paired Shares corresponding
to the number of shares of Class A EPS being exchanged based on the Exchange
Ratio described in paragraph (d) of this Article 6.15.5 (including procuring the
issuance by the Corporation of the Corporation Shares component of such Paired
Shares) or (ii) pay to the holder the Cash Equivalent of such Paired Shares or
(iii) a combination of (i) and (ii).
(ii) If the delivery to such holder of the full number of Paired Shares
requested to be delivered pursuant to the Class A Exchange Notice (the
"Requested Shares") would result in a violation of either the Ownership Limit or
the REIT Rules, the Trust may elect in the Exchange Election Notice to either
(A) 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
(determined as of the date of delivery of the applicable Class A Exchange Notice
and the related certificates and other documents described above) of the Excess
Shares or an Exchange Promissory Note in a principal amount equal to such Cash
Equivalent or (B) deliver to such holder the Cash Equivalent (determined as of
such notice delivery date) of the Requested Shares. Notwithstanding the
foregoing, in the event that the delivery of the full number of Requested Shares
pursuant to a Class A Exchange Notice
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would violate either the Ownership Limit or the REIT Rules because the
exchanging Class A EPS holder, together with such holder's Affiliates (but
without giving effect to any other applicable attribution rules under the Code),
beneficially owns, as of the date the Exchange Election Notice is given, Paired
Shares other than through the ownership of Westin Transaction Securities, the
Trust will have the option (the "Registered Sale Option"), exercisable in the
Exchange Election Notice, 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 in such manner as the
Trust in good faith determines to be appropriate a number of Paired Shares equal
to the number of such Excess Shares (the "Offered 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.
(iii) In the event that the issuance of the full number of Requested Shares
upon any exercise of the Class A Exchange Right would violate either the
Ownership Limit or the REIT Rules and either (i) the Trust elects to deliver the
Delivered Shares together with an Exchange Promissory Note in a principal amount
equal to the Cash Equivalent of the Excess Shares or (ii) the Trust exercises
the Registered Sale Option, the holder of the shares of Class A EPS being
exchanged will have the right to withdraw his or her Class A Exchange Notice as
to the Excess Shares, which withdrawal must be made by written notice to the
Transfer Agent within ten (10) Business Days after receipt of the Trust's
Exchange Election Notice.
(b) Delivery of Securities and Cash. If the Exchange Election Notice
relating to an exercise of the Class A Exchange Right does not give rise to a
withdrawal right pursuant to paragraph (a)(iii) above, such Exchange Election
Notice shall be accompanied by the delivery of the Paired Shares and/or cash
required to be delivered pursuant to such Exchange Election Notice. If the
Exchange Election Notice does give rise to such a withdrawal right, but such
right is not exercised by the exchanging holder, the Trust shall deliver the
Paired Shares, Exchange Promissory Note and/or cash required to be delivered
pursuant to such Exchange Election Notice within five (5) Business Days after
the expiration of such withdrawal right. If the Exchange Election Notice
includes the exercise of the Registered Sale Option, the proceeds from the sale
of the Offered Shares shall be paid over to the applicable holder promptly upon
receipt. Any cash payable to an exchanging holder hereunder shall be payable at
the election of the Trust by check or by wire transfer to an account designated
in writing by the exchanging holder, if one has been so designated. With respect
to any Paired Shares to be issued pursuant to an Exchange Election Notice, the
Trust shall issue and deliver (and shall cause the Corporation to issue and
deliver) at the office of the Transfer Agent to the exchanging holder, or on his
or her written order, a certificate or certificates for the number of full
Paired Shares deliverable in accordance with the provisions of this Article
6.15.5, and any fractional interest in respect of a unit of Paired Shares
arising upon such exercise of the Class A Exchange Right shall be settled as
provided in paragraph (c) of this Article 6.15.5 (the date of delivery of such
certificate or certificates being sometimes referred to herein as the "Exchange
Issuance Date"). Any such Paired Shares issued upon such exercise shall be
deemed to have been issued immediately prior to the close of business on the
Exchange Issuance Date, and the Person or Persons in whose name or names any
certificate or certificates for Paired Shares shall be issuable pursuant to such
Class A Exchange Notice shall be deemed to have become the holder or holders of
record of the Paired Shares represented thereby at such time on such date unless
the share transfer records for the Paired Shares shall be closed on such date,
in which event such Person or Persons shall be deemed to have become such holder
or holders of record at the close of business on the next succeeding day on
which such share transfer books are open. If less than the full number of shares
of Class A EPS represented by the certificate or certificates surrendered to the
Trust in connection with an exercise of the Class A Exchange Right are being
exchanged pursuant to such exercise, the Trust shall also deliver to the
exchanging holder a new certificate or certificates evidencing the excess shares
not being exchanged.
(c) Fractional Interests. No fractional Paired Share units or scrip
evidencing fractions of Paired Shares shall be issued upon exercise of the Class
A Exchange Right. Instead of any fractional interest in a unit of Paired Shares
that would otherwise be deliverable upon such exercise, the Trust shall pay to
the
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exchanging holder an amount in cash equal to the corresponding fraction of the
Current Market Price of the Paired Shares on the Trading Day immediately
preceding the Exchange Issuance Date. If more than one share of Class A EPS
shall be surrendered for exchange at one time by the same holder, the number of
full Paired Shares issuable upon exercise of the Class A Exchange Right shall be
computed on the basis of the aggregate number of shares of Class A EPS so
surrendered.
(d) Exchange Ratio and Adjustments.
(i) Initially, one unit of Paired Shares will be issuable upon exchange of
each share of Class A EPS pursuant to the exercise of the Class A Exchange Right
(the "Exchange Ratio"). If, at any time after the Issue Date, a Trust Common
Adjustment Event shall occur in conjunction with the occurrence of a
corresponding Corporation Common Adjustment Event as a result of which the
number of outstanding Paired Shares is increased or decreased but neither the
nature of the securities comprising the Paired Shares nor the ratio of
outstanding Trust Shares to Common Shares is affected (a "Paired Shares
Adjustment Event"), the Exchange Ratio in effect as of the close of business on
the record date for such Paired Shares Adjustment Event or, if no such record
date applies, the effective date of such Paired Shares Adjustment Event shall be
adjusted so that a holder of shares of Class A EPS who thereafter exercises the
Class A Exchange Right with respect to such shares will be entitled to receive
upon such exercise the number of Paired Shares that such holder would have owned
or have been entitled to receive after the happening of such Paired Shares
Adjustment Event if such holder had exercised the Class A Exchange Right
immediately prior to such record date or effective date. An adjustment pursuant
to this subparagraph (i) shall become effective (subject to subparagraph (iv)
below) immediately upon the opening of business on the Business Day next
following the record date for the applicable Paired Shares Adjustment Event or,
if no such record date applies, the Business Day next following the effective
date of such Paired Shares Adjustment Event.
(ii) No adjustment in the Exchange Ratio shall be required pursuant to
subparagraph (i) above unless such adjustment would require a cumulative
increase or decrease of at least one percent (1%) in such ratio; provided,
however, that any adjustments that by reason of this subparagraph (ii) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment until made. All calculations of the Exchange Ratio under
this paragraph (d) shall be made to the nearest one-tenth of a share (with .05
of a share being rounded upward).
(iii) Notwithstanding any other provisions of this Article 6.15.5, the
Trust shall not be required to make any adjustment to the Exchange Ratio based
on any issuance of Paired Shares pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the Trust (or the
Corporation) and the investment of additional optional amounts in Paired Shares
under such plan.
(iv) In any case in which this paragraph (d) provides that an adjustment to
the Exchange Ratio shall become effective immediately following the record date
for an event, the Trust may defer until the occurrence of such event (A) issuing
to the holder of any shares of Class A EPS exchanged after such record date but
before the occurrence of such event the additional Paired Shares (or the cash,
Exchange Promissory Notes or other property to be delivered in lieu thereof
pursuant to this Article 6.15.5) issuable pursuant to such exchange by reason of
the adjustment required pursuant to this paragraph (d) in respect of such event
and (B) paying to the exchanging holder any amount of cash in lieu of any
fractional interest in Paired Shares pursuant to paragraph (c) of this Article
6.15.5.
(v) If at the time of any exercise of the Class A Exchange Right there are
any accrued but unpaid Class A Preferred Dividends or Class A Participation
Dividends other than Class A Preferred Dividends or Class A Participation
Dividends that have been declared with a record date prior to such exercise, the
Exchange Ratio shall be adjusted so that the number of Paired Shares into which
the shares of Class A EPS being exchanged are then exchangeable is increased by
a number of Paired Shares (the "Class A Dividend Replacement Shares") equal to
(A) the aggregate amount of such accrued but unpaid Class A Preferred Dividends
and Class A Participation Dividends with respect to each share of Class A EPS
being exchanged divided by (B) the Current Market Price of the Paired Shares
during the five (5) Trading
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Days immediately preceding the date of delivery of the applicable Class A
Exchange Notice and all related certificates and other documents.
(e) Adjustments to Composition of Paired Shares Issuable Upon Exchange.
(i) If, at any time after the Issue Date, a Trust Common Adjustment Event
or a Corporation Common Adjustment Event shall occur other than as part of a
Paired Shares Adjustment Event, each unit of Paired Shares issuable upon
exercise of the Class A Exchange Right shall be adjusted (subject to
subparagraph (iii) below) as of the close of business on the record date for
such event or, if no such record date applies, the effective date of such event
so as to consist of the number of Trust Shares, the number of Corporation Shares
and the number of any other shares of beneficial interest in the Trust or shares
of stock of the Corporation that a holder of one unit of Paired Shares would
have held or have been entitled to receive after giving effect to such event.
(ii) If, at any time after the Issue Date, the Trust or the Corporation
shall become a party to any transaction, including, without limitation, a
merger, consolidation, statutory share exchange, self tender offer for all or
substantially all outstanding Trust Shares and/or Corporation Shares, sale of
all or substantially all of the Trust's or the Corporation's assets or
recapitalization of the Trust Shares and/or the Corporation Shares (but
excluding any event constituting a Trust Common Adjustment Event or a
Corporation Common Adjustment Event) (each of the foregoing being referred to
herein as a "Transaction"), in each case as a result of which the outstanding
Trust Shares and/or Corporation Shares shall be converted into or exchanged for
the right to receive stock, securities or other property (including cash or any
combination thereof), effective as of the effective date of such Transaction,
each unit of Paired Shares issuable upon exercise of the Class A Exchange Right
with respect to any shares of Class A EPS that are not converted into or
exchanged for the right to receive stock, securities or other property in
connection with such Transaction shall thereafter be deemed to consist of the
kind and amount of shares of beneficial interest in the Trust, shares of stock
of the Corporation and other securities and property (including cash or any
combination thereof) that would have been held or receivable upon the
consummation of such Transaction by a holder of a number of Paired Shares equal
to the number of Class A Underlying Paired Shares for which one share of Class A
EPS would have been exchangeable immediately prior to such Transaction, assuming
such holder of Paired Shares (A) is not a Person with which the Trust or the
Corporation consolidated or into which the Trust or the Corporation was merged
or which merged into the Trust or the Corporation or to which such sale or
transfer was made, as the case may be (a "Constituent Person"), or an Affiliate
of a Constituent Person and (B) failed to exercise his or her rights of
election, if any, as to the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction (provided that if the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction is not the same for each unit of Paired Shares
held immediately prior to such Transaction by other than a Constituent Person or
an Affiliate thereof and in respect of which such rights of election shall not
have been exercised ("Non-Electing Shares"), then for the purposes of this
subparagraph (ii) the kind and amount of stock, securities and other property
(including cash) receivable upon such Transaction in respect of each
Non-Electing Share shall be deemed to be the kind and amount so receivable per
share by a plurality of the Non-Electing Shares). The provisions of this
paragraph (e) shall similarly apply to successive transactions.
(iii) In any case in which this paragraph (e) provides that an adjustment
to the composition of the units of Paired Shares issuable upon exercise of the
Class A Exchange Right shall become effective immediately following the record
date for an event, the Trust may defer until the occurrence of such event (A)
issuing to the holder of any shares of Class A EPS exchanged after such record
date but before the occurrence of such event the additional Paired Shares (or
the cash, Exchange Promissory Notes or other property to be delivered in lieu
thereof pursuant to this Article 6.15.5) issuable pursuant to such exchange
before giving effect to such adjustment and (B) paying to the exchanging holder
any amount of cash in lieu of any fractional interest in Paired Shares pursuant
to paragraph (c) of this Article 6.15.5.
(f) Notice of Adjustments. Whenever the Exchange Ratio or the composition
of a unit of Paired Shares is adjusted as provided in paragraph (d) or (e)
above, the Trust shall promptly file with the
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Transfer Agent an officer's certificate setting forth the Exchange Ratio after
such adjustment and, in the case of an adjustment pursuant to paragraph (e),
describing the kind and amount of stock, securities and other property
(including cash) then constituting a unit of Paired Shares. Such certificate
shall also set forth a brief statement of the facts requiring such adjustment
and shall be conclusive evidence of the correctness of such adjustment absent
manifest error. Promptly after delivery of such certificate, the Trust shall
prepare a notice of such adjustment setting forth the adjusted Exchange Ratio,
the effective date of such adjustment and, in the case of an adjustment pursuant
to paragraph (e), a description of the kind and amount of stock, securities and
other property (including cash) then constituting a unit of Paired Shares, and
shall mail such notice of such adjustment to the holder of each share of Class A
EPS, and to the extent that any shares of Class B EPS are then outstanding to
each holder of Class B EPS, at such holder's last address as shown on the share
records of the Trust.
(g) Miscellaneous Provisions.
(i) There shall be no adjustment of the Exchange Ratio or the composition
of the units of Paired Shares issuable upon exercise of the Class A Exchange
Right in case of the issuance of any shares of beneficial interest in the Trust
in a reorganization, acquisition or other similar transaction except as
specifically set forth in this Article 6.15.5.
(ii) If the Trust shall take any action affecting the Trust Shares or the
Corporation shall take any action affecting the Corporation Shares, other than
an action described in this Article 6.15.5, that in the opinion of the Board of
Trustees would materially affect the exchange rights of the holders of the Class
A EPS provided for in this Article 6.15.5, the Exchange Ratio and/or the
composition of the units of Paired Shares may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Trustees, in its sole discretion, may determine to be equitable in the
circumstances.
(iii) The Trust covenants that any Paired Shares issued upon exercise of
the Class A Exchange Right will be validly issued, fully paid and
non-assessable. The Trust shall reserve and shall at all times have reserved out
of its authorized but unissued Trust Shares, solely for issuance pursuant to
exercise of the Class A Exchange Right and shall use its best efforts to cause
the Corporation to reserve and at all times have, solely for issuance pursuant
to exercise of the Class A Exchange Right, sufficient Corporation [shares]
SHARES to permit the exercise of such Class A Exchange Right. The Trust shall
use its best efforts to cause the Corporation not to close its transfer books so
as to prevent the timely issuance of Corporation Shares upon the exercise of the
Class A Exchange Right. The Trust shall not close its transfer books so as to
prevent the timely issuance of Trust Shares upon the exercise of the Class A
Exchange Right. The Trust shall pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of Paired
Shares or other securities or property upon exercise of the Class A Exchange
Right; provided, however, that the Trust shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issue or delivery
of any Paired Shares or other securities or property in a name other than that
of the holder of the shares of Class A EPS being exchanged, and no such issue or
delivery shall be made unless and until the Person requesting such issue or
delivery has paid to the Trust the amount of any such tax or established, to the
reasonable satisfaction of the Trust, that such tax has been paid.
(iv) Except as provided in paragraph (g)(v) below, any determination
required or permitted to be made by the Board of Trustees by these Articles
Supplementary shall be final, conclusive and binding on the holders of Class A
EPS.
(v) In the event that: (A) the Trust elects to pay the Cash Equivalent of
Paired Shares or other securities pursuant to an exercise of the Class A
Exchange Right and in connection therewith the Board of Trustees makes a
determination of the value of the Paired Shares or other securities at a time
when the Paired Shares or such other securities are not publicly traded, (B) the
Trust elects to pay in cash a Class A Preferred Dividend corresponding to a
Corporation Common Distribution in the form of securities or other property and
in connection therewith the Board of Trustees makes a determination of the fair
market value of such securities or other property or (C) the Board of Trustees
makes a determination of the fair market value of Class A Underlying Corporation
Shares for the purpose of determining the
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amount of the Class A Liquidation Preference in connection with a Liquidation
Event, then the Trust shall deliver to each affected holder of Class A EPS a
written notice (which, in the case of an exercise of the Class A Exchange Right
may be set forth in the related Exchange Election Notice) setting forth the
valuation determined by the Board of Trustees. At any time within ten (10)
Business Days after receipt of such notice, any affected holder of Class A EPS
may request in writing that the Trust obtain a written valuation of such Paired
Shares, Class A Underlying Corporation Shares or other securities or property
from an investment banking firm. Promptly after receipt of any such request, the
Trust shall select a nationally recognized investment banking firm to perform
such valuation and shall provide such investment banking firm with such relevant
information as the Trust may have in relation thereto. Such investment banking
firm shall be instructed to prepare a written valuation report within thirty
(30) days after its appointment, and upon receipt of such valuation report, the
Trust shall mail a copy to each affected holder of Class A EPS. If the valuation
as determined by such investment banking firm is greater than the valuation as
determined by the Board of Trustees, the Trust shall promptly pay the amount of
such difference to each affected holder of Class A EPS. If, however, the
valuation as determined by such investment banking firm is less than the
valuation determined by the Board of Trustees, the Trust may at its option
require each affected holder of Class A EPS to repay the amount of such
difference to the Trust, which amount shall be so repaid by each such holder
promptly after receipt of the Trust's request. The fees and expenses of such
investment banking firm shall be paid by the Trust.
6.15.6. REACQUIRED SHARES TO BE RETIRED.
All shares of Class A EPS which shall have been issued and reacquired in
any manner by the Trust shall be restored to the status of authorized but
unissued shares of beneficial interest in the Trust without designation as to
class.
6.15.7. VOTING.
(a) General Voting Rights. The holders of shares of Class A EPS shall be
entitled to vote upon all matters upon which holders of Trust Shares have the
right to vote, and shall be entitled to the 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 pursuant to the provisions of Article 6.15.5 hereof as of
the record date for determination of the shareholders entitled to vote on such
matters, or, if no such record date is established, as of the date such vote is
taken or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of beneficial interest in the Trust
having general voting powers and not separately as a class.
(b) Special Voting Rights. So long as any shares of Class A EPS are
outstanding, in addition to any other vote or consent of holders of such shares
required by the Declaration or these Articles Supplementary, the affirmative
vote of at least a majority of the votes entitled to be cast by the holders of
all outstanding shares of Class A EPS, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for that purpose,
shall be necessary for effecting or validating any amendment, alteration or
repeal of any of the provisions of the Declaration or these Articles
Supplementary that materially and adversely affects the voting powers, rights or
preferences of the holders of the Class A EPS disproportionately (based on the
number of Underlying Class A Trust Shares at the time) to the effect of such
amendment, alteration or repeal on the holders of Trust Shares; provided,
however, that (i) any amendment of the provisions of the Declaration so as to
authorize or create, or to increase the authorized amount of, any class or
series of shares of beneficial interest in the Trust, whether ranking prior to,
on a parity with or junior to the Class A EPS shall not be deemed to materially
and adversely affect the voting powers, rights or preferences of the holders of
Class A EPS and (ii) no filing with the State Department of Assessments and
Taxation of Maryland by the Trust in connection with a merger, consolidation or
sale of all or substantially all of the assets of the Trust shall be deemed to
be an amendment, alteration or repeal of any of the provisions of the
Declaration or these Articles Supplementary unless such filing expressly
purports to amend, alter or repeal one or more of such provisions. For the
purposes of this paragraph (b), each share of Class A EPS will have one vote per
share.
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6.15.8. RECORD HOLDERS.
The Trust and the Transfer Agent may deem and treat the record holder of
any shares of Class A EPS as the true and lawful owner thereof for all purposes,
and neither the Trust nor the Transfer Agent shall be affected by any notice to
the contrary.
6.15.9. RESTRICTIONS ON OWNERSHIP AND TRANSFER.
The Class A EPS constitute shares of beneficial interest in the Trust that
are governed by and issued subject to all the limitations, terms and conditions
of the Declaration applicable to shares of beneficial interest in the Trust
generally, including, without limitation, the terms and conditions (including
exceptions and exemptions) of Article VI of the Declaration applicable to shares
of beneficial interest in the Trust. The foregoing sentence shall not be
construed to limit the applicability to the Class A EPS of any other term or
provision of the Declaration. No restrictions on the transferability of shares
of Class A EPS shall be enforced by the Trust to the extent that such
restrictions would otherwise cause the Trust to fail to meet the requirements of
Section 856(a)(2) of the Code.
6.16 Class B Exchangeable Preferred Shares Articles Supplementary
6.16.1. NUMBER OF SHARES AND DESIGNATION.
There are hereby designated 15,000,000 "Class B Exchangeable Preferred
Shares", par value $.01 per share ("Class B EPS").
6.16.2. DEFINITIONS.
For purposes of the Class B EPS, the following terms have the meanings
indicated:
"Affiliate" shall mean with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"Articles Supplementary" shall mean either Article 6.15 or Article
6.16, as the case may be, of the Declaration [of Trust].
"Base Preference Amount" per share of Class B EPS as of any date shall
mean the Stated Value per share as of such date.
"Board of Trustees" shall mean the Board of Trustees of the Trust or
any committee authorized by the Board of Trustees from time to time to
exercise any of its powers or perform any of its responsibilities with
respect to the Class B EPS.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York,
New York are not required to be open.
"Class A Articles Supplementary" shall mean Article 6.15 hereof
pursuant to which the Trust has classified and designated 30,000,000 shares
of beneficial interest in the Trust as "Class A Exchangeable Preferred
Shares".
"Class A EPS" means the Class A Exchangeable Preferred Shares, par
value $0.01 per share, created by the Class A Articles Supplementary.
"Class A EPS Adjustment Event" shall mean any of the following events
that occurs after the Issue Date:
(i) The payment by the Trust of a dividend on the outstanding Class
A EPS that is payable in additional shares of Class A EPS;
(ii) The subdivision of the outstanding Class A EPS into a greater
number of shares (whether by share split or otherwise);
(iii) The combination of the outstanding Class A EPS into a smaller
number of shares (whether by reverse share split or otherwise); or
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(iv) The issuance of any shares of beneficial interest in the Trust
by reclassification of the Class A EPS.
"Class A Exchange Right" shall have the meaning set forth in paragraph
(a) of Article 6.15.5 hereof.
"Class A Liquidation Preference" shall have the meaning set forth in
paragraph (b) of Article 6.15.4 hereof.
"Class A Liquidation Participation Right" shall have the meaning set
forth in paragraph (a) of Article 6.15.4 hereof.
"Class A Participation Dividend" shall have the meaning set forth in
paragraph (a) of Article 6.15.3 hereof.
"Class A Preferred Dividend" shall have the meaning set forth in
paragraph (a)of Article 6.15.3 hereof.
"Class B Articles Supplementary" shall mean this Article 6.16.
"Class B Conversion Notice" shall have the meaning set forth in
paragraph (b)(ii) of Article 6.16.5 hereof.
"Class B Conversion/Redemption Election Right" shall have the meaning
set forth in Article 6.16.7 hereof.
"Class B Conversion/Redemption Notice" shall have the meaning set
forth in Article 6.16.7 hereof.
"Class B Conversion Right" shall have the meaning set forth in
paragraph (b)(i) of Article 6.16.5 hereof.
"Class B Dividend Replacement Shares" shall have the meaning set forth
in paragraph (e)(v) of Article 6.16.5 hereof.
"Class B EPS" shall have the meaning set forth in Article 6.16.1
hereof.
"Class B Liquidation Preference" shall have the meaning set forth in
paragraph (b) of Article 6.16.4 hereof.
"Class B Liquidation Participation Right" shall have the meaning set
forth in paragraph (a) of Article 6.16.4 hereof.
"Class B Participation Dividend" shall have the meaning set forth in
paragraph (a) of Article 6.16.3 hereof.
"Class B Preferred Dividend" shall have the meaning set forth in
paragraph (a) of Article 6.16.3 hereof.
"Class B Redemption Date" shall have the meaning set forth in
paragraph (c)(ii) of Article 6.16.6 hereof.
"Class B Redemption Notice" shall have the meaning set forth in
paragraph (c)(ii) of Article 6.16.6 hereof.
"Class B Redemption Right" shall have the meaning set forth in
paragraph (a) of Article 6.16.6 hereof.
"Class B Underlying Class A EPS" with respect to any shares of Class B
EPS as of a specified date shall mean the number of shares of Class A EPS
issuable on such date upon exercise of the Class B Conversion Right with
respect to such shares of Class B EPS (including fractional interests but
without taking into account any Class B Dividend Replacement Shares except
for the purposes of an actual exercise of the Class B Conversion Right).
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"Class B Underlying Corporation Shares" as of any time shall mean the
Corporation Shares component of the Class B Underlying Paired Shares as of
such time.
"Class B Underlying Paired Shares" as of any time shall mean the
Paired Shares for which each share of Class B EPS is then indirectly
exchangeable assuming both (i) the conversion at such time of such share of
Class B EPS into the corresponding number of shares of Class B Underlying
Class A EPS upon exercise of the Class B Conversion Right and (ii) the
simultaneous exchange of such shares of Class A EPS for Paired Shares
(including, unless otherwise expressly provided herein, fractional shares
but excluding any Class A Dividend Replacement Shares, as defined in
paragraph (d)(v) of Article 6.15.5 hereof) upon exercise of the Class A
Exchange Right.
"Class B Underlying Trust Shares" as of any time shall mean the Trust
Shares component of the Class B Underlying Paired Shares as of such time.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Conditionally Declared Class B Dividend" shall have the meaning set
forth in paragraph (b)(i) of Article 6.16.3 hereof.
"Constituent Person" shall have the meaning set forth in paragraph (f)
of Article 6.16.5 hereof.
"Conversion Ratio" shall have the meaning set forth in paragraph
(e)(i) of Article 6.16.5 hereof.
"Corporation" shall mean Starwood Lodging Corporation, a Maryland
corporation, and any successor.
"Corporation Common Adjustment Event" shall mean any of the following
events that occurs after the Issue Date:
(i) The payment by the Corporation of a dividend on the outstanding
Corporation Shares that is payable in additional Corporation Shares;
(ii) The subdivision of the outstanding Corporation Shares into a
greater number of shares (whether by stock split or otherwise);
(iii) The combination of the outstanding Corporation Shares into a
smaller number of shares (whether by reverse stock split or otherwise);
or
(iv) The issuance of any shares of stock of the Corporation by
reclassification of the Corporation Shares.
"Corporation Common Distribution" shall mean any dividend or
distribution paid or made by the Corporation (including, without
limitation, any distribution of assets on any liquidation, dissolution or
winding up of the Corporation) in respect of the Corporation Shares, other
than a dividend or distribution that constitutes a Corporation Common
Adjustment Event. In addition, a distribution to the holders of Corporation
Shares of rights to subscribe for or purchase additional Corporation Shares
under a shareholders protective rights plan or agreement shall not be
deemed to constitute a Corporation Common Distribution to the extent that
the Corporation makes provision so that such rights, to the extent still
outstanding with respect to the outstanding Corporation Shares, shall be
issued to the holders of any Corporation Shares issued upon exercise of the
Class A Exchange Right (and, to the extent applicable, shall attach to such
Corporation Shares) in an amount and manner and to the extent provided in
such shareholders protective rights plans or agreements with respect to
already outstanding Corporation Shares.
"Corporation Shares" shall mean the shares of common stock, par value
$.01 per share, of the Corporation or any stock of the Corporation into
which such common stock may hereafter be changed.
"Cross-Over Date" shall mean the fifth anniversary of the Issue Date,
subject to extension as described in paragraph (a) of Article 6.16.9
hereof.
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"Current Market Price" of publicly traded Paired Shares or any other
shares of beneficial interest or other securities of the Trust or any other
issuer as of any Trading Day shall mean the last reported sales price,
regular way, on such day, or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day, regular
way, in either case as reported on the NYSE or, if such shares or other
securities are not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such shares or other
securities are listed or admitted for trading or, if not listed or admitted
for trading on any national securities exchange, on the NASDAQ National
Market or, if such shares or other securities are not quoted on such NASDAQ
National Market, the average of the closing bid and asked prices on such
day in the over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such shares or other securities on such day shall not have
been reported through NASDAQ, the average of the bid and asked prices on
such day as furnished by any NYSE member firm regularly making a market in
such security selected for such purpose by the Chief Executive Officer or
Chief Financial Officer of the Trust or the Board of Trustees.
"Declaration" shall mean the Amended and Restated Declaration of Trust
of the Trust, as amended from time to time.
"Default Rate Dividends" shall have the meaning set forth in paragraph
(d) of Article 6.16.3 hereof.
"Dividend Correspondence Ratio" shall have the meaning set forth in
paragraph (b)(i) of Article 6.16.3 hereof.
"Issue Date" shall mean the first date on which any Class B EPS are
issued by the Trust.
"Junior Dividend" means a dividend payable in respect of any class or
series of shares of beneficial interest in the Trust over which the Class B
Preferred Dividends have preference or priority as to the payment of
dividends, including, without limitation, any Trust Common Dividend, any
Class B Participation Dividend and any Class A Preferred Dividend and any
Class A Participation Dividend.
"Junior Liquidating Distribution" shall mean any distribution of
assets of the Trust in connection with a Liquidation Event to holders of
any class or series of shares of beneficial interest in the Trust over
which the Class B Liquidation Preference has preference or priority in the
distribution of assets upon the occurrence of such Liquidation Event,
including, without limitation, any such distribution of assets to holders
of Trust Shares or in respect of the Class B Liquidation Participation
Right, the Class A Liquidation Preference or the Class A Liquidation
Participation Right.
"Junior Shares" shall mean the Trust Shares and any other class or
series of shares of beneficial interest in the Trust now or hereafter
issued and outstanding over which the Class B Preferred Dividends have full
preference or priority in the payment of dividends or over which the Class
B Liquidation Preference has full preference or priority in the
distribution of assets on the occurrence of any Liquidation Event. Without
limiting the generality of the foregoing, for the purposes hereof the Class
A EPS and the Trust Shares constitute Junior Shares.
"LIBOR" as of any date shall mean the rate of interest per annum for
United States dollar deposits in the amount of $100,000,000 with a
one-month maturity which appears on "Telerate Page 3750" (as defined below)
as of 11:00 a.m. (London time) on such date; provided that if such rate is
no longer published, an interest rate per annum equal to the arithmetic
mean (rounded if necessary to the nearest one-hundredth of one percent
(0.01%)) of the interest rates per annum for United States dollar deposits
in such amount and with such a maturity quoted on Reuters Screen Page
"LIBO" (or if such page on such service ceases to display such information,
such other page as may replace it on that service for the purpose of
displaying such information) as of 11:00 a.m. on such date (the rate
determined as aforesaid being the "LIBO Screen Rate"). For such purposes,
the term "Telerate Page 3750" shall mean the display designated as "Page
3750" on the Associated Press-Dow Jones Telerate Service (or such other
page as may replace Page 3750 on the Associated
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Press-Dow Jones Telerate Service or such other service as may be nominated
by the British Bankers' Association as the information vendor for the
purpose of displaying British Bankers' Association interest rate settlement
rates for United States dollar deposits). Any LIBOR rate determined on the
basis of the rate displayed on Telerate Page 3750 or the LIBO Screen Rate
determined in accordance with the foregoing provisions of this definition
shall be subject to corrections, if any, made in such rate and displayed by
the Associated Press-Dow Jones Telerate Service or Reuters, as applicable,
within one hour of the time when such rate is first displayed by such
service. For the purposes of paragraph (d) of Article 6.16.3, the LIBOR
rate shall be determined in accordance with the foregoing as of the date on
which an Uncured Default arises and on the nearest corresponding day of
each subsequent calendar month and shall apply for the approximate
one-month period between the date of such determination and the next
succeeding date of determination.
"Liquidation Date" shall have the meaning set forth in paragraph (a)
of Article 6.16.4 hereof.
"Liquidation Event" shall mean any liquidation, dissolution or winding
up of the affairs of the Trust, whether voluntary or involuntary. For the
purposes hereof, (i) a consolidation or merger of the Trust with one or
more entities, (ii) a statutory share exchange and (iii) a sale or transfer
of all or substantially all of the Trust's assets shall not be deemed to be
a Liquidation Event.
"Non-Electing Shares" shall have the meaning set forth in paragraph
(f) of Article 6.16.5 hereof.
"NYSE" shall mean the New York Stock Exchange.
"Ownership Limit" shall have the meaning set forth in Section 6.12 of
the Declaration.
"Paired Shares" shall mean units consisting of one Trust Share paired
with one Corporation Share (subject to adjustment as contemplated in
paragraph (e) of Article 6.15.5 hereof) and represented by a single share
certificate, as provided in the Pairing Agreement dated as of June 25,
1980, between the Trust and the Corporation, as amended from time to time.
"Parity Liquidation Preference" shall mean the liquidation preference
of any class or series of shares of beneficial interest in the Trust that
ranks on a parity with the Class B Liquidation Preference. For such
purposes: (i) the Base Preference Amount portion of the Class B Liquidation
Preference will rank on a parity with the liquidation preferences of any
class or series of Preferred Shares issued by the Trust (other than the
Class A EPS to which said portion of the Class B Liquidation Preference
will rank senior in liquidation preference), unless the articles
supplementary creating such class or series provide that such class or
series will rank junior to such portion of the Class B Liquidation
Preference in the distribution of assets upon the occurrence of a
Liquidation Event, and (ii) the Supplemental Preference Amount portion of
the Class B Liquidation Preference will rank junior to the liquidation
preferences of any class or series of Preferred Shares issued by the Trust
(other than the Class A EPS), unless the articles supplementary creating
such class or series provide that such class or series will rank junior to
or on a parity with such portion of the Class B Liquidation Preference in
the distribution of assets upon the occurrence of a Liquidation Event.
"Parity Preferred Dividend" shall mean any dividend payable in respect
of any class or series of shares of beneficial interest in the Trust that
ranks on a parity in right of payment with the Class B Preferred Dividends,
whether or not the dividend rate, dividend payment dates, liquidation
preference or redemption price are different from those of the Class B EPS.
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Preferred Shares" shall mean any class or series of shares of
beneficial interest in the Trust now or hereafter issued and outstanding
that have preference or priority over Trust Shares in the payment of
dividends or in the distribution of assets on the occurrence of any
Liquidation Event.
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"Redemption Price" shall have the meaning set forth in paragraph
(b)(i) of Article 6.16.6 hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement entered into by the Trust, the Corporation and the other parties
thereto pursuant to the Westin Transaction Agreement.
"REIT Rules" shall mean the requirements (i) for the Trust to qualify
as a real estate investment trust under the Code as set forth in Sections
856(a)(5) and 856(a)(6) of the Code and (ii) for the Corporation or any
affiliate of the Corporation which is a tenant of the Trust to not be
treated as a related party pursuant to Section 856(d)(2)(B) of the Code.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
a declaration of dividends or other distribution by the Board of Trustees,
the allocation of funds to be so paid on any series or class of shares of
beneficial interest in the Trust; provided, however, that if any funds for
any class or series of Junior Shares or any class or series of shares of
beneficial interest in the Trust ranking on a parity with the Class B EPS
as to the payment of dividends are placed in a separate account of the
Trust or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Class B EPS shall mean placing
such funds in a separate account or delivering such funds to a disbursing,
paying or similar agent.
"Stated Value" of each share of Class B EPS shall initially mean
Thirty-Eight Dollars and Fifty Cents ($38.50) per share. Upon the
occurrence of any share split, reverse share split or other subdivision or
combination of the Class B EPS subsequent to the Issue Date, the Stated
Amount shall be proportionately adjusted as determined in good faith by the
Board of Trustees.
"Supplemental Preference Amount" shall have the meaning set forth in
paragraph (b) of Article 6.16.4 hereof.
"Trading Day" with respect to publicly traded Paired Shares or any
other shares of beneficial interest or other securities of the Trust or any
other issuer shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such securities are listed or admitted, or if not listed or admitted for
trading on any national securities exchange, on the NASDAQ National Market,
or if such securities are not quoted on such NASDAQ National Market, in the
applicable securities market in which such securities are traded.
"Transaction" shall have the meaning set forth in paragraph (f) of
Article 6.16.5 hereof.
"Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C.
(or any successor thereof), or such other agent or agents of the Trust as
may be designated by the Board of Trustees or their designee as the
transfer agent for the Class B EPS and the Class A EPS.
"Trust" shall mean Starwood Lodging Trust, a Maryland real estate
investment trust, and any successor.
"Trust Common Adjustment Event" shall mean any of the following events
that occurs after the Issue Date:
(i) The payment by the Trust of a dividend on the outstanding Trust
Shares that is payable in additional Trust Shares;
(ii) The subdivision of the outstanding Trust Shares into a greater
number of shares (whether by share split or otherwise);
(iii) The combination of the outstanding Trust Shares into a
smaller number of shares (whether by reverse share split or otherwise);
or
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<PAGE> 189
(iv) The issuance of any shares of beneficial interest in the Trust
by reclassification of the Trust Shares.
"Trust Common Dividend" shall mean any dividend or distribution paid
or made by the Trust pro rata on the outstanding Trust Shares other than
(i) a distribution of assets of the Trust upon the occurrence of a Trust
Liquidation Event or (ii) on a dividend or distribution that constitutes a
Trust Common Adjustment Event. In addition, a distribution to the holders
of shares of beneficial interest in the Trust of rights to subscribe for or
purchase additional Trust Shares under a shareholders protective rights
plan or agreement or any similar plan or agreement shall not be deemed to
constitute a Trust Common Dividend to the extent that the Trust makes
provision so that such rights, to the extent still outstanding with respect
to the outstanding Trust Shares, shall be issued to the holders of any
Trust Shares issued upon exercise of the Class A Exchange Right (and, to
the extent applicable, shall attach to such Trust Shares) in an amount and
manner and to the extent provided in such plans or agreements with respect
to already outstanding Trust Shares.
"Trust Conversion Notice" shall have the meaning set forth in
paragraph (c)(ii) of Article 6.16.5 hereof.
"Trust Conversion Right" shall have the meaning set forth in paragraph
(c)(i) of Article 6.16.5 hereof.
"Trust Redemption Date" shall have the meaning set forth in paragraph
(b)(ii) of Article 6.16.6 hereof.
"Trust Redemption Notice" shall have the meaning set forth in
paragraph (b)(ii) of Article 6.16.6 hereof.
"Trust Redemption Right" shall have the meaning set forth in paragraph
(a) of Article 6.16.6 hereof.
"Trust Shares" shall mean the common shares of beneficial interest in
the Trust, par value $.01 per share, or any shares of beneficial interest
in the Trust into which such common shares may be changed.
"Uncured Default" shall have the meaning set forth in paragraph (a) of
Article 6.16.9 hereof.
"Westin Transaction Agreement" shall mean the Transaction Agreement
dated as of September 8, 1997 among 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., the Trust, SLT Realty Limited Partnership, the Corporation
and SLC Operating Limited Partnership, as such agreement may be amended
from time to time.
6.16.3. DIVIDENDS.
(a) In General. The holders of Class B EPS will be entitled (i) to receive
a preferred dividend payable as described in paragraph (b) below (a "Class B
Preferred Dividend"), when, as and if declared by the Board of Trustees out of
assets of the Trust legally available for that purpose, based on the payment of
any Corporation Common Distribution and (ii) to participate on the basis
described in paragraph (c) below in any Trust Common Dividend, when, as and if
declared by the Board of Trustees out of assets of the Trust available for that
purpose (a "Class B Participation Dividend"). In certain circumstances, the
holders of Class B EPS will also be entitled to receive a Default Rate Dividend,
as provided in paragraph (d) below.
(b) Class B Preferred Dividend.
(i) Upon the payment by the Corporation of any Corporation Common
Distribution prior to the occurrence of a Liquidation Event, the right to
receive a Class B Preferred Dividend will automatically accrue with respect to
each share of Class B EPS as of the payment date for such Corporation Common
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Distribution in an amount equal to the value of the Corporation Common
Distribution paid on each Corporation Share multiplied by the applicable
Dividend Correspondence Ratio described below. To the extent that any
Corporation Common Distribution consists of securities or other property (other
than cash), the Trust will have the option of paying the corresponding Class B
Preferred Dividend either (A) in the same form as such Corporation Common
Distribution (i.e., by delivery of the same type of securities or other property
as distributed in the Corporation Common Distribution), (B) in cash in an amount
equal to the fair market value of such securities or other property as
determined in good faith by the Board of Trustees subject to the rights of the
holders of the Class B EPS to request a valuation from a nationally recognized
investment banking firm as provided in paragraph (h)(v) of Article 6.16.5 hereof
or (C) a combination thereof. Each Class B Preferred Dividend will be cumulative
from the payment date for the related Corporation Common Distribution and will
be payable to holders of record of Class B EPS on such record date as shall be
fixed by the Board of Trustees, which record date shall be the same as the
record date for the corresponding Class A Preferred Dividend based on such
Corporation Common Distribution and not earlier than the record date for such
Corporation Common Distribution. The Board of Trustees may, at any time between
the declaration of a Corporation Common Distribution and the related payment
date, declare a corresponding Class B Preferred Dividend conditioned on the
actual payment of such Corporation Common Distribution (any such Class B
Preferred Dividend being sometimes referred to herein as a "Conditionally
Declared Class B Dividend" until such time as the corresponding Corporation
Common Distribution is paid, at which time it will no longer be deemed to be a
Conditionally Declared Class B Dividend but will instead be deemed to be an
accrued Class A Preferred Dividend). The "Dividend Correspondence Ratio" for the
purposes of determining the amount of any Class B Preferred Dividend accrual
shall mean the number of Class B Underlying Corporation Shares for which each
share of Class B EPS is indirectly exchangeable as of the record date for the
related Corporation Common Distribution upon exercise of the Class B Exchange
Right, as such number shall be proportionately adjusted to reflect any share
dividend, share split, reverse share split or other combination or subdivision
of the Class B EPS or the Class A EPS that becomes effective between (or, if the
record date for such event is different from the effective date therefor, that
has a record date that falls between) (A) the record date for the Corporation
Common Distribution and (B) the date of payment of such Corporation Common
Distribution or, if earlier, the record date for such Class B Preferred
Dividend.
(ii) So long as any shares of Class B EPS are outstanding: (A) no Junior
Dividend may be declared or paid or set apart for payment unless all accrued
Class B Preferred Dividends and Conditionally Declared Class B Dividends have
been or are concurrently declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment, (B) no Parity Preferred Dividend
shall be declared or paid or set aside for payment unless a ratable portion of
all accrued but unpaid Class B Preferred Dividends and Conditionally Declared
Class B Dividends has been or is concurrently declared and paid, or declared and
a sum sufficient for the payment thereof set apart for payment (with such
ratable portion being based on the portion of the accrued but unpaid Parity
Preferred Dividends being paid) and (C) no Junior Shares may be redeemed,
purchased or otherwise acquired by the Trust (other than a redemption, purchase
or other acquisition of Trust Shares made for purposes of and in compliance with
requirements of an employee incentive or benefit plan of the Trust or any
subsidiary or upon any exchange or redemption of other securities at the option
of the holders thereof, or as required or permitted under Article VI of the
Declaration) for consideration (or any moneys paid or made available for a
sinking fund for the redemption of any Junior Shares), directly or indirectly
(except for conversion into or exchange for Junior Shares) unless all accrued
Class B Preferred Dividends and Conditionally Declared Class B Dividends have
been or are concurrently declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment.
(c) Class B Participation Dividend. No Trust Common Dividend may be
declared in respect of the Trust Shares unless the Board of Trustees
concurrently declares a Class B Participation Dividend entitling each share of
Class B EPS to receive an amount equal to the amount of the Trust Common
Dividend declared on each Trust Share multiplied by the number of Class B
Underlying Trust Shares for which each share of Class B EPS is indirectly
exchangeable upon exercise of the Class B Conversion Right as of the record date
for such Trust Common Dividend. Such Class B Participation Dividend shall be
payable
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on the same date on which the corresponding Trust Common Dividend is payable,
shall be payable in the same form as the corresponding Trust Common Dividend and
shall be paid to holders of record of the Class B EPS on the same record date as
is fixed by the Board of Trustees for the payment of such Trust Common Dividend.
(d) Default Rate Dividends. Notwithstanding the foregoing provisions of
this Article 6.16.3 but subject to paragraph (b) of Article 6.16.9, upon the
occurrence and during the continuation of any Uncured Default, dividends
("Default Rate Dividends") shall accrue with respect to the outstanding shares
of Class B EPS in an amount equal to the product of (i) the Stated Value of each
such share multiplied by (ii) an interest rate per annum equal to LIBOR plus
four percent (4%). Any such Default Rate Dividends shall be cumulative, shall be
deemed to constitute Class B Preferred Dividends for the purposes hereof and
shall be payable quarterly on March 1, June 1, September 1 and December 1 of
each year, when, as and if declared by the Board of Trustees out of assets of
the trust legally available for that purpose; provided that, if, at any time
when there are accrued but unpaid Default Rate Dividends on the Class B EPS, a
Class B Preferred Dividend or Class B Participation Dividend accrues pursuant to
paragraph (b) or (c) of this Article 6.16.3 in an amount per share that exceeds
the amount of such accrued but unpaid Default Rate Dividends per share, the
holders of shares of Class B EPS shall be entitled to receive such Class B
Preferred Dividend or Class B Participation Dividend in accordance with the
provisions of such paragraphs (b) and (c) and the Default Rate Dividends accrued
through the date of accrual of such Class B Preferred Dividend or Class B
Participation Dividend shall be reduced to zero (although additional Default
Rate Dividends shall again commence to accrue immediately following such date of
accrual to the extent that the Uncured Default continues unremedied).
6.16.4. LIQUIDATION RIGHTS.
(a) In General. Upon the occurrence of any Liquidation Event, 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 interests in the Trust, prior to the making of any Junior Liquidating
Distribution, a liquidating distribution in an amount equal to the Class B
Liquidation Preference described in paragraph (b) below determined as of the
effective date of such Liquidation Event or, if no effective date is provided,
as of the record date of the first liquidating distribution relating to such
Liquidation Event (in either such case, the "Liquidation Date") and (ii) to
participate on the basis described in paragraph (c) below in any liquidating
distribution to holders of Trust Shares (the "Class B Liquidation Participation
Right"). In determining whether a distribution (other than upon the occurrence
of a Liquidation Event), by dividend, redemption or other acquisition of shares
of beneficial interest in the Trust or otherwise, is permitted under Maryland
law, amounts that would be needed, if the Trust were to be dissolved at the time
of the distribution, to satisfy the preferential rights upon dissolution of the
holders of Class A EPS whose preferential rights upon dissolution are senior to
those receiving the distribution shall not be added to the Trust's total
liabilities.
(b) Class B Liquidation Preference. The "Class B Liquidation Preference" of
a share of Class B EPS as of the applicable Liquidation Date shall mean the sum
of (A) the Base Preference Amount as of such date and (B) the amount of any
accrued but unpaid dividends in respect of each share of Class B EPS as of such
date (other than any such accrued but unpaid Class B Preferred Dividends that
have been declared with a record date prior to such Liquidation Date, which the
Trust shall separately be obligated to pay to the holders of record of the Class
B EPS as of such record date)(the "Supplemental Preference Amount"). Until each
holder of shares of Class B EPS has received distributions equal to the Class B
Liquidation Preference, no Junior Liquidating Distributions may be paid to
holders of any other class or series of shares of beneficial interest in the
Trust. Subject to the rights of the holders of shares of beneficial interest in
the Trust with liquidation preferences ranking prior to or on a parity with the
Class B Liquidation Preference, after payment shall have been made in full of
the Class B Liquidation Preference as provided in this paragraph (b), Junior
Liquidating Distributions may be paid to the holders of any shares of beneficial
interest entitled to receive such distributions and the holders of the Class B
EPS shall not be entitled to share therein except as provided in paragraph (c)
of this Article 6.16.4. In the event that the assets of the Trust available for
liquidating distributions to holders of shares of beneficial interest
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in the Trust in connection with any Liquidation Event are insufficient to pay
the Class B Liquidation Preference on all outstanding Class B EPS and any Parity
Liquidation Preferences in respect of any other classes or series of shares of
beneficial interest in the Trust, then the holders of the Class B EPS and such
other classes and series of shares of beneficial interest in the Trust shall
share ratably in any such distribution of assets in proportion to the Class B
Liquidation Preference and the Parity Liquidation Preferences to which they
would otherwise be respectively entitled.
(c) Class B Liquidation Participation Rights. In addition to being entitled
to receive the Class B Liquidation Preference, upon the occurrence of any
Liquidation Event the holders of Class B EPS shall 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 can be indirectly exchanged as of the record date for
such distribution.
6.16.5. CONVERSION RIGHTS.
(a) In General. Shares of Class B EPS shall be convertible into shares of
Class A EPS (A) at the option of the holder upon exercise of the Class B
Conversion Right at any time after the first anniversary of the Issue Date and
on or prior to the first anniversary of the Cross-Over Date, to the extent
provided in paragraph (b) of this Article 6.16.5, or (B) at the option of the
Trust upon exercise of the Trust Conversion Right at any time after the
Cross-Over Date, to the extent provided in paragraph (c) of this Article 6.16.5.
In addition, as more specifically provided in Article 6.16.7 hereof, upon
receipt of a Class B Conversion/Redemption Notice from any holder of shares of
Class B EPS at any time after the first anniversary of the Cross-Over Date, the
Trust will be required to elect to either exercise the Trust Conversion Right or
the Trust Redemption Right with respect to the shares specified in such Class B
Conversion/Redemption Notice.
(b) Class B Conversion Right.
(i) A holder of shares of Class B EPS shall have the right, exercisable in
the manner described in paragraph (b)(ii) below, at such holder's option at any
time after the first anniversary of the Issue Date and on or prior to the first
anniversary of the Cross-Over Date, to convert such shares in whole or in part
into fully paid and non-assessable shares of Class A EPS based on the applicable
Conversion Ratio described in paragraph (e) of this Article 6.16.5 (the "Class B
Conversion Right"); provided, however, that the Class B Conversion Right may not
be exercised (A) with respect to any shares of Class B EPS that are already
subject to a Trust Conversion Notice, (B) with respect to any shares of Class B
EPS that are already subject to a Class B Redemption Notice or a Class B
Conversion/Redemption Notice or (C) after the applicable Redemption Date if the
Trust has already given a Trust Redemption Notice with respect to the applicable
shares of Class B EPS, unless, in the case of either (B) or (C), the Trust shall
default in its obligations hereunder arising as a result of such notice and such
default shall not have been cured within ten (10) days thereafter.
(ii) A holder of shares of Class B EPS desiring to exercise the Class B
Conversion Right with respect to such shares shall surrender the certificate or
certificates evidencing such shares, duly endorsed or assigned to the Trust or
in blank, to the Transfer Agent together with a duly completed and executed
conversion notice (a "Class B Conversion Notice") in such form as the Trust
shall prescribe from time to time and such related certifications as the Trust
may reasonably prescribe from time to time. Such form of Class B Conversion
Notice will also permit the holder of the Class B EPS being converted to
concurrently elect to exercise the Class A Exchange Right with respect to the
Class A EPS Shares to be issued pursuant to the exercise of the Class B
Conversion Right. Unless any shares of Class A EPS to be issued upon conversion
of such shares of Class B EPS are to be issued in the same name as the name in
which such shares of Class B EPS are registered, each share certificate
surrendered shall be accompanied by instruments of transfer, in form reasonably
satisfactory to the Trust, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any applicable transfer or
similar tax (or evidence reasonably satisfactory to the Trust demonstrating that
such taxes have been paid).
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(iii) As promptly as practicable after receipt by the Transfer Agent of a
Class B Conversion Notice and the certificates and other documents described
above, the Trust shall issue and deliver at the office of the Transfer Agent to
the holder of the shares of Class B EPS being converted, or on his or her
written order, a certificate or certificates for the full number of shares of
Class A EPS issuable upon such conversion in accordance with the provisions of
this Article 6.16.5, and any fractional interest in respect of a share of Class
A EPS resulting from such conversion shall be settled as provided in paragraph
(d) of this Article 6.16.5; provided, however, that to the extent that the
holder of shares of Class B EPS with respect to which the Class B Conversion
Right has been exercised has simultaneously exercised the Class A Exchange Right
with respect to the shares of Class A EPS issuable upon such conversion, no such
certificate or certificates shall be issued with respect to such shares of Class
A EPS (and there shall be no settlement of any such fractional interests), but
such Class A Exchange Right shall be deemed to have been exercised with respect
to such shares of Class A EPS (including any such fractional interests) as of
the date of receipt of the Class B Conversion Notice and the certificates and
other documents described above, and the rights and obligations of the Trust and
such holder arising therefrom shall be governed by Article 6.15.5 hereof. If
less than the full number of shares of Class B EPS represented by the
certificate or certificates surrendered to the Trust are to be converted
pursuant to an exercise of the Class B Conversion Right, the Trust shall also
deliver to the holder a new certificate or certificates evidencing the excess
shares not being converted.
(iv) The conversion resulting from any exercise of the Class B Conversion
Right shall be deemed to have been effected immediately prior to the close of
business on the date of receipt by the Transfer Agent of the Class B Conversion
Notice and the certificates and other documents described above, and the Person
or Persons in whose name or names any certificate or certificates for shares of
Class A EPS shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Class A EPS represented
thereby at such time on such date, unless the sharetransfer books of the Trust
for the Class A EPS shall be closed on such date, in which event such Person or
Persons shall be deemed to have become such holder or holders of record at the
close of business on the next succeeding day on which such sharetransfer books
are open.
(c) Trust Conversion Right.
(i) Shares of Class B EPS will also be convertible at any time after the
first anniversary of the Cross-Over Date in whole or in part at the option of
the Trust into fully paid and non-assessable shares of Class A EPS based on the
applicable Conversion Ratio described below (the "Trust Conversion Right");
provided, however, that the Trust Conversion Right may not be exercised with
respect to any shares of Class B EPS with respect to which (A) the holder has
already given a Class B Redemption Notice or a Class B Conversion Notice or (B)
the Trust has already given a Trust Redemption Notice.
(ii) The Trust Conversion Right may be exercised by the Trust giving
written notice of such exercise to the holders of the shares of the Class B EPS
with respect to which the Trust desires to exercise such right (a "Trust
Conversion Notice").
(iii) The shares of Class B EPS of a holder specified in such Trust
Conversion Notice shall be deemed to have been converted as of the date of the
applicable Trust Conversion Notice into the full number of shares of Class A EPS
issuable upon such conversion in accordance with the provisions of this Article
6.16.5, and any fractional interest in respect of a share of Class A EPS
resulting from such conversion shall be settled as provided in paragraph (d) of
this Article 6.16.5. The conversion provided for in this paragraph (c) shall be
automatic without the requirement of any action on the part of the affected
holders of shares of Class B EPS and whether or not the certificates evidencing
such shares of Class B EPS are surrendered to the Trust or the Transfer Agent;
provided that the Trust shall not be obligated to issue to any such holders
certificates evidencing the shares of Class A EPS into which such Class B EPS
shares have been converted until certificates evidencing the shares of Class B
EPS held by such holder have been delivered to the Trust or the Transfer Agent.
If less than the full number of shares of Class B EPS represented by the
certificate or certificates surrendered to the Trust in connection with an
exercise of
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the Trust Conversion Right have been converted pursuant to such exercise, the
Trust shall also deliver to the holder a new certificate or certificates
evidencing the excess shares not being converted.
(d) Fractional Interests. No fractional shares or scrip evidencing
fractions of shares of Class A EPS shall be issued upon exercise of the Class B
Conversion Right or the Trust Conversion Right. Instead of any fractional
interest in a share of Class A EPS that would otherwise be deliverable upon the
conversion of shares of Class B EPS, the Trust shall pay to the holder of such
shares of Class B EPS an amount in cash equal to the product of (A) such
fraction, (B) the then current Exchange Ratio of Class A EPS for Paired Shares,
as determined pursuant to the provisions of paragraph (d) of Article 6.15.5
hereof, and (C) the Current Market Price of the Paired Shares as of the Trading
Day immediately preceding the date on which the applicable Class B Conversion
Notice or Trust Conversion Notice (as applicable) and all related certificates
and other documents were received by the Transfer Agent.
(e) Conversion Ratio and Adjustments.
(i) Initially, one share of Class A EPS will be issuable upon conversion of
each share of Class B EPS pursuant to an exercise of the Class B Conversion
Right or the Trust Conversion Right (the "Conversion Ratio"), which Conversion
Ratio will be subject to adjustment from the Issue Date through the Cross-Over
Date. After such date, the Conversion Ratio will be equal to the Class B
Liquidation Preference (determined without taking into consideration any accrued
but unpaid dividends other than Default Rate Dividends) as of the date of
exercise of the Class B Conversion Right or the Trust Conversion Right, as
applicable, divided by the product of (A) the number of Class A Underlying
Paired Shares (including fractional interests) for which each share of Class A
EPS is exchangeable as of such date pursuant to Article 6.15.5 hereof multiplied
by (B) the Current Market Price of the Paired Shares as of such date. All
calculations of the Conversion Ratio under this paragraph (e) shall be made to
the nearest one-tenth of a share (with .05 of a share being rounded upward).
(ii) If, at any time between the Issue Date and the Cross-Over Date, a
Class A EPS Adjustment Event shall occur, the Conversion Ratio in effect as of
the close of business on the record date for such Class A EPS Adjustment Event
or, if no such record date applies, the effective date of such Class A EPS
Adjustment Event shall be adjusted so that in connection with any exercise of
the Class B Conversion Right or the Trust Conversion Right the shares of Class B
EPS subject to such exercise will be converted into the number of shares of
Class A EPS that such holder would have owned or been entitled to receive after
the happening of such Class A EPS Adjustment Event if such Class B Conversion
Right or Trust Conversion Right had been exercised immediately prior to such
record date or effective date. An adjustment pursuant to this subparagraph (ii)
shall become effective (subject to subparagraph (iv) below) immediately upon the
opening of business on the Business Day next following the record date for the
applicable Class A EPS Adjustment Event or, if no such record date applies, the
Business Day next following the effective date of such Class A EPS Adjustment
Event.
(iii) No adjustment in the Conversion Ratio shall be required pursuant to
subparagraph (ii) above unless such adjustment would require a cumulative
increase or decrease of at least one percent (1%) in such ratio; provided,
however, that any adjustments that by reason of this subparagraph (iii) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment until made.
(iv) In any case in which subparagraph (ii) above provides that an
adjustment to the Conversion Ratio shall become effective immediately following
the record date for a Class A EPS Adjustment Event, the Trust may defer until
the occurrence of such event (A) issuing to the holder of any shares of Class B
EPS converted after such record date but before the occurrence of such event the
additional shares of Class A EPS issuable pursuant to such conversion by reason
of the adjustment required pursuant to subparagraph (ii) in respect of such
Class A EPS Adjustment Event and (B) paying to such holder any amount of cash in
lieu of any fractional interest in shares of Class EPS pursuant to paragraph (d)
of this Article 6.16.5.
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(v) If at the time of any exercise of the Class B Conversion Right on or
prior to the Cross-Over Date there are any accrued but unpaid Default Rate
Dividends with respect to the shares of Class B EPS being converted, the
Conversion Ratio shall be adjusted so that the number of shares of Class A EPS
issuable upon such exercise is increased by a number of shares (the "Class B
Dividend Replacement Shares", which term shall also be deemed to refer to any
shares of Class A EPS issued upon exercise of the Class B Conversion Right in
respect of accrued but unpaid Default Rate Dividends pursuant to subparagraph
(ii) above) equal to (A) the amount of the accrued but unpaid Default Rate
Dividends with respect to the shares of Class B EPS being exchanged divided by
(B) the product of (1) the number of Paired Shares for which each share of Class
A EPS is then exchangeable upon exercise of the Class A Exchange Right
multiplied by (2) the Current Market Price of the Paired Shares during the five
(5) Trading Days immediately preceding the date of delivery of the applicable
Class B Conversion Notice or Trust Conversion Notice and all related
certificates and other documents.
(f) Effect of Mergers and Certain Other Transactions. If, at any time after
the Issue Date, the Trust shall become a party to any transaction, including,
without limitation, a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all outstanding Trust Shares, sale of all
or substantially all of the Trust's assets or recapitalization of the Class A
EPS (but excluding any event constituting a Class A EPS Adjustment Event) (each
of the foregoing being referred to herein as a "Transaction"), in each case as a
result of which the outstanding shares of Class A EPS shall be converted into or
exchanged for the right to receive stock, securities or other property
(including cash or any combination thereof), effective as of the effective date
of such Transaction, each share of Class A EPS issuable upon exercise of the
Class B Conversion Right or the Trust Conversion Right with respect to any
shares of Class B EPS that are not converted into or exchanged for the right to
receive stock, securities or other property in connection with such Transaction
shall thereafter be deemed to consist of the kind and amount of shares of stock
and other securities and property (including cash or any combination thereof)
that would have been held or receivable upon the consummation of such
Transaction by a holder of a number of shares of Class A EPS equal to the number
of Class B Underlying Class A EPS Shares into which each share of Class B EPS
would have been convertible immediately prior to such Transaction, assuming such
holder of shares of Class A EPS (A) is not a Person with which the Trust
consolidated or into which the Trust was merged or which merged into the Trust
or to which such sale or transfer was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person and (B) failed to exercise his
or her rights of election, if any, as to the kind or amount of stock, securities
[an] AND other property (including cash) receivable upon such Transaction
(provided that if the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction is not the same for each share
of Class A EPS held immediately prior to such Transaction by other than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"), then for the
purposes of this subparagraph (ii) the kind and amount of stock, securities and
other property (including cash) receivable upon such Transaction by each
Non-Electing [Shares] SHARE shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares). The provisions
of this paragraph (f) shall similarly apply to successive Transactions.
(g) Notice of Adjustment. Whenever the Conversion Ratio or the nature and
amount of the securities and other property issuable upon exercise of the Class
B Conversion Right or the Trust Conversion Right is adjusted as provided in
paragraph (e) or (f) above, the Trust shall promptly file with the Transfer
Agent an officer's certificate setting forth the Conversion Ratio after such
adjustment and, in the case of an adjustment pursuant to paragraph (f),
describing the kind and amount of stock, securities and other property
(including cash) thereafter issuable upon such exercise. Such certificate shall
also set forth a brief statement of the facts requiring such adjustment and
shall be conclusive evidence of the correctness of such adjustment absent
manifest error. Promptly after delivery of such certificate, the Trust shall
prepare a notice of such adjustment setting forth the adjusted Conversion Ratio,
the effective date of such adjustment and, in the case of an adjustment pursuant
to paragraph (f), a description of the kind and amount of stock, securities and
other property (including cash) thereafter issuable upon exercise of the Class B
Conversion Right or the Trust Conversion Right, and shall mail such notice of
such adjustment to
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the holder of each share of Class B EPS at such holder's last address as shown
on the sharerecords of the Trust.
(h) Miscellaneous Provisions.
(i) There shall be no adjustment of the Conversion Ratio in case of the
issuance of any shares of beneficial interest in the Trust in a reorganization,
acquisition or other similar transaction except as specifically set forth in
this Article 6.16.5.
(ii) If the Trust shall take any action affecting the Trust Shares or the
Corporation shall take any action affecting the Corporation Shares, other than
an action described in this Article 6.16.5, that in the opinion of the Board of
Trustees would materially and adversely affect the conversion rights of the
holders of the Class B EPS provided for in this Article 6.16.5, the Conversion
Ratio may be adjusted, to the extent permitted by law, in such manner, if any,
and at such time, as the Board of Trustees, in its sole discretion, may
determine to be equitable in the circumstances.
(iii) The Trust covenants that any shares of Class A EPS issued upon
exercise of the Class B Conversion Right or the Trust Conversion Right will be
validly issued, fully paid and non-assessable. The Trust shall reserve and shall
at all times have reserved out of its authorized but unissued Class A EPS
sufficient Class A EPS to permit the exercise of the Class B Conversion Right.
The Trust shall also comply with its obligations under paragraph (g)(iii) of
Article 6.15.5 hereof as if such shares of Class A EPS issuable upon exercise of
the Class B Conversion Right were issued and outstanding. The Trust shall pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Class A EPS or other securities or
property upon exercise of the Class B Conversion Right or the Trust Conversion
Right; provided, however, that the Trust shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issue or delivery
of any shares of Class A EPS or other securities or property in a name other
than that of the holder of the shares of Class B EPS being converted, and no
such issue or delivery shall be made unless and until the Person requesting such
issue or delivery has paid to the Trust the amount of any such tax or
established, to the reasonable satisfaction of the Trust, that such tax has been
paid.
(iv) Except as provided in paragraph (g)(v) below, any determination
required or permitted to be made by the Board of Trustees by these Articles
Supplementary shall be final, conclusive and binding on the holders of Class B
EPS.
(v) In the event that the Trust elects to pay in cash a Class B Preferred
Dividend corresponding to a Corporation Common Distribution in the form of
securities or other property and in connection therewith the Board of Trustees
makes a determination of the fair market value of such securities or other
property, the Trust shall deliver to each affected holder of Class B EPS a
written notice setting forth the valuation determined by the Board of Trustees.
At any time within ten (10) Business Days after receipt of such notice, any
affected holder of Class B EPS may request in writing that the Trust obtain a
written valuation of such securities or other property from an investment
banking firm. Promptly after receipt of any such request, the Trust shall select
a nationally recognized investment banking firm to perform such valuation and
shall provide such investment banking firm with such relevant information as the
Trust may have in relation thereto. Such investment banking firm shall be
instructed to prepare a written valuation report within thirty (30) days after
its appointment, and upon receipt of such valuation report, the Trust shall mail
a copy to each affected holder of Class B EPS. If the valuation as determined by
such investment banking firm is greater than the valuation as determined by the
Board of Trustees, the Trust shall promptly pay the amount of such difference to
each affected holder of Class B EPS. If, however, the valuation as determined by
such investment banking firm is less than the valuation determined by the Board
of Trustees, the Trust may at its option require each affected holder of Class B
EPS to repay the amount of such difference to the Trust, which amount shall be
so repaid by each such holder promptly after receipt of the Trust's request. The
fees and expenses of such investment banking firm shall be paid by the Trust.
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6.16.6. REDEMPTION RIGHTS.
(a) In General. Shares of Class B EPS will be redeemable at the option of
the Trust at any time after the Cross-Over Date in accordance with the
provisions of paragraph (b) of this Article 6.16.6 (the "Trust Redemption
Right") and will be redeemable at the option of the holders at any time during
the period commencing on the Cross-Over Date and ending on the first anniversary
of the Cross-Over Date in accordance with the provisions of paragraph (c) of
this Article 6.16.6 (the "Class B Redemption Right"). Prior to the Cross-Over
Date, shares of Class B EPS will not be redeemable at the option of either the
Trust or the holder. In addition, as more specifically provided in Article
6.16.7 hereof, upon receipt of a Class B Conversion/Redemption Notice from any
holder of shares of Class B EPS at any time after the first anniversary of the
Cross-Over Date, the Trust will be required to elect to either exercise the
Trust Conversion Right or the Trust Redemption Right with respect to the shares
specified in such Class B Conversion/Redemption Notice.
(b) Redemption at the Option of the Trust.
(i) Pursuant to the Trust Redemption Right, shares of Class B EPS may be
redeemed in cash in whole or in part at the option of the Trust at any time and
from time to time (in the case of partial redemptions) after the Cross-Over Date
at a redemption price (the "Redemption Price") equal to the Class B Liquidation
Preference of such shares as of the applicable Trust Redemption Date; provided,
however, that the Trust Redemption Right may not be exercised with respect to
any shares of Class B EPS that are already subject to (A) a Trust Conversion
Notice or (B) a Class B Conversion Notice or a Class B Redemption Notice. Such
redemption shall be deemed to have been made as of the close of business on the
applicable Trust Redemption Date, and after such Trust Redemption Date, provided
that the Trust Redemption Price has been duly paid or set apart for payment,
dividends shall cease to accrue on the shares of Class B EPS called for
redemption, such shares shall no longer be deemed to be outstanding and all
rights of the holders of such shares as shareholders of the Trust shall cease,
except the right to receive the Redemption Price, without interest thereon, upon
surrender of the certificates evidencing such shares.
(ii) Notice of any exercise of the Trust Redemption Right (a "Trust
Redemption Notice") shall be given to the holders of the shares of Class B EPS
to be redeemed not less than ten (10) nor more than sixty (60) days prior to the
date fixed for redemption (the "Trust Redemption Date"). Each Trust Redemption
Notice shall be given by first class mail to each holder of shares to be
redeemed at such holder's address as shown on the sharebooks of the Trust and
shall specify (A) the Trust Redemption Date, (B) the number of shares of Class B
EPS to be redeemed from such holder, (C) the Trust Redemption Price, (D) the
place or places where certificates for the shares of Class B EPS to be redeemed
are to be surrendered for payment of the Trust Redemption Price, (E) that
dividends will cease to accrue on the shares of Class B EPS to be redeemed on
the Redemption Date and (F) that the ability of the holders to exercise the
Class B Conversion Right with respect to the shares to be redeemed will
terminate on the Trust Redemption Date. If less than all outstanding shares of
Class B EPS are to be redeemed upon exercise of the Trust Redemption Right, the
shares to be redeemed shall be selected in such manner as the Trust deems
appropriate.
(iii) Upon receipt of a Trust Redemption Notice, each holder of shares of
Class B EPS being redeemed shall surrender to the Transfer Agent a certificate
or certificates evidencing such shares. As soon as practicable, and in any event
within five (5) Business Days, after such surrender, the Trust shall pay the
applicable Redemption Price to such holder and, if less than the full number of
shares represented by the certificate or certificates so surrendered are to be
redeemed, the Trust shall deliver to such holder a certificate or certificates
evidencing the excess shares not being redeemed. The Redemption Price shall be
payable at the election of the Trust by check or by wire transfer to an account
designated in writing by the holder at least two (2) Business Days prior to the
applicable Trust Redemption Date, if one has been so designated.
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(c) Redemption at the Option of the Holders.
(i) Under the Class B Redemption Right, to the extent permitted under
applicable law, each holder of shares of Class B EPS shall have the right, at
his or her option, to require the Trust at any time or from time to time (in the
case of partial redemptions) after the Cross-Over Date and on or prior to the
first anniversary of the Cross-Over Date to redeem some or all of such shares in
cash at the Redemption Price (determined as of the Class B Redemption Date);
provided, however, that the Class B Redemption Right may not be exercised with
respect to any shares of Class B EPS that are already subject to (A) a Trust
Conversion Notice or a Trust Redemption Notice or (B) a Class B Conversion
Notice. Such redemption shall be deemed to have been made as of the close of
business on the applicable Class B Redemption Date, and after such Class B
Redemption Date, provided that the Redemption Price has been duly paid or set
apart for payment, dividends shall cease to accrue on the shares of Class B EPS
surrendered for redemption, such shares shall no longer be deemed to be
outstanding and all rights of the holders of such shares as shareholders of the
Trust shall cease, except the right to receive the Redemption Price, without
interest thereon.
(ii) A holder of shares of Class B EPS may exercise the Class B Redemption
Right with respect to some or all of such shares by surrendering a certificate
or certificates evidencing the shares to be redeemed, duly endorsed or assigned
to the Trust in blank, to the Transfer Agent accompanied by a written notice (a
"Class B Redemption Notice") in such form as the Trust shall prescribe from time
to time specifying the number of shares (which shall be a whole number) to be
redeemed in accordance with the provisions of this paragraph (c). As soon as
practicable, and in any event within five (5) Business Days, after receipt of a
Class B Redemption Notice and the related certificates (the date of such receipt
being sometimes referred to herein as the "Class B Redemption Date"), to the
extent permitted under applicable law, the Trust shall pay the Redemption Price
to the holder and, if less than the full number of shares of Class B EPS
represented by the certificate or certificates surrendered together with such
Class B Redemption Notice are to be redeemed, the Trust shall deliver to such
holder a certificate or certificates evidencing the excess shares not being
redeemed. The Redemption Price shall be payable at the election of the Trust by
check or by wire transfer to an account designated in writing by the holder at
least two (2) Business Days prior to the applicable Class B Redemption Date, if
one has been so designated.
6.16.7. CLASS B CONVERSION/REDEMPTION ELECTION RIGHT.
In addition to the Class B Conversion Right and the Class B Redemption
Right, at any time after the first anniversary of the Cross-Over Date, each
holder of shares of Class B EPS will have the right (the "Class B
Conversion/Redemption Election Right"), upon written notice to the Trust in such
form as the Trust shall prescribe from time to time (a "Class B
Conversion/Redemption Notice"), to require that the Trust elect either to
exercise the Trust Conversion Right or the Trust Redemption Right described
below with respect to the shares of Class B EPS held by such holder and
designated in the Class B Conversion/Redemption Notice; provided, however, that
the Class B Conversion Right may not be exercised with respect to any shares of
Class B EPS (A) with respect to which the holder has already given a Class B
Redemption Notice or (B) after the applicable Redemption Date if the Trust has
already given a Trust Redemption Notice with respect to such shares unless, in
either such case, the Trust shall default in the payment of the applicable
Redemption Price required to be paid pursuant to Article 6.16.6 above. Within
five (5) Business Days after receipt of any such Class B Conversion/Redemption
Notice, the Trust shall either give the relevant holder a Trust Conversion
Notice or a Trust Redemption Notice with respect to the shares of Class B EPS
specified in such Class B Conversion/Redemption Notice.
6.16.8. REACQUIRED SHARES TO BE RETIRED.
All shares of Class B EPS which shall have been issued and reacquired in
any manner by the Trust shall be restored to the status of authorized but
unissued shares of beneficial interest in the Trust without designation as to
class.
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6.16.9. DEFAULT RIGHTS.
(a) Consequences of Uncured Default. Subject to paragraph (b) of this
Article 6.16.9, in the event that the Trust at any time defaults in its
obligations with respect to any exercise of the Class B Redemption Right, the
Class B Conversion Right or the Class B Conversion/Redemption Election Right,
and such default shall continue for a period of thirty (30) days from the date
that performance of such obligations was due (an "Uncured Default"), then: (i)
the holders of the outstanding shares of Class B EPS will have the rights with
respect to the election of two additional members of the Board of Trustees
described in paragraph (c) of Article 6.16.10 hereof, (ii) the dividend rate on
the Class B EPS will be increased as provided in paragraph (d) of Article 6.16.3
hereof, (iii) the Registration Rights Agreement will be amended to provide the
holders of Class B EPS with registration rights thereunder and (iv) the
Cross-Over Date (if not already past) will be extended by a number of days equal
to the number of days that an Uncured Default continues unremedied. Any Uncured
Default may be waived at any time by the holders of shares of Class B EPS
constituting a majority of all shares of Class B EPS then outstanding.
6.16.10. VOTING.
(a) General Voting Rights. The holders of shares of Class B EPS shall be
entitled to vote upon all matters upon which holders of Trust Shares have the
right to vote, and shall be entitled to the number of votes equal to the largest
whole number of Class B Underlying Trust Shares for which such shares of Class B
EPS could be indirectly exchanged (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) as of the record date for determination of the shareholders
entitled to vote on such matters, or, if no such record date is established, as
of the date such vote is taken or any written consent of shareholders is
solicited, such votes to be counted together with all other shares of beneficial
interest in the Trust having general voting powers and not separately as a
class.
(b) Special Voting Rights. So long as any shares of Class B EPS are
outstanding, in addition to any other vote or consent of holders of such shares
required by the Declaration or these Articles Supplementary, the affirmative
vote of at least a majority of the votes entitled to be cast by the holders of
all outstanding shares of Class B EPS, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for that purpose,
shall be necessary for effecting or validating any amendment, alteration or
repeal of any of the provisions of the Declaration or these Articles
Supplementary that materially and adversely affects the voting powers, rights or
preferences of the holders of the Class B EPS disproportionately (based on the
number of Underlying Class B Trust Shares at the time) to the effect of such
amendment, alteration or repeal on the holders of the Trust Shares; provided,
however, that (i) any amendment of the provisions of the Declaration so as to
authorize or create, or to increase the authorized amount of, any class or
series of shares of beneficial interest in the Trust, whether ranking prior to,
on a parity with or junior to the Class B EPS shall not be deemed to materially
and adversely affect the voting powers, rights or preferences of the holders of
Class B EPS and (ii) no filing with the State Department of Assessments and
Taxation of Maryland by the Trust in connection with a merger, consolidation or
sale of all or substantially all of the assets of the Trust shall be deemed to
be an amendment, alteration or repeal of any of the provisions of the
Declaration or these Articles Supplementary unless such filing expressly
purports to amend, alter or repeal one or more of such provisions. For the
purposes of this paragraph (b), each share of Class B EPS will have one vote per
share.
(c) Default Voting Rights.
(i) Upon the occurrence of any Uncured Default, the number of trustees then
constituting the Board of Trustees shall be increased by two and the holders of
the outstanding shares of Class B EPS shall be entitled to elect the two
additional trustees to serve on the Board of Trustees at any annual meeting of
shareholders, or at a special meeting of the holders of Class B EPS then
outstanding called as provided in subparagraph (ii) below. If such Uncured
Default shall at any time cease to be continuing or shall be waived, then the
right of the holders of the Class B EPS to elect such additional two trustees
shall cease (but subject always to the same provision for the vesting of such
voting rights upon the occurrence of any
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subsequent Uncured Default) and the terms of office of all persons elected as
trustees by such holders shall forthwith terminate and the number of trustees
constituting the Board of Trustees shall be reduced accordingly. For the
purposes of this paragraph (c), each share of Class B EPS will have one vote per
share.
(ii) At any time after the voting power described in subparagraph (i) above
shall have been vested in the holders of shares of Class B EPS, the Secretary of
the Trust may, and upon the written request of any holder of Class B EPS
(addressed to the Secretary at the principal office of the Trust) shall, call a
special meeting of the holders of the Class B EPS for the election of the two
trustees to be elected by them as herein provided, such call to be made by
notice similar to that provided in the [Trustees' Regulations] BYLAWS of the
Trust for a special meeting of the shareholders or as required by law. If any
such special meeting required to be called as above provided shall not be called
by the Secretary within twenty (20) days after receipt of such request, then any
holder of shares of Class B EPS may call such meeting, upon the notice above
provided and for that purpose shall have access to the sharebooks of the Trust.
The trustees elected at any such special meeting shall hold office until the
next annual meeting of the shareholders or special meeting held in lieu thereof
if such office shall not have previously terminated as above provided. If any
vacancy shall occur among the trustees elected by the holders of the Class B
EPS, a successor shall be elected by the Board of Trustees, upon the nomination
of the then-remaining trustee elected by the holders of the Class B EPS or the
successor of such remaining trustee, to serve until the next annual meeting of
the shareholders if such office shall not have previously terminated as provided
above.
6.16.11. RECORD HOLDERS.
The Trust and the Transfer Agent may deem and treat the record holder of
any Class B EPS as the true and lawful owner thereof for all purposes, and
neither the Trust nor the Transfer Agent shall be affected by any notice to the
contrary.
6.16.11. RESTRICTIONS ON OWNERSHIP AND TRANSFER.
The Class B EPS constitute shares of beneficial interest in the Trust that
are governed by and issued subject to all the limitations, terms and conditions
of the Declaration applicable to shares of beneficial interest in the Trust
generally, including, without limitation, the terms and conditions (including
exceptions and exemptions) of Article VI of the Declaration applicable to shares
of beneficial interest in the Trust. The foregoing sentence shall not be
construed to limit the applicability to the Class B EPS of any other term or
provision of the Declaration. No restrictions on the transferability of shares
of Class A EPS shall be enforced by the Trust to the extent that such
restrictions would otherwise cause the Trust to fail to meet the requirements of
Section 856(a)(2) of the Code.
6.17 Redemption. In the event that the Corporation shall redeem any
shares of its [capital] stock pursuant to Article [NINETEENTH] FIFTEENTH of the
[Articles of Incorporation] CHARTER of the Corporation and such shares are
subject to the limitation on transfer provided for in the [Pairing] INTERCOMPANY
Agreement, the Trust shall simultaneously redeem, upon the terms of such Article
[NINETEENTH] FIFTEENTH, any Shares that are paired with such shares of the
Corporation's [capital stock pursuant to the Pairing Agreement.] STOCK PURSUANT
TO THE INTERCOMPANY AGREEMENT.
6.18 CLASS A SHARES.
6.18.1. NUMBER OF SHARES AND DESIGNATION.
THE CLASS OF SHARES OF BENEFICIAL INTEREST IN THE TRUST AUTHORIZED BY THIS
SECTION 6.18.1 SHALL BE DESIGNATED AS "CLASS A SHARES", PAR VALUE $.01 PER SHARE
(THE "CLASS A SHARES"), AND FIVE THOUSAND (5,000) SHALL BE THE NUMBER OF CLASS A
SHARES CONSTITUTING SUCH CLASS.
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6.18.2. DEFINITIONS.
FOR PURPOSES OF THIS SECTION 6.18, THE FOLLOWING TERMS HAVE THE MEANINGS
INDICATED:
"BOARD OF TRUSTEES" SHALL MEAN THE BOARD OF TRUSTEES OF THE TRUST OR
ANY COMMITTEE AUTHORIZED BY THE BOARD OF TRUSTEES FROM TIME TO TIME TO
EXERCISE ANY OF ITS POWERS OR PERFORM ANY OF ITS RESPONSIBILITIES WITH
RESPECT TO THE CLASS A SHARES.
"CLASS A EPS" SHALL MEAN THE CLASS A EXCHANGEABLE PREFERRED SHARES OF
THE TRUST.
"CLASS A LIQUIDATING DISTRIBUTION" SHALL MEAN, AFTER THE OCCURRENCE OF
A LIQUIDATION EVENT, THE PAYMENT TO THE HOLDERS OF THE CLASS A SHARES (AND
OF ANY SHARES OF BENEFICIAL INTEREST IN THE TRUST ENTITLED TO PARTICIPATE
IN SUCH DISTRIBUTIONS RECEIVED BY THE HOLDERS OF CLASS A SHARES) OF A
LIQUIDATING DISTRIBUTION, OUT OF THE ASSETS OF THE TRUST LEGALLY AVAILABLE
FOR LIQUIDATING DISTRIBUTIONS TO HOLDERS OF SHARES OF BENEFICIAL INTERESTS
IN THE TRUST, IN THE AMOUNT OF THE AGGREGATE BOOK VALUE OF THE TOTAL EQUITY
OF THE TRUST ON DECEMBER 31, 1998 LESS THE AMOUNT OF SUCH BOOK VALUE
REPRESENTED BY THE CLASS A EPS AND THE CLASS B EPS AS CONCLUSIVELY
DETERMINED BY THE TRUST'S AUDITED BALANCE SHEET AS OF DECEMBER 31, 1998
INCLUDED IN THE TRUST'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998.
"CLASS A SHARES" SHALL HAVE THE MEANING SET FORTH IN SECTION 6.18.1.
"CLASS B EPS" SHALL MEAN THE CLASS B EXCHANGEABLE PREFERRED SHARES OF
THE TRUST.
"CLASS B SHARES" SHALL MEAN THE CLASS B SHARES OF BENEFICIAL INTEREST
IN THE TRUST, PAR VALUE $.01 PER SHARE, OR ANY SHARES OF BENEFICIAL
INTEREST IN THE TRUST INTO WHICH SUCH COMMON SHARES MAY BE CHANGED.
"CODE" SHALL MEAN THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR
ANY SUCCESSOR THERETO.
"DECLARATION" SHALL MEAN THE AMENDED AND RESTATED DECLARATION OF TRUST
OF THE TRUST, AS AMENDED FROM TIME TO TIME.
"JUNIOR SHARES" SHALL MEAN THE CLASS A SHARES, THE CLASS B SHARES AND
ANY OTHER SHARES OF BENEFICIAL INTEREST IN THE TRUST THAT DO NOT ENTITLE
THE HOLDERS THEREOF TO A LIQUIDATION PREFERENCE WITH RESPECT TO THE CLASS A
SHARES AND THE CLASS B SHARES, BUT SHALL NOT INCLUDE THE CLASS A EPS OR THE
CLASS B EPS.
"LIQUIDATION EVENT" SHALL MEAN ANY LIQUIDATION, DISSOLUTION OR WINDING
UP OF THE AFFAIRS OF THE TRUST, WHETHER VOLUNTARY OR INVOLUNTARY. FOR THE
PURPOSES HEREOF, (i) A CONSOLIDATION OR MERGER OF THE TRUST WITH ONE OR
MORE ENTITIES, (ii) A STATUTORY SHARE EXCHANGE AND (iii) A SALE OR TRANSFER
OF ALL OR SUBSTANTIALLY ALL THE TRUST'S ASSETS SHALL BE DEEMED NOT TO BE A
LIQUIDATION EVENT.
"TRANSFER AGENT" SHALL MEAN CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(OR ANY SUCCESSOR THEREOF), OR SUCH OTHER AGENT OR AGENTS OF THE TRUST AS
MAY BE DESIGNATED BY THE BOARD OF TRUSTEES OR THEIR DESIGNEE AS THE
TRANSFER AGENT FOR THE CLASS B SHARES.
"TRUST" SHALL MEAN STARWOOD HOTELS & RESORTS, A MARYLAND REAL ESTATE
INVESTMENT TRUST, AND ANY SUCCESSOR THERETO.
6.18.3. DIVIDENDS.
THE TRUSTEES MAY FROM TIME TO TIME AUTHORIZE AND THE TRUST MAY PAY TO THE
HOLDERS OF CLASS A SHARES SUCH DIVIDENDS OR 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 SALE OF PORTIONS OF THE ASSETS OF THE TRUST OR FROM ANY OTHER SOURCE AS THE
TRUSTEES IN THEIR DISCRETION SHALL DETERMINE. SUCH HOLDERS SHALL HAVE NO RIGHT
TO ANY DIVIDEND OR DISTRIBUTION UNLESS AUTHORIZED BY THE TRUSTEES.
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6.18.4. LIQUIDATION RIGHTS.
UPON THE OCCURRENCE OF ANY LIQUIDATION EVENT, THE HOLDERS OF CLASS A SHARES
(AND OF ANY SHARES OF BENEFICIAL INTEREST IN THE TRUST ENTITLED TO PARTICIPATE
IN SUCH DISTRIBUTIONS RECEIVED BY THE HOLDERS OF THE CLASS A SHARES) WILL BE
ENTITLED TO RECEIVE OUT OF THE ASSETS OF THE TRUST LEGALLY AVAILABLE FOR
LIQUIDATING DISTRIBUTIONS TO HOLDERS OF SHARES OF BENEFICIAL INTERESTS IN THE
TRUST, AFTER THE PAYMENT IN FULL OF ANY LIQUIDATION PREFERENCE OF ANY
OUTSTANDING SHARES OF BENEFICIAL INTEREST IN THE TRUST (OTHER THAN JUNIOR
SHARES), INCLUDING THE CLASS A EPS (TO THE EXTENT OF THE CLASS A LIQUIDATION
PREFERENCE (AS DEFINED IN SECTION 6.15.2)) AND THE CLASS B EPS (TO THE EXTENT OF
THE CLASS B LIQUIDATION PREFERENCE (AS DEFINED IN SECTION 6.16.2)), (i) THE
CLASS A LIQUIDATING DISTRIBUTION AND (ii) A LIQUIDATING DISTRIBUTION IN AN
AMOUNT EQUAL TO 90% OF SUCH ASSETS REMAINING AFTER THE PAYMENT IN FULL OF THE
CLASS A LIQUIDATING DISTRIBUTION, WITH THE REMAINING 10% OF SUCH ASSETS TO BE
DISTRIBUTED CONCURRENTLY TO THE HOLDERS OF THE CLASS B SHARES (AND OF ANY SHARES
OF BENEFICIAL INTEREST IN THE TRUST ENTITLED TO PARTICIPATE IN SUCH
DISTRIBUTIONS RECEIVED BY THE HOLDERS OF CLASS B SHARES, INCLUDING THE CLASS A
EPS (TO THE EXTENT OF THE CLASS A LIQUIDATION PARTICIPATION RIGHT (AS DEFINED IN
SECTION 6.15.2)) AND THE CLASS B EPS (TO THE EXTENT OF THE CLASS B LIQUIDATION
PARTICIPATION RIGHT (AS DEFINED IN SECTION 6.16.2))).
6.18.5. REACQUIRED SHARES.
ALL CLASS A SHARES THAT SHALL HAVE BEEN ISSUED AND REACQUIRED IN ANY MANNER
BY THE TRUST SHALL BE RESTORED TO THE STATUS OF AUTHORIZED BUT UNISSUED SHARES
OF BENEFICIAL INTEREST IN THE TRUST WITHOUT DESIGNATION AS TO CLASS.
6.18.6. VOTING.
(a) GENERAL VOTING RIGHTS. SUBJECT TO SECTION 6.18.6(b), THE HOLDERS OF
CLASS A SHARES SHALL BE ENTITLED TO VOTE UPON ALL MATTERS, INCLUDING THE
ELECTION OF TRUSTEES (OTHER THAN TRUSTEES WHO MAY BE ELECTED FROM TIME TO TIME
BY HOLDERS OF ONE OR MORE OTHER CLASSES OR SERIES OF SHARES OF BENEFICIAL
INTEREST IN THE TRUST), PROPERLY PRESENTED TO THE SHAREHOLDERS OF THE TRUST
GENERALLY FOR A VOTE.
(b) SPECIAL VOTING RIGHTS. SO LONG AS ANY CLASS A SHARES ARE OUTSTANDING,
IN ADDITION TO ANY OTHER VOTE OR CONSENT OF HOLDERS OF SUCH SHARES REQUIRED BY
THE DECLARATION, THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE VOTES
ENTITLED TO BE CAST BY THE HOLDERS OF ALL OUTSTANDING CLASS A SHARES, GIVEN IN
PERSON OR BY PROXY, EITHER IN WRITING WITHOUT A MEETING OR BY VOTE AT ANY
MEETING CALLED FOR THAT PURPOSE, SHALL BE NECESSARY FOR EFFECTING OR VALIDATING
ANY AMENDMENT, ALTERATION OR REPEAL OF ANY OF THE PROVISIONS OF THE DECLARATION
THAT MATERIALLY AND ADVERSELY AFFECTS THE RIGHTS OF THE HOLDERS OF THE CLASS A
SHARES.
(c) VOTES PER SHARE. FOR THE PURPOSES OF THIS SECTION 6.18.6, EACH CLASS A
SHARE WILL HAVE ONE VOTE PER SHARE.
6.18.7. RECORD HOLDERS.
THE TRUST AND THE TRANSFER AGENT MAY DEEM AND TREAT THE RECORD HOLDER OF
ANY CLASS A SHARES AS THE TRUE AND LAWFUL OWNER THEREOF FOR ALL PURPOSES, AND
NEITHER THE TRUST NOR THE TRANSFER AGENT SHALL BE AFFECTED BY ANY NOTICE TO THE
CONTRARY.
6.18.8. RESTRICTIONS ON OWNERSHIP AND TRANSFER.
THE CLASS A SHARES CONSTITUTE SHARES OF BENEFICIAL INTEREST IN THE TRUST
THAT ARE GOVERNED BY AND ISSUED SUBJECT TO ALL THE LIMITATIONS, TERMS AND
CONDITIONS OF THE DECLARATION APPLICABLE TO SHARES OF BENEFICIAL INTEREST IN THE
TRUST GENERALLY, INCLUDING, WITHOUT LIMITATION, THE TERMS AND CONDITIONS
(INCLUDING EXCEPTIONS AND EXEMPTIONS) OF ARTICLE VI OF THE DECLARATION
APPLICABLE TO SHARES OF BENEFICIAL INTEREST IN THE TRUST. THE FOREGOING SENTENCE
SHALL NOT BE CONSTRUED TO LIMIT THE APPLICABILITY TO THE CLASS A SHARES OF ANY
OTHER TERM OR PROVISION OF THE DECLARATION. NO RESTRICTIONS ON THE
TRANSFERABILITY OF SHARES OF CLASS A SHARES SHALL BE ENFORCED BY THE TRUST TO
THE EXTENT THAT SUCH RESTRICTIONS WOULD OTHERWISE CAUSE THE TRUST TO FAIL TO
MEET THE REQUIREMENTS OF SECTION 856(a)(2) OF THE CODE.
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6.19 CLASS B SHARES.
6.19.1. NUMBER OF SHARES AND DESIGNATION.
THE CLASS OF SHARES OF BENEFICIAL INTEREST IN THE TRUST AUTHORIZED BY THIS
SECTION 6.19 SHALL BE DESIGNATED AS "CLASS B SHARES", PAR VALUE $.01 PER SHARE
(THE "CLASS B SHARES"), AND ONE BILLION (1,000,000,000) SHALL BE THE NUMBER OF
CLASS B SHARES CONSTITUTING SUCH CLASS. FOR PURPOSES OF ARTICLE VI, SECTIONS
6.15 AND 6.16, THE CLASS B SHARES SHALL BE DEEMED TO BE THE SHARES OF BENEFICIAL
INTEREST IN THE TRUST INTO WHICH THE TRUST SHARES ARE CHANGED IN THE MERGER OF
ST ACQUISITION TRUST INTO THE TRUST PURSUANT TO THE ARTICLES OF MERGER ACCEPTED
FOR RECORD BY THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND ON
, 1999.
6.19.2. DEFINITIONS.
FOR PURPOSES OF THIS SECTION 6.19, THE FOLLOWING TERMS HAVE THE MEANINGS
INDICATED:
"AFFILIATE" SHALL MEAN WITH RESPECT TO ANY PERSON, ANY OTHER PERSON
WHICH DIRECTLY OR INDIRECTLY CONTROLS, IS CONTROLLED BY OR IS UNDER COMMON
CONTROL WITH SUCH PERSON.
"BOARD OF TRUSTEES" SHALL MEAN THE BOARD OF TRUSTEES OF THE TRUST OR
ANY COMMITTEE AUTHORIZED BY THE BOARD OF TRUSTEES FROM TIME TO TIME TO
EXERCISE ANY OF ITS POWERS OR PERFORM ANY OF ITS RESPONSIBILITIES WITH
RESPECT TO THE CLASS B SHARES.
"BUSINESS DAY" SHALL MEAN ANY DAY OTHER THAN A SATURDAY, SUNDAY OR A
DAY ON WHICH STATE OR FEDERALLY CHARTERED BANKING INSTITUTIONS IN NEW YORK,
NEW YORK ARE NOT REQUIRED TO BE OPEN.
"CASH EQUIVALENT" OF UNITS OR ANY OTHER SHARES OF BENEFICIAL INTEREST
OR OTHER SECURITIES OF THE TRUST OR ANY OTHER ISSUER AS OF ANY DATE SHALL
MEAN AN AMOUNT OF CASH EQUAL TO (i) THE AVERAGE OF THE DAILY CURRENT MARKET
PRICES PER UNIT OR OTHER SHARES OR SECURITIES DURING THE FIVE (5)
CONSECUTIVE TRADING DAYS IMMEDIATELY PRECEDING SUCH DATE OR (ii) IF THE
UNITS OR SUCH OTHER SHARES OR SECURITIES ARE NOT PUBLICLY TRADED ON SUCH
DATE, THE FAIR MARKET VALUE OF UNITS OR OTHER SHARES OR SECURITIES AS OF
SUCH DATE AS DETERMINED BY THE BOARD OF TRUSTEES IN GOOD FAITH.
"CLASS A DIVIDEND" SHALL MEAN ANY DIVIDEND OR DISTRIBUTION PAID OR
MADE BY THE TRUST PRO RATA ON OR WITH RESPECT TO THE OUTSTANDING CLASS A
SHARES OTHER THAN A DISTRIBUTION OF ASSETS OF THE TRUST UPON THE OCCURRENCE
OF A LIQUIDATION EVENT; PROVIDED THAT A DISTRIBUTION TO THE HOLDERS OF
SHARES OF BENEFICIAL INTEREST IN THE TRUST OF RIGHTS TO SUBSCRIBE FOR OR
PURCHASE ADDITIONAL EQUITY SECURITIES UNDER A SHAREHOLDERS' PROTECTIVE
RIGHTS PLAN OR AGREEMENT OR ANY SIMILAR PLAN OR AGREEMENT SHALL BE DEEMED
NOT TO CONSTITUTE A CLASS A DIVIDEND.
"CLASS A EPS" SHALL MEAN THE CLASS A EXCHANGEABLE PREFERRED SHARES OF
THE TRUST.
"CLASS A LIQUIDATING DISTRIBUTION" SHALL MEAN, AFTER THE OCCURRENCE OF
A LIQUIDATION EVENT, THE PAYMENT TO THE HOLDERS OF THE CLASS A SHARES (AND
OF ANY SHARES OF BENEFICIAL INTEREST IN THE TRUST ENTITLED TO PARTICIPATE
IN SUCH DISTRIBUTIONS RECEIVED BY THE HOLDERS OF CLASS A SHARES) OF A
LIQUIDATING DISTRIBUTION, OUT OF THE ASSETS OF THE TRUST LEGALLY AVAILABLE
FOR LIQUIDATING DISTRIBUTIONS TO HOLDERS OF SHARES OF BENEFICIAL INTERESTS
IN THE TRUST, IN THE AMOUNT OF THE AGGREGATE BOOK VALUE OF THE TOTAL EQUITY
OF THE TRUST ON DECEMBER 31, 1998 LESS THE AMOUNT OF SUCH BOOK VALUE
REPRESENTED BY THE CLASS A EPS AND THE CLASS B EPS AS CONCLUSIVELY
DETERMINED BY THE TRUST'S AUDITED BALANCE SHEET AS OF DECEMBER 31, 1998
INCLUDED IN THE TRUST'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998.
"CLASS A SHARES" SHALL MEAN THE CLASS A SHARES OF BENEFICIAL INTEREST
IN THE TRUST, PAR VALUE $.01 PER SHARE, OR ANY SHARES OF BENEFICIAL
INTEREST IN THE TRUST INTO WHICH SUCH COMMON SHARES MAY BE CHANGED.
"CLASS B EPS" SHALL MEAN THE CLASS B EXCHANGEABLE PREFERRED SHARES OF
THE TRUST.
"CLASS B SHARES" SHALL HAVE THE MEANING SET FORTH IN SECTION 6.19.1.
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"CODE" SHALL MEAN THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR
ANY SUCCESSOR THERETO.
"COMMON SHARES AND EQUIVALENTS" SHALL MEAN THE CLASS A SHARES, THE
CLASS B SHARES, THE CLASS A UNDERLYING TRUST SHARES (AS DEFINED IN SECTION
6.15.2), WHICH SHARES SHALL BE DEEMED OUTSTANDING TO THE EXTENT THE
CORRESPONDING CLASS A EPS IS OUTSTANDING, THE CLASS B UNDERLYING TRUST
SHARES (AS DEFINED IN SECTION 6.16.2), WHICH SHARES SHALL BE DEEMED
OUTSTANDING TO THE EXTENT THE CORRESPONDING CLASS B EPS IS OUTSTANDING, AND
ANY OTHER SHARES OF BENEFICIAL INTEREST IN THE TRUST THAT DO NOT ENTITLE
THE HOLDERS THEREOF TO A LIQUIDATION PREFERENCE WITH RESPECT TO THE CLASS A
SHARES AND THE CLASS B SHARES, BUT SHALL NOT INCLUDE THE CLASS A EPS OR THE
CLASS B EPS.
"CORPORATION" SHALL MEAN STARWOOD HOTELS & RESORTS WORLDWIDE, INC., A
MARYLAND CORPORATION, AND ANY SUCCESSOR THERETO.
"CORPORATION SHARES" SHALL MEAN THE SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE, OF THE CORPORATION OR ANY STOCK OF THE CORPORATION INTO
WHICH SUCH COMMON STOCK MAY HEREAFTER BE CHANGED.
"CURRENT MARKET PRICE" OF PUBLICLY TRADED UNITS OR ANY OTHER SHARES OF
BENEFICIAL INTEREST OR OTHER SECURITIES OF THE TRUST OR ANY OTHER ISSUER AS
OF ANY TRADING DAY SHALL MEAN THE LAST REPORTED SALES PRICE, REGULAR WAY,
ON SUCH DAY, OR, IF NO SALE TAKES PLACE ON SUCH DAY, THE AVERAGE OF THE
REPORTED CLOSING BID AND ASKED PRICES ON SUCH DAY, REGULAR WAY, IN EITHER
CASE AS REPORTED ON THE NYSE OR, IF SUCH SHARES OR OTHER SECURITIES ARE NOT
LISTED OR ADMITTED FOR TRADING ON THE NYSE, ON THE PRINCIPAL NATIONAL
SECURITIES EXCHANGE ON WHICH SUCH SHARES OR OTHER SECURITIES ARE LISTED OR
ADMITTED FOR TRADING OR, IF NOT LISTED OR ADMITTED FOR TRADING ON ANY
NATIONAL SECURITIES EXCHANGE, ON THE NASDAQ NATIONAL MARKET OR, IF SUCH
SHARES OR OTHER SECURITIES ARE NOT QUOTED ON SUCH NASDAQ NATIONAL MARKET,
THE AVERAGE OF THE CLOSING BID AND ASKED PRICES ON SUCH DAY IN THE OVER-
THE-COUNTER MARKET AS REPORTED BY NASDAQ OR, IF BID AND ASKED PRICES FOR
SUCH SHARES OR OTHER SECURITIES ON SUCH DAY SHALL NOT HAVE BEEN REPORTED
THROUGH NASDAQ, THE AVERAGE OF THE BID AND ASKED PRICES ON SUCH DAY AS
FURNISHED BY ANY NYSE MEMBER FIRM REGULARLY MAKING A MARKET IN SUCH SHARES
OR OTHER SECURITIES SELECTED FOR SUCH PURPOSE BY THE CHIEF EXECUTIVE
OFFICER OR CHIEF FINANCIAL OFFICER OF THE TRUST OR THE BOARD OF TRUSTEES.
"DECLARATION" SHALL MEAN THE AMENDED AND RESTATED DECLARATION OF TRUST
OF THE TRUST, AS AMENDED FROM TIME TO TIME.
"DIVIDEND AMOUNT" SHALL MEAN AN AMOUNT EQUAL TO $0.60 PER CLASS B
SHARE PER ANNUM; PROVIDED THAT SUCH AMOUNT SHALL INCREASE BY 15% PER ANNUM
COMMENCING JANUARY 1, 2000 (ROUNDED TO THE NEAREST $.01); PROVIDED FURTHER
THAT IF THE DIVIDEND AMOUNT FOR ANY CALENDAR YEAR WOULD (WITHOUT GIVING
EFFECT TO THIS PROVISO) EXCEED 25% (BUT BE LESS THAN OR EQUAL TO 35%) OF
FFO PER SHARE FOR THE PRIOR CALENDAR YEAR, THEN THE DIVIDEND AMOUNT SHALL
INCREASE BY 5% FOR SUCH YEAR (SO ROUNDED); PROVIDED FURTHER THAT IF THE
DIVIDEND AMOUNT FOR SUCH CALENDAR YEAR WOULD (WITHOUT GIVING EFFECT TO THE
PRECEDING PROVISO) EXCEED 35% OF FFO PER SHARE FOR SUCH PRIOR CALENDAR
YEAR, THEN THE DIVIDEND AMOUNT FOR SUCH CALENDAR YEAR SHALL EQUAL THE
DIVIDEND AMOUNT FOR SUCH PRIOR CALENDAR YEAR; AND PROVIDED FURTHER THAT IN
NO CALENDAR YEAR SHALL THE DIVIDEND AMOUNT EXCEED AN AMOUNT EQUAL TO 49% OF
THE TAXABLE INCOME PER SHARE FOR THE PRIOR CALENDAR YEAR (SO ROUNDED).
"EXCHANGE AMOUNT" SHALL HAVE THE MEANING SET FORTH IN PARAGRAPH (a)(i)
OF SECTION 6.19.5.
"EXCHANGE DATE" SHALL HAVE THE MEANING SET FORTH IN PARAGRAPH (a)(ii)
OF SECTION 6.19.5.
"EXCHANGE NOTICE" SHALL HAVE THE MEANING SET FORTH IN PARAGRAPH
(a)(iii) OF SECTION 6.19.5.
"EXCHANGE ISSUANCE DATE" SHALL HAVE THE MEANING SET FORTH IN PARAGRAPH
(a)(iv) OF SECTION 6.19.5.
"FFO PER SHARE" FOR ANY CALENDAR YEAR SHALL MEAN "FUNDS FROM
OPERATIONS" OF THE TRUST FOR SUCH YEAR, AS SUCH AMOUNT IS CALCULATED AND
PUBLICLY DISCLOSED BY THE TRUST FROM TIME TO TIME,
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DIVIDED BY THE AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS OUTSTANDING
DURING SUCH CALENDAR YEAR.
"INTERCOMPANY AGREEMENT" SHALL MEAN THE AMENDED AND RESTATED
INTERCOMPANY AGREEMENT DATED AS OF , 1999, BETWEEN THE TRUST
AND THE CORPORATION, AS AMENDED FROM TIME TO TIME.
"ISSUE DATE" SHALL MEAN THE FIRST DATE ON WHICH ANY CLASS B SHARES ARE
ISSUED BY THE TRUST.
"JUNIOR SHARES" SHALL MEAN THE CLASS A SHARES, THE CLASS B SHARES AND
ANY OTHER SHARES OF BENEFICIAL INTEREST IN THE TRUST THAT DO NOT ENTITLE
THE HOLDERS THEREOF TO A LIQUIDATION PREFERENCE WITH RESPECT TO THE CLASS A
SHARES AND THE CLASS B SHARES, BUT SHALL NOT INCLUDE THE CLASS A EPS OR THE
CLASS B EPS.
"LIQUIDATION EVENT" SHALL MEAN ANY LIQUIDATION, DISSOLUTION OR WINDING
UP OF THE AFFAIRS OF THE TRUST, WHETHER VOLUNTARY OR INVOLUNTARY. FOR THE
PURPOSES HEREOF, (i) A CONSOLIDATION OR MERGER OF THE TRUST WITH ONE OR
MORE ENTITIES, (ii) A STATUTORY SHARE EXCHANGE AND (iii) A SALE OR TRANSFER
OF ALL OR SUBSTANTIALLY ALL THE TRUST'S ASSETS SHALL BE DEEMED NOT TO BE A
LIQUIDATION EVENT.
"NYSE" SHALL MEAN THE NEW YORK STOCK EXCHANGE.
"PERSON" SHALL MEAN ANY INDIVIDUAL, FIRM, TRUST, PARTNERSHIP,
CORPORATION, LIMITED LIABILITY COMPANY OR OTHER ENTITY, AND SHALL INCLUDE
ANY SUCCESSOR (BY MERGER OR OTHERWISE) OF SUCH ENTITY.
"SECURITIES ACT" SHALL MEAN THE SECURITIES ACT OF 1933, AS AMENDED.
"SET APART FOR PAYMENT" SHALL BE DEEMED TO INCLUDE, WITHOUT ANY ACTION
OTHER THAN THE FOLLOWING, THE RECORDING BY THE TRUST IN ITS ACCOUNTING
LEDGERS OF ANY ACCOUNTING OR BOOKKEEPING ENTRY WHICH INDICATES, PURSUANT TO
A DECLARATION OF DIVIDENDS OR OTHER DISTRIBUTION BY THE BOARD OF TRUSTEES,
THE ALLOCATION OF FUNDS TO BE SO PAID ON ANY SERIES OR CLASS OF SHARES OF
BENEFICIAL INTEREST OF THE TRUST.
"TAXABLE INCOME PER SHARE" FOR ANY CALENDAR YEAR SHALL MEAN THE
TAXABLE INCOME OF THE TRUST UNDER THE CODE AS REPORTED BY THE TRUST TO THE
INTERNAL REVENUE SERVICE FOR SUCH CALENDAR YEAR, DIVIDED BY THE AVERAGE
NUMBER OF COMMON SHARES AND EQUIVALENTS OUTSTANDING DURING SUCH CALENDAR
YEAR.
"TRADING DAY" WITH RESPECT TO PUBLICLY TRADED UNITS OR ANY OTHER
SHARES OF BENEFICIAL INTEREST OR OTHER SECURITIES OF THE TRUST OR ANY OTHER
ISSUER SHALL MEAN ANY DAY ON WHICH THE SHARES OR OTHER SECURITIES IN
QUESTION ARE TRADED ON THE NYSE, OR IF SUCH SHARES OR OTHER SECURITIES ARE
NOT LISTED OR ADMITTED FOR TRADING ON THE NYSE, ON THE PRINCIPAL NATIONAL
SECURITIES EXCHANGE ON WHICH SUCH SHARES OR OTHER SECURITIES ARE LISTED OR
ADMITTED, OR IF NOT LISTED OR ADMITTED FOR TRADING ON ANY NATIONAL
SECURITIES EXCHANGE, ON THE NASDAQ NATIONAL MARKET, OR IF SUCH SHARES OR
OTHER SECURITIES ARE NOT QUOTED ON SUCH NASDAQ NATIONAL MARKET, IN THE
APPLICABLE SECURITIES MARKET IN WHICH SUCH SHARES OR OTHER SECURITIES ARE
TRADED.
"TRANSFER AGENT" SHALL MEAN CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(OR ANY SUCCESSOR THEREOF), OR SUCH OTHER AGENT OR AGENTS OF THE TRUST AS
MAY BE DESIGNATED BY THE BOARD OF TRUSTEES OR THEIR DESIGNEE AS THE
TRANSFER AGENT FOR THE CLASS B SHARES.
"TRUST" SHALL MEAN STARWOOD HOTELS & RESORTS, A MARYLAND REAL ESTATE
INVESTMENT TRUST, AND ANY SUCCESSOR THERETO.
"UNITS" SHALL MEAN UNITS CONSISTING OF ONE CLASS B SHARE AND ONE
CORPORATION SHARE (SUBJECT TO ADJUSTMENT AS CONTEMPLATED BY THE
INTERCOMPANY AGREEMENT) AND REPRESENTED BY A SINGLE SHARE CERTIFICATE, AS
PROVIDED IN THE INTERCOMPANY AGREEMENT.
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6.19.3. DIVIDENDS.
(a) GENERAL. THE HOLDERS OF CLASS B SHARES ARE ENTITLED TO RECEIVE A
NONCUMULATIVE DIVIDEND IN AN AMOUNT PER SHARE EQUAL TO THE DIVIDEND AMOUNT,
WHEN, AS AND IF AUTHORIZED BY THE BOARD OF TRUSTEES OUT OF ASSETS OF THE TRUST
LEGALLY AVAILABLE FOR THAT PURPOSE. EACH DIVIDEND WILL BE NONCUMULATIVE AND WILL
BE PAYABLE TO HOLDERS OF RECORD OF CLASS B SHARES ON SUCH RECORD DATE AS SHALL
BE FIXED BY THE BOARD OF TRUSTEES.
(b) RESTRICTION ON CLASS A DIVIDENDS. SO LONG AS ANY CLASS B SHARES ARE
OUTSTANDING, NO CLASS A DIVIDEND MAY BE DECLARED OR PAID OR SET APART FOR
PAYMENT WITH RESPECT TO ANY FISCAL QUARTER UNLESS ALL ACCRUED DIVIDENDS ON THE
CLASS B SHARES WITH RESPECT TO SUCH QUARTER HAVE BEEN OR ARE CONCURRENTLY
DECLARED AND PAID; PROVIDED, HOWEVER, THAT THE RESTRICTION ON THE PAYMENT OF
CLASS A DIVIDENDS SET FORTH IN THIS SECTION 6.19.3(b) SHALL NOT APPLY TO THE
EXTENT (x) THAT THE TRUST IS RESTRICTED, UNDER THE TERMS OF ANY BONA FIDE LOAN
OR CREDIT AGREEMENT OR INDENTURE RELATING TO A BORROWING BY THE TRUST OR THE
CORPORATION OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, FROM DECLARING OR PAYING,
WITH RESPECT TO ANY FISCAL QUARTER, ANY DIVIDEND ON THE CLASS B SHARES BUT NOT A
CLASS A DIVIDEND OR (y) NECESSARY, IN THE GOOD FAITH JUDGMENT OF THE BOARD OF
TRUSTEES, TO PERMIT THE TRUST TO CONTINUE TO QUALIFY FOR TAXATION AS A "REAL
ESTATE INVESTMENT TRUST" UNDER SECTION 856 OF THE CODE.
6.19.4. LIQUIDATION RIGHTS.
UPON THE OCCURRENCE OF ANY LIQUIDATION EVENT, THE HOLDERS OF CLASS B SHARES
(AND OF ANY SHARES OF BENEFICIAL INTEREST IN THE TRUST ENTITLED TO PARTICIPATE
IN SUCH DISTRIBUTIONS RECEIVED BY THE HOLDERS OF THE CLASS B SHARES, INCLUDING
THE CLASS A EPS (TO THE EXTENT OF THE CLASS A LIQUIDATION PARTICIPATION RIGHT
(AS DEFINED IN SECTION 6.15.2)) AND THE CLASS B EPS (TO THE EXTENT OF THE CLASS
B LIQUIDATION PARTICIPATION RIGHT (AS DEFINED IN SECTION 6.16.2))) WILL BE
ENTITLED TO RECEIVE OUT OF THE ASSETS OF THE TRUST LEGALLY AVAILABLE FOR
LIQUIDATING DISTRIBUTIONS TO HOLDERS OF SHARES OF BENEFICIAL INTERESTS IN THE
TRUST, AFTER THE PAYMENT IN FULL OF ANY LIQUIDATION PREFERENCE OF ANY
OUTSTANDING SHARES OF BENEFICIAL INTEREST IN THE TRUST (OTHER THAN JUNIOR
SHARES), INCLUDING THE CLASS A EPS (TO THE EXTENT OF THE CLASS A LIQUIDATION
PREFERENCE (AS DEFINED IN SECTION 6.15.2)) AND THE CLASS B EPS (TO THE EXTENT OF
THE CLASS B LIQUIDATION PREFERENCE (AS DEFINED IN SECTION 6.16.2)) AND OF THE
CLASS A LIQUIDATING DISTRIBUTION, A LIQUIDATING DISTRIBUTION IN AN AMOUNT EQUAL
TO 10% OF SUCH ASSETS, WITH THE REMAINING 90% OF SUCH ASSETS TO BE DISTRIBUTED
CONCURRENTLY TO THE HOLDERS OF THE CLASS A SHARES (AND OF ANY SHARES OF
BENEFICIAL INTEREST IN THE TRUST ENTITLED TO PARTICIPATE IN SUCH DISTRIBUTIONS
RECEIVED BY THE HOLDERS OF CLASS A SHARES).
6.19.5. CORPORATION EXCHANGE RIGHT.
(a) CORPORATION EXCHANGE RIGHT.
(i) THE CORPORATION SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY THE
INTERCOMPANY AGREEMENT, TO EXCHANGE FOR ALL OR ANY PORTION OF THE CLASS B SHARES
CASH, CORPORATION SHARES OR OTHER PROPERTY WITH A FAIR MARKET VALUE, IN THE GOOD
FAITH JUDGMENT OF THE BOARD OF TRUSTEES, AT LEAST EQUAL TO THE FAIR MARKET VALUE
OF THE CLASS B SHARES BEING EXCHANGED (THE "EXCHANGE AMOUNT").
(ii) SUCH EXCHANGE SHALL BE DEEMED TO HAVE BEEN MADE AS OF THE CLOSE OF
BUSINESS ON THE APPLICABLE DATE FIXED BY THE CORPORATION FOR SUCH EXCHANGE (THE
"EXCHANGE DATE") AND AFTER SUCH EXCHANGE DATE, PROVIDED THAT THE EXCHANGE AMOUNT
HAS BEEN DULY PAID OR SET APART FOR PAYMENT IN FULL, DIVIDENDS SHALL CEASE TO
ACCRUE ON THE CLASS B SHARES CALLED FOR EXCHANGE, SUCH SHARES SHALL BE DEEMED NO
LONGER TO BE OUTSTANDING AND ALL RIGHTS OF THE HOLDERS OF SUCH SHARES AS
SHAREHOLDERS OF THE TRUST SHALL CEASE, EXCEPT THE RIGHT TO RECEIVE THE EXCHANGE
AMOUNT, WITHOUT INTEREST THEREON, UPON SURRENDER OF THE CERTIFICATES EVIDENCING
SUCH SHARES.
(iii) NOTICE OF ANY EXCHANGE (AN "EXCHANGE NOTICE") SHALL BE GIVEN BY THE
CORPORATION TO THE TRUST NOT LESS THAN TEN (10) NOR MORE THAN SIXTY (60) DAYS
PRIOR TO THE EXCHANGE DATE. EACH EXCHANGE NOTICE SHALL CONCURRENTLY BE GIVEN BY
THE CORPORATION BY FIRST CLASS MAIL TO EACH HOLDER OF SHARES TO BE EXCHANGED AT
SUCH HOLDER'S ADDRESS AS SHOWN ON THE SHAREBOOKS OF THE TRUST AND SHALL SPECIFY
(A) THE
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EXCHANGE DATE, (B) THE NUMBER OF CLASS B SHARES TO BE EXCHANGED IN THE AGGREGATE
AND FROM SUCH HOLDER, (C) THE EXCHANGE AMOUNT, SPECIFYING WHETHER THE EXCHANGE
AMOUNT WILL BE PAID IN CASH, CORPORATION SHARES OR OTHER PROPERTY (AND
IDENTIFYING SUCH OTHER PROPERTY, IF OTHER PROPERTY IS TO BE EXCHANGED), (D) THE
PLACE OR PLACES WHERE CERTIFICATES FOR THE CLASS B SHARES TO BE EXCHANGED ARE TO
BE SURRENDERED FOR PAYMENT OF THE EXCHANGE AMOUNT AND (E) THAT DIVIDENDS WILL
CEASE TO ACCRUE ON THE CLASS B SHARES TO BE EXCHANGED ON THE EXCHANGE DATE. IF
LESS THAN ALL OUTSTANDING CLASS B SHARES ARE TO BE EXCHANGED, THE SHARES TO BE
EXCHANGED SHALL BE SELECTED PRO RATA, BY LOT OR IN SUCH OTHER MANNER AS THE
TRUST DEEMS APPROPRIATE.
(iv) UPON RECEIPT OF AN EXCHANGE NOTICE, EACH HOLDER OF CLASS B SHARES
BEING EXCHANGED SHALL SURRENDER TO THE TRANSFER AGENT A CERTIFICATE OR
CERTIFICATES EVIDENCING SUCH SHARES. AS SOON AS PRACTICABLE, AND IN ANY EVENT
WITHIN FIVE (5) BUSINESS DAYS, AFTER SUCH SURRENDER, THE TRUST SHALL CAUSE THE
CORPORATION TO PAY THE APPLICABLE EXCHANGE AMOUNT TO SUCH HOLDER AND, IF LESS
THAN THE FULL NUMBER OF SHARES REPRESENTED BY THE CERTIFICATE OR CERTIFICATES SO
SURRENDERED ARE TO BE EXCHANGED, THE TRUST SHALL PROMPTLY DELIVER TO SUCH HOLDER
A CERTIFICATE OR CERTIFICATES EVIDENCING THE EXCESS CLASS B SHARES NOT BEING
EXCHANGED. THE TRUST SHALL CAUSE THE CORPORATION TO DELIVER PROMPTLY TO SUCH
HOLDER A CERTIFICATE OR CERTIFICATES EVIDENCING THE CORPORATION SHARES
PREVIOUSLY EVIDENCED BY THE CERTIFICATE OR CERTIFICATES SURRENDERED. THE
EXCHANGE AMOUNT, IF PAYABLE IN CASH, SHALL BE PAYABLE AT THE ELECTION OF THE
CORPORATION BY CHECK OR BY WIRE TRANSFER TO AN ACCOUNT DESIGNATED IN WRITING BY
THE HOLDER AT LEAST TWO (2) BUSINESS DAYS PRIOR TO THE APPLICABLE EXCHANGE DATE,
IF ONE HAS BEEN SO DESIGNATED; IF THE EXCHANGE AMOUNT IS NOT PAYABLE IN CASH,
THEN THE EXCHANGE AMOUNT SHALL BE PAYABLE IN SUCH MANNER AS MAY BE DETERMINED BY
THE CORPORATION AND SET FORTH IN THE EXCHANGE NOTICE.
WITH RESPECT TO ANY CORPORATION SHARES OR OTHER SECURITIES TO BE ISSUED
PURSUANT TO SUCH EXCHANGE, THE TRUST SHALL CAUSE THE CORPORATION OR THE ISSUER
OF SUCH OTHER SECURITIES TO ISSUE AND DELIVER, AT THE OFFICE OF THE TRANSFER
AGENT TO THE EXCHANGING HOLDER, A CERTIFICATE OR CERTIFICATES FOR THE NUMBER OF
FULL CORPORATION SHARES OR OTHER SECURITIES DELIVERABLE IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION 6.19.5, AND ANY FRACTIONAL INTEREST IN RESPECT OF A
CORPORATION SHARE OR OTHER SECURITIES ARISING UPON SUCH EXCHANGE SHALL BE
SETTLED AS PROVIDED IN PARAGRAPH (b) OF THIS SECTION 6.19.5 (THE DATE OF
DELIVERY OF SUCH CERTIFICATE OR CERTIFICATES BEING SOMETIMES REFERRED TO HEREIN
AS THE "EXCHANGE ISSUANCE DATE"). ANY SUCH CORPORATION SHARES OR OTHER
SECURITIES ISSUED UPON SUCH EXCHANGE SHALL BE DEEMED TO HAVE BEEN ISSUED
IMMEDIATELY PRIOR TO THE CLOSE OF BUSINESS ON THE EXCHANGE ISSUANCE DATE, AND
THE PERSON OR PERSONS IN WHOSE NAME OR NAMES ANY CERTIFICATE OR CERTIFICATES FOR
CORPORATION SHARES OR OTHER SECURITIES SHALL BE ISSUABLE PURSUANT TO SUCH
EXCHANGE SHALL BE DEEMED TO HAVE BECOME THE HOLDER OR HOLDERS OF RECORD OF THE
CORPORATION SHARES OR OTHER SECURITIES REPRESENTED THEREBY AT SUCH TIME ON SUCH
DATE UNLESS THE SHARE TRANSFER RECORDS FOR THE CORPORATION SHARES OR OTHER
SECURITIES SHALL BE CLOSED ON SUCH DATE, IN WHICH EVENT SUCH PERSON OR PERSONS
SHALL BE DEEMED TO HAVE BECOME SUCH HOLDER OR HOLDERS OF RECORD AT THE CLOSE OF
BUSINESS ON THE NEXT SUCCEEDING DAY ON WHICH SUCH SHARE TRANSFER BOOKS ARE OPEN.
(b) FRACTIONAL INTERESTS. UNLESS OTHERWISE DETERMINED BY THE TRUST AND SET
FORTH IN THE EXCHANGE NOTICE, NO FRACTIONAL CORPORATION SHARES OR SCRIP
EVIDENCING FRACTIONS THEREOF SHALL BE ISSUED UPON SUCH EXCHANGE. INSTEAD OF ANY
FRACTIONAL INTEREST IN A CORPORATION SHARE THAT WOULD OTHERWISE BE DELIVERABLE
UPON SUCH EXCHANGE, THE TRUST SHALL CAUSE THE CORPORATION TO PAY TO THE
EXCHANGING HOLDER AN AMOUNT IN CASH EQUAL TO THE CORRESPONDING FRACTION OF THE
CURRENT MARKET PRICE OF THE UNITS ON THE TRADING DAY IMMEDIATELY PRECEDING THE
EXCHANGE ISSUANCE DATE. IF MORE THAN ONE CLASS B SHARE SHALL BE SURRENDERED FOR
EXCHANGE AT ONE TIME BY THE SAME HOLDER, THE NUMBER OF FULL CORPORATION SHARES
ISSUABLE UPON EXCHANGE SHALL BE COMPUTED ON THE BASIS OF THE AGGREGATE NUMBER OF
CLASS B SHARES SO SURRENDERED.
(c) MISCELLANEOUS PROVISIONS.
(i) THE TRUST SHALL PAY OR CAUSE TO BE PAID ANY AND ALL DOCUMENTARY STAMP
OR SIMILAR ISSUE OR TRANSFER TAXES PAYABLE IN RESPECT OF THE ISSUE OR DELIVERY
OF THE EXCHANGE AMOUNT UPON ANY SUCH EXCHANGE; PROVIDED, HOWEVER, THAT THE TRUST
SHALL NOT BE REQUIRED TO PAY OR CAUSE TO BE PAID ANY TAX THAT MAY BE PAYABLE IN
RESPECT OF ANY TRANSFER INVOLVED IN THE ISSUE OR DELIVERY OF ANY EXCHANGE AMOUNT
IN A
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NAME OR TO ANY PERSON OTHER THAN THAT OF THE HOLDER OF THE CLASS B SHARES BEING
EXCHANGED, AND NO SUCH ISSUE OR DELIVERY SHALL BE MADE UNLESS AND UNTIL THE
PERSON REQUESTING SUCH ISSUE OR DELIVERY HAS PAID TO THE TRUST THE AMOUNT OF ANY
SUCH TAX OR ESTABLISHED, TO THE REASONABLE SATISFACTION OF THE TRUST, THAT SUCH
TAX HAS BEEN PAID.
(ii) ANY DETERMINATION REQUIRED OR PERMITTED TO BE MADE BY THE BOARD OF
TRUSTEES BY THIS SECTION 6.19.5 SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE
HOLDERS OF CLASS B SHARES.
6.19.6. REACQUIRED SHARES.
ALL CLASS B SHARES THAT SHALL HAVE BEEN ISSUED AND REACQUIRED IN ANY MANNER
BY THE TRUST SHALL BE RESTORED TO THE STATUS OF AUTHORIZED BUT UNISSUED SHARES
OF BENEFICIAL INTEREST IN THE TRUST WITHOUT DESIGNATION AS TO CLASS.
6.19.7. VOTING.
(a) NO GENERAL VOTING RIGHTS. SUBJECT TO SECTION 6.19.7(b), THE HOLDERS OF
CLASS B SHARES SHALL NOT BE ENTITLED TO VOTE UPON ANY MATTER REGARDLESS OF
WHETHER HOLDERS OF CLASS A SHARES HAVE THE RIGHT TO VOTE ON SUCH MATTER.
(b) SPECIAL VOTING RIGHTS. SO LONG AS ANY CLASS B SHARES ARE OUTSTANDING,
IN ADDITION TO ANY OTHER VOTE OR CONSENT OF HOLDERS OF SUCH SHARES REQUIRED BY
THE DECLARATION, THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE VOTES
ENTITLED TO BE CAST BY THE HOLDERS OF ALL OUTSTANDING CLASS B SHARES, GIVEN IN
PERSON OR BY PROXY, EITHER IN WRITING WITHOUT A MEETING OR BY VOTE AT ANY
MEETING CALLED FOR THAT PURPOSE, SHALL BE NECESSARY FOR EFFECTING OR VALIDATING
ANY AMENDMENT, ALTERATION OR REPEAL OF ANY OF THE PROVISIONS OF THE DECLARATION
THAT MATERIALLY AND ADVERSELY AFFECTS THE RIGHTS OF THE HOLDERS OF THE CLASS B
SHARES DISPROPORTIONATELY TO THE EFFECT OF SUCH AMENDMENT, ALTERATION OR REPEAL
ON THE HOLDERS OF CLASS A SHARES; PROVIDED, HOWEVER, THAT (i) ANY AMENDMENT OF
THE PROVISIONS OF THE DECLARATION SO AS TO AUTHORIZE OR CREATE, OR TO INCREASE
THE AUTHORIZED AMOUNT OF, ANY CLASS OR SERIES OF SHARES OF BENEFICIAL INTEREST
IN THE TRUST, WHETHER RANKING PRIOR TO, ON A PARITY WITH OR JUNIOR TO THE CLASS
B SHARES SHALL BE DEEMED NOT TO MATERIALLY AND ADVERSELY AFFECT THE RIGHTS OF
THE HOLDERS OF CLASS B SHARES AND (ii) NO FILING WITH THE STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION OF MARYLAND OR OTHERWISE IN CONNECTION WITH A MERGER,
CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL THE ASSETS OF THE TRUST SHALL
BE DEEMED TO BE AN AMENDMENT, ALTERATION OR REPEAL OF ANY OF THE PROVISIONS OF
THE DECLARATION UNLESS SUCH FILING EXPRESSLY PURPORTS TO AMEND, ALTER OR REPEAL
THIS SECTION 6.19. FOR THE PURPOSES OF THIS PARAGRAPH (b), EACH CLASS B SHARE
WILL HAVE ONE VOTE PER SHARE.
6.19.8. RECORD HOLDERS.
THE TRUST AND THE TRANSFER AGENT MAY DEEM AND TREAT THE RECORD HOLDER OF
ANY CLASS B SHARES AS THE TRUE AND LAWFUL OWNER THEREOF FOR ALL PURPOSES, AND
NEITHER THE TRUST NOR THE TRANSFER AGENT SHALL BE AFFECTED BY ANY NOTICE TO THE
CONTRARY.
6.19.9. RESTRICTIONS ON OWNERSHIP AND TRANSFER.
THE CLASS B SHARES CONSTITUTE SHARES OF BENEFICIAL INTEREST IN THE TRUST
THAT ARE GOVERNED BY AND ISSUED SUBJECT TO ALL THE LIMITATIONS, TERMS AND
CONDITIONS OF THE DECLARATION APPLICABLE TO SHARES OF BENEFICIAL INTEREST IN THE
TRUST GENERALLY, INCLUDING, WITHOUT LIMITATION, THE TERMS AND CONDITIONS
(INCLUDING EXCEPTIONS AND EXEMPTIONS) OF ARTICLE VI OF THE DECLARATION
APPLICABLE TO SHARES OF BENEFICIAL INTEREST IN THE TRUST. THE FOREGOING SENTENCE
SHALL NOT BE CONSTRUED TO LIMIT THE APPLICABILITY TO THE CLASS B SHARES OF ANY
OTHER TERM OR PROVISION OF THE DECLARATION. NO RESTRICTIONS ON THE
TRANSFERABILITY OF SHARES OF CLASS B SHARES SHALL BE ENFORCED BY THE TRUST TO
THE EXTENT THAT SUCH RESTRICTIONS WOULD OTHERWISE CAUSE THE TRUST TO FAIL TO
MEET THE REQUIREMENTS OF SECTION 856(a)(2) OF THE CODE.
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ARTICLE VII.
LIABILITY OF TRUSTEES, SHAREHOLDERS
AND OFFICERS, AND OTHER MATTERS
7.1 Exculpation of Trustee and Officers. 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. The provisions of section 2-405.1 of the
Corporations and Associations Article of the Annotated Code of Maryland (as
amended and interpreted from time to time, and any successor statute thereto),
which sets 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 (as amended or interpreted from time to time) 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, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted from time to time, no
Trustee or officer of the Trust shall be liable to the Trust or its shareholders
for money damages arising out of acts or omissions occurring on or after [the
date of this provision is approved by the shareholders of the] JUNE 6, 1988;
provided, however, that this provision shall not restrict or limit the liability
of the Trust's Trustees or officers to the Trust or its shareholders (i) to the
extent that it is proved that such Person actually received an improper benefit
or profit in money, property or services, for the amount of the benefit or
profit in money, property or services actually received, or (ii) to the extent
that a judgment or final adjudication adverse to such Person is entered in a
proceeding based on a finding in the proceeding that such Person's action, or
failure to act, was the result of active and deliberate dishonesty which was
material to the cause of action adjudicated in the proceeding. No amendment to
this Section 7.1 or repeal of any of its provisions shall limit or eliminate the
effect of this Section 7.1 with respect to any act or omission which occurs
prior to such amendment or repeal.
7.2 Limitation of Liability of Shareholders, Trustees and Officers. The
Trustees and officers in incurring any debts, liabilities or obligations, or in
taking or omitting any other actions for or in connection with the Trust are,
and shall be deemed to be, acting as Trustees or officers of the Trust and not
in their own individual capacities. Except to the extent provided by applicable
law, no Trustee, Shareholder, officer, employee or other agent shall be liable
for any debt, claim, demand, judgment, decree, liability or obligation of any
kind of, against or with respect to the Trust, arising out of any action taken
or omitted for or on behalf of the Trust and the Trust shall be solely liable
therefor and resort shall be had solely to the Trust Estate for the payment or
performance thereof. Each Shareholder shall be entitled to pro rata indemnity
from the Trust Estate if, contrary to the provisions hereof, such Shareholder
shall be held to any personal liability.
7.3 Express Exculpatory Clauses and Instruments. In all agreements,
obligations, instruments, and actions in regard to the affairs of this Trust,
this Trust and not the Shareholders, officers, or agents shall be the principal
and entitled as such to enforce the same, collect damages, and take all other
action. All such agreements, obligations, instruments, and actions shall be
made, executed, incurred, or taken by or in the name and on behalf of this Trust
or by the Trustees as Trustees hereunder, but not personally. All such
agreements, obligations, and instruments shall acknowledge notice of this
paragraph or shall refer to this Declaration and contain a statement to the
effect that the name of this Trust refers to the Trustees as Trustees but not
personally, and that no Trustee, Shareholder, officer, or agent shall be held to
any personal liability thereunder; and neither the Trustees nor any officer or
agent shall have any power or authority to make, execute, incur, or take any
agreement, obligation, instrument or action unless the requirements of this
paragraph are met; however, the omission of such provision from any such
instrument shall not render the Shareholders or any Trustee or officer liable
nor shall the Trustees or any officer of the Trust be liable to anyone for such
omission.
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7.4 Indemnification of Trustees, Officers, Employees and Other Agents. The
provisions of Section 2-418 of the Corporations and Associations Article of the
Annotated Code of Maryland (as amended and interpreted from time to time, and
any successor statute thereto), which empowers a corporation organized under the
laws of the State of Maryland to indemnify its directors, officers, employees
and other agents against certain liabilities and obligations, and for the right
of directors, officers, employees and other agents of such corporation to be so
indemnified (as amended, interpreted and superseded, "Section 2-418"), shall be
fully applicable to the Trust and to the Trustees, officers, employees and other
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 other agents
were, respectively, directors, officers, employees and agents of such
corporation. In each and every situation where the Trust may do so under said
Section 2-418 or other applicable law, the Trust hereby obligates itself to so
indemnify its Trustees, officers, employees and other agents, and in each case
where the Trust must make certain investigations on a case-by-case basis prior
to indemnification, the Trust hereby obligates itself to pursue such
investigations diligently, it being the specific intention of this Section 7.4
to obligate the Trust to indemnify each Person whom the Trust may indemnify to
the fullest extent permitted by Section 2-418 or by other applicable law at any
time and from time to time. The rights accruing to any Person under these
provisions shall not exclude any other right to which he may be lawfully
entitled, nor shall anything contained herein restrict the right of the Trust to
indemnify or reimburse such Person in any proper case even though not
specifically provided for herein, nor shall anything contained herein restrict
such right of a Trustee to contribution as may be available under applicable
law. In addition, and without limiting the generality of the foregoing, the
Trust shall have the power to purchase and maintain insurance on behalf of any
Person entitled to indemnify hereunder against any liability asserted against
him and incurred by him in a capacity mentioned above, or arising out of his
status as such, whether or not the Trust would have the power to indemnify him
against such liability under the provisions hereof.
7.5 Right of Trustees and Officers to Own Shares or Other Property and to
Engage in Other Business. Any Trustee or officer may acquire, own, hold and
dispose of Shares in the Trust, for his individual account, and may exercise all
rights of a Shareholder to the same extent and in the same manner as if he were
not a Trustee or officer. Any Trustee or officer may have personal business
interests and may engage in personal business activities, which interest and
activities may include the acquisition, syndication, holding, management,
operation or disposition, for his own account or for the account of others, [or]
OF interests in Mortgages, interests in Real Property, or interests in Persons
engaged in the real estate business, including serving as a trustee or officer
of any other Real Estate Investment Trust. Subject to the provisions of Article
IV any Trustee or officer may be interested as A trustee, officer, director,
stockholder, partner, member, advisor or employee OF, or otherwise have a direct
or indirect interest in, any Person who may be engaged to render advice or
services to the Trust, and may receive compensation from such Person as well as
compensation as Trustee, officer, or otherwise hereunder. None of these
activities shall be deemed to conflict with his duties and powers as Trustee or
officer.
7.6 Transactions Between the Trustees and the Trust.
(a) If subsection (b) of this Section 7.6 is complied with, a contract or
other transaction between the Trust and any corporation, firm or other entity in
which any of the Trustees is a director or has a material financial interest is
not void or voidable solely because OF any one or more of the following: (i) the
common directorship or interest; (ii) the presence of the Trustee at the meeting
of the Board of Trustees or a committee of the Board of Trustees which
authorizes, approves or ratifies the contract or transaction; or (iii) the
counting of the vote of the Trustee for the authorization, approval or
ratification of the contract or transaction.
(b) Subsection (a) of this Section 7.6 applies if:
(i) The fact of the common directorship or interest is disclosed or
known to (a) the Board of Trustees or the committee, and the Board of
Trustees or committee authorizes, approves or ratifies the contract or
transaction by the affirmative vote of a majority of disinterested
Trustees, even if the disinterested Trustees constitute less than a quorum;
or (b) the shareholders entitled to vote, and the
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contract or transaction is authorized, approved or ratified by a majority of the
votes cast by the shareholders entitled to vote other than the votes of shares
owned of record or beneficially by the interested Trustee or corporation, firm
or other entity; or
(ii) The contract or transaction is fair and reasonable to the Trust.
(c) Common or interested Trustees, or the Shares [of Beneficial Interest]
owned by them or by an interested corporation, firm or other entity, may be
counted in determining the presence of a quorum at a meeting of the Board of
Trustees or a committee of the Board of Trustees or at a meeting of the
shareholders, as the case may be, at which the contract or transaction is
authorized, approved or ratified.
(d) If a contract or transaction is not authorized, approved or ratified in
one of the ways provided for in subsection (b)(i) of this Section 7.6, the
person asserting the validity of the contract or transactions bears the burden
of proving that the contract or transaction was fair and reasonable to the Trust
at the time it was authorized, approved or ratified. This subsection (d) does
not apply to the fixing by the Board of Trustees of reasonable compensation for
a Trustee, whether as a Trustee or in any other capacity.
(e) Any procedures authorized by Section 7.4 of this Declaration shall be
deemed to satisfy subsection (b)(i) of this Section 7.6. Any provision of this
Declaration, the [Trustees' Regulations] BYLAWS or any contract, or any
transaction, requiring or permitting indemnification of Trustees, including
advances of expenses, is fair and reasonable to the Trust.
(f) Any Trustee or officer, employee or agent of the Trust may acquire,
own, hold and dispose of Securities of the Trust, for his individual account,
and may exercise all rights of a holder of such Securities to the same extent
and in the same manner as if he were not such a Trustee or officer, employee or
agent. The Trustees shall use their REASONABLE best efforts to obtain through an
Advisor or other Persons a continuing and suitable investment program,
consistent with the investment policies and objectives of the Trust, and the
Trustees shall be responsible for reviewing and approving or rejecting
investment opportunities presented by the Advisor or such other Persons. So long
as there is such Advisor or other Person, the Trustees shall have no
responsibility for the origination of investment opportunities for the Trust.
Any Trustee or officer, employee, or agent of the Trust may, in his personal
capacity, or in a capacity of trustee, officer, director, stockholder, partner,
member, advisor or employee of any Person, have business interests and engage in
business activities in addition to those relating to the Trust, which interests
and activities may include the acquisition, syndication, holding, management,
operation or disposition, for his own account or for the account of such Person,
of interests in Mortgages, interests in Real Property, or interests in Persons
engaged in the real estate business, and each Trustee, officer, employee and
agent of the Trust shall be free of any obligation to present to the Trust any
investment opportunity which comes to him in any capacity other than solely as
Trustee, officer, employee or agent of the Trust, even if such opportunity is of
a character which, if presented to the Trust, could be taken by the Trust;
provided, however, that the provisions of this sentence shall not extend to any
of such Trustees or agents of the Trust who are affiliates of the Advisor, or to
any officer or employee of the Trust or (at a time when there is no such Advisor
or other Person providing an investment program for the Trust as aforesaid) to
any Trustee of the Trust, in each case who is not acting as a trustee, officer,
director, stockholder, partner, member, advisor or employee of any Person but is
acting for his own personal account. Subject to the provisions of this Section
7.6, any Trustee or officer, employee or agent of the Trust may be interested as
trustee, officer, director, stockholder, partner, member, advisor or employee
of, or otherwise have a direct or indirect interest in, any Person who may be
engaged to render advice or services to the Trust, and may receive compensation
from such Person as well as compensation as Trustee, officer, employee or agent
of the Trust or otherwise hereunder. None of the activities in this paragraph
shall be deemed to conflict with his duties and powers as Trustee, officer,
employee or agent of the Trust.
(g) Nothing contained in this Declaration shall prohibit or in any way
limit any person described in Section 3.2(n) of this Declaration from
contracting with others for the performing of services similar or identical to
those undertaken by such Person pursuant to this Declaration or from conducting
the usual and normal business operations of such Person. The Trustees are not
restricted by this Section 7.6 from forming a corporation, partnership, trust or
other business association owned by the Trustees or by their
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nominees for the purpose of holding title to property of the Trust or managing
property of the Trust providing the Trustees' motive for the formation of such
business association is not their own enrichment.
7.7 Restriction of Duties and Liabilities. To the extent that the nature
of this Trust (that is, a Maryland real estate investment trust) will permit,
the duties and liabilities of Shareholders, Trustees and officers shall in no
event be greater than the duties and liabilities of shareholders, directors and
officers of a Maryland corporation. The Shareholders, Trustees and officers
shall in no event have any greater duties or liabilities than those imposed by
applicable law as shall be in effect from time to time.
7.8 Persons Dealing with Trustees or Officers. Any act of the Trustees or
officers purporting to be done in their capacity as such, shall, as to any
persons dealing with such Trustees or officers, be conclusively deemed to be
within the purposes of this Trust and within the power of the Trustees and
officers. No Person dealing with the Trustees or any of them, or with the
authorized officers, agents or representatives of the Trust, shall be bound to
see to the application, of any funds or property passing into their hands of
control. The receipt of the Trustees, or any of them, or of authorized officers,
agents, or representatives of the Trust, for moneys or other consideration,
shall be binding upon the Trust.
7.9 Reliance. The Trustees and officers may consult with counsel and the
advice or opinion of such counsel shall be full and complete personal protection
to all of the Trustees and officers in respect to any action taken or suffered
by them in good faith and in reliance on and in accordance with such advice or
opinion. In discharging their duties, Trustees and officers, when acting in good
faith, may rely upon financial statements of the Trust represented to them to be
correct by the President or the officer of the Trust having charge of its books
of account, or stated in a written report by an independent certified public
accountant fairly to present the financial position of the Trust. The Trustees
may rely, and shall be personally protected in acting, upon any instrument or
other document believed by them to be genuine.
7.10 Income Tax Status. Anything to the contrary herein notwithstanding
and without limitation of any rights of indemnification or non-liability of the
Trustees herein, said Trustees by this Declaration make no commitment or
representation that the Trust will qualify for the dividends paid deduction
permitted by the Internal Revenue Code, by THE TAX-GENERAL Article [81], Section
[313A] 10-304 (OR ANY SUCCESSOR PROVISION) of the Annotated Code of Maryland, or
by any Rules and Regulations [thereunder] HEREUNDER pertaining to Real Estate
Investment Trusts, in any given year. The failure of the Trust to qualify as a
Real Estate Investment Trust under the Internal Revenue Code or under [the]
Maryland [Code] LAW shall not render the Trustees liable to the Shareholders or
to any other person or in any manner operate to annul the Trust.
ARTICLE VIII.
DURATION, AMENDMENT, TERMINATION AND
QUALIFICATION OF TRUST
8.1 Duration of Trust. The Trust shall continue without limitation of
time, unless terminated as provided in Section 8.2.
8.2 Termination of Trust.
(a) The Trust may be terminated by the affirmative vote of the holders of
two-thirds (2/3) in interest of all outstanding Shares entitled to vote
thereon, at any meeting of Shareholders. Upon termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer, or otherwise dispose of
all or any part of the remaining Trust Estate to one or more persons at
public or private sale for consideration which may consist in whole or in
part of
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cash, securities or other property of any kind, discharge or pay its liabilities
and do all other acts appropriate to liquidate its business; provided, that any
sale, conveyance, assignment, exchange, transfer or other disposition of more
than fifty percent (50%) of the Trust Estate shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by vote or consent of the holders of a majority of all the
outstanding Shares entitled to vote thereon.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon the receipt of such releases, indemnities, and
refunding agreements as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Estate, in cash or in kind, or
partly each, among the Shareholders, according to their respective rights.
(b) After termination of the Trust and distribution to the shareholders as
herein provided, the Trustees shall execute and lodge among the records of the
Trust an instrument in writing, setting forth the fact of such termination, and
the Trustees shall thereupon be discharged from all further liabilities and
duties hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
8.3 Amendment Procedure.
(a) This Declaration may be amended by the vote or written consent of
Shareholders holding a majority of the outstanding Shares entitled to vote
thereon. The Trustees may also amend this Declaration without the vote or
consent of Shareholders as provided in Section 9.6.
(b) A certification, in recordable form, signed by a majority of the
Trustees, setting forth an amendment and reciting that it was duly adopted by
the Shareholders or by the Trustees as aforesaid, or a copy of the Declaration,
as amended, in recordable form, and executed by a majority of the Trustees,
shall be conclusive evidence of such amendment when lodged among the records of
the Trust.
(c) Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exception from personal liability of the
Shareholders, Trustees, officers, and agents of this Trust.
8.4 Qualification Under the REIT Provisions of the Internal Revenue
Code. It is intended that the Trust shall qualify as a "real estate investment
trust" under the REIT Provisions of the Internal Revenue Code during such period
as the Trustees shall deem it advisable so to qualify the Trust.
ARTICLE IX.
MISCELLANEOUS
9.1 Applicable Law. This Declaration has been executed and acknowledged
by the Trustees with reference to the statutes and laws of the State of Maryland
and the rights of all parties and the construction and effect of every provision
hereof shall be subject to and construed according to statutes and laws of said
State.
9.2 Index and Headings for Reference Only. The index and headings
preceding the text, articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the meaning,
construction or effect of this Declaration.
9.3 Successors in Interest. This Declaration and the [Trustees,
Regulations] BYLAWS shall be binding upon and inure to the benefit of the
undersigned Trustees and their successors, assigns, heirs, distributees and
legal representatives, and every Shareholder and his successors, assigns, heirs,
distributees and legal representatives.
9.4 Inspection of Records. Trust records shall be available for
inspection by Shareholders at the same time and in the same manner and to the
extent that comparable records of a Maryland corporation would be available for
inspection by corporate shareholders under the laws of the State of Maryland.
Except as specifically provided for in this Declaration, Shareholders shall have
no greater right than shareholders of a Maryland corporation to require
financial or other information from the Trust, Trustees or officers. Any Federal
or state securities administration, the STATE Department of Assessments and
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Taxation of [the State of] Maryland, or other similar authority shall have the
right, at reasonable times during business hours and for proper purposes, to
inspect the books and records of the Trust.
9.5 Counterparts. This instrument may be simultaneously executed in
several counterparts, each of which when so executed shall be deemed to be an
original and such counterparts together shall constitute one in the same
instrument, which shall be sufficiently evidenced by any such original
counterparts.
9.6 Provisions of the Trust in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any one or more of such
provisions (the "Conflicting Provisions") are in conflict with the REIT
Provisions of the Internal Revenue Code, with other applicable federal laws and
regulations, or with the REIT provisions of the Annotated Code of Maryland, the
Conflicting Provisions shall be deemed never to have constituted a part of the
Declaration; provided, however, that such determination by the Trustees shall
not affect or impair any of the remaining provisions of this Declaration or
render invalid or improper any action taken or omitted (including but not
limited to the election of Trustees) prior to such determination. A
certification in recordable form signed by a majority of the Trustees setting
forth any such determination and reciting that it was duly adopted by the
Trustees, or a copy of this Declaration, with the Conflicting Provisions removed
pursuant to such determination, in recordable form, signed by a majority of the
Trustees, shall be conclusive evidence of such determination when lodged in the
records of the Trust. The Trustees shall not be liable for failure to make any
determination under this Section 9.6(a). Nothing in this Section 9.6(a) shall in
any way limit or affect the right of the Shareholders to amend this Declaration
as provided in Section 8.3(a).
(b) If any provisions of this Declaration shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this Declaration, and this Declaration shall be carried
out as if any such invalid or unenforceable provision were not contained herein.
9.7 Certifications. The following certifications shall be final and
conclusive as to any persons dealing with the Trust:
(a) A certification of a vacancy among the Trustees by reason of
resignation, removal, increase in the number of Trustees, incapacity, death or
otherwise, when made in writing by majority of the remaining Trustees;
(b) A certification as to the persons holding office as Trustees or
officers at any particular time, when made in writing by the Secretary of the
Trust or by any Trustee;
(c) A certification that a copy of this Declaration or of the [Trustees'
Regulations] BYLAWS is a true and correct copy thereof as then in force, when
made in writing by the Secretary of the Trust or by any Trustee;
(d) The certification referred to in Section 8.3(b) and 9.6(a) hereof;
(e) A certification as to any action by Trustees, other than the above,
when made in writing by the Secretary of the Trust, or by any Trustee.
9.8 Recording and Filing. A copy of this instrument and any other
amendments to the Declaration shall be filed with the STATE Department of
Assessments and Taxation of Maryland[, and in the office of the County Recorder
or its equivalent in every county of Maryland where the Trust is or the Trustees
are the record owner or owners of Real Property; provided, however, that
provision is made in such county for such recording, and further provided that
this Declaration is accepted for recording]. This Declaration and any amendments
may also be filed or recorded in such other places as the Trustees deem
appropriate.
9.9 Resident Agent. The name and post office address of the resident
agent of the Trust in the State of Maryland is The Corporation Trust, 33 South
Street, Baltimore, Maryland 21202. Said resident is a citizen of the State of
Maryland actually residing therein. The resident agent may be removed, and a
vacancy existing in such office for any reason may be filled [by a majority of
the,] BY THE BOARD OF Trustees.
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ANNEX C
AMENDED AND RESTATED INTERCOMPANY AGREEMENT
AMENDED AND RESTATED INTERCOMPANY AGREEMENT dated as of , 1999,
between Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the
"Corporation"), and Starwood Hotels & Resorts, a Maryland real estate investment
trust (the "Trust").
WHEREAS the Corporation and the Trust are parties to the Pairing Agreement
dated as of June 25, 1980, as amended as of February 1, 1995 and as of January
2, 1998 (the "Original Agreement");
WHEREAS the Corporation, the Trust and a wholly owned subsidiary of the
Corporation ("Merger Sub") have entered into the Agreement and Plan of
Restructuring dated as of September 16, 1998 (the "Restructuring Agreement");
WHEREAS, pursuant to the Restructuring Agreement, on the date hereof Merger
Sub is merging into the Trust (the "Merger"), whereupon the separate existence
of Merger Sub will cease and the Trust will continue as the surviving entity;
WHEREAS, by virtue of the Merger, each outstanding common share of
beneficial interest, par value $.01 per share, of the Trust ("Old Trust Shares")
will be converted into Class B shares of beneficial interest, par value $.01 per
share, of the Trust ("Class B Shares"), and each outstanding common share of
beneficial interest, par value $.01 per share, of Merger Sub will be converted
into Class A shares of beneficial interest, par value $.01 per share, of the
Trust ("Class A Shares");
WHEREAS the Original Agreement provided, among other things, that the Old
Trust Shares and the shares of common stock, par value $.01 per share, of the
Corporation ("Corporation Shares") were paired, such that Old Trust Shares were
transferable only with an equal number of Corporation Shares and vice versa;
WHEREAS the Trust and the Corporation wish to cause the Class B Shares, and
not the Old Trust Shares, to be attached to the Corporation Shares, so that
Class B Shares are transferable only with an equal number of Corporation Shares
and vice versa;
WHEREAS, in order to provide for the Class B Shares to be attached to the
Corporation Shares, and to make other necessary or appropriate changes, the
Board of Trustees of the Trust and the Board of Directors of the Corporation
have agreed to amend and restate the Original Agreement in its entirety in the
form of this Agreement and directed that this Agreement be submitted to the
shareholders of the Trust at the 1998 Annual Meeting of Shareholders of the
Trust (the "Trust Meeting") and to the stockholders of the Corporation at the
1998 Annual Meeting of Stockholders of the Corporation (the "Corporation
Meeting"); and
WHEREAS this Agreement was duly approved by the shareholders of the Trust
at the Trust Meeting and the stockholders of the Corporation at the Corporation
Meeting;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree:
1. On and after the Effective Time (as defined in the Restructuring
Agreement):
(a) except as provided in Section 10, the Class B Shares and the
Corporation Shares shall not be transferable, and shall not be transferred
on the books of the Trust or of the Corporation, respectively, unless in
connection with such transfer the transferee acquires the same number of
Class B Shares and Corporation Shares (each Class B Share and Corporation
Share, as so attached, being together referred to as a "Unit");
(b) upon presentation to the Trust's transfer agent of any certificate
representing ownership of Old Trust Shares issued prior to June 25, 1980
duly endorsed for transfer or accompanied by a duly executed stock power,
there shall be issued to the transferee a certificate or certificates
representing both the number of Class B Shares into which the Old Trust
Shares so transferred were converted in
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the Merger and the same number of Corporation Shares, and there shall be
issued a certificate or certificates representing both the Class B Shares
into which any Old Trust Shares not transferred were converted in the
Merger and the same number of Corporation Shares; and
(c) except as provided in Section 10, neither the Trust nor the
Corporation shall issue or transfer or agree to issue or transfer any Class
B Shares or Corporation Shares unless effective provision is made for the
issuance or transfer to the same person of the same number of Class B
Shares and Corporation Shares and unless the Trust and the Corporation
agree on the manner and basis of allocating the consideration to be
received between the Trust and the Corporation or on the payment by one
entity to the other of cash or other consideration in lieu of a portion of
such consideration.
2. Except as provided in Section 10, each certificate issued after the
Effective Time representing Corporation Shares shall have printed on its reverse
side a certificate representing the same number of Class B Shares and shall be
in a form satisfactory to The New York Stock Exchange. A legend shall be placed
on the face or reverse side of each certificate representing ownership of
Corporation Shares and Class B Shares issued on or after the Effective Time
referring to the restrictions on transfer of the Class B Shares and the
Corporation Shares set forth herein.
3. After the Effective Time, neither the Trust nor the Corporation shall
issue any securities convertible into Class B Shares or Corporation Shares or
issue rights or warrants to purchase such Class B Shares or Corporation Shares,
unless both the Trust and the Corporation take action to the end that the
outstanding Class B Shares and Corporation Shares will be attached to one
another as Units as contemplated herein.
4. If, after the Effective Time, either the Trust or the Corporation shall
declare or pay any distribution consisting in whole or in part of Class B Shares
or Corporation Shares, or subdivide, combine or otherwise reclassify such Class
B Shares or Corporation Shares (each, a "Unit Adjustment Event"), the number and
the classes of securities comprising a Unit shall be adjusted such that each
Unit shall consist of the number of Class B Shares, the number of Corporation
Shares and the number of any other shares of beneficial interest in the Trust or
shares of stock of the Corporation that a holder of a Unit would have held or
have been entitled to receive after giving effect to such Unit Adjustment Event.
5. After the Effective Time, neither the Trust nor the Corporation will be
a party to any merger, consolidation, sale of assets, liquidation or other form
of reorganization pursuant to which either the Class B Shares or the Corporation
Shares are converted, redeemed or otherwise changed unless the other entity
either is also a party to such transaction or waives its right hereunder to be
such a party.
6. The Trust and the Corporation agree to appoint the same banks or trust
companies as transfer agents and the same banks or trust companies as registrars
for the Class B Shares and the Corporation Shares.
7. The Trust and the Corporation shall use their best efforts to effect
(in the case of the Class B Shares) and to maintain the listing of the Class B
Shares and Corporation Shares on The New York Stock Exchange.
8. This Agreement may be amended by action of the Trustees of the Trust
and the Board of Directors of the Corporation without the consent of any holder
of Units or of any other person; provided, however, that no such amendment may
materially and adversely affect the rights of the holders of the Class B Shares
contemplated by Section 10 (or this Section 8) without the prior approval of the
holders of a majority of the then outstanding Class B Shares.
9. In the event that (x) the Trust issues Excess Trust Shares, par value
$.01 per share, or Excess Trust Preferred Shares, par value $.01 per share, of
the Trust ("Excess Shares") or the Corporation issues shares of Excess Common
Stock, par value $.01 per share, or Excess Preferred Stock, par value $.01 per
share, of the Corporation ("Excess Stock"), and (y) the shares of beneficial
interest in the Trust and the shares of stock of the Corporation which were
converted into such Excess Shares and such Excess Stock, respectively, comprised
a Unit immediately prior to such conversion, then in addition to, and not in any
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respect in limitation of, the provisions of the Declaration of Trust of the
Trust and the charter of the Corporation (as each may be amended from time to
time):
(i) such Excess Shares and such Excess Stock shall not be
transferable, and shall not be transferred on the books of the Trust or of
the Corporation, respectively, unless in connection with such transfer the
transferor transfers and the transferee acquires a number of Excess Shares
and a number of shares of Excess Stock in a 1:1 proportion (or, from and
after the occurrence of a United Adjustment Event, in such proportion as
shall equal the proportion of Class B Shares and Corporation Shares then
comprising a Unit);
(ii) neither the Trust nor the Corporation shall issue or transfer or
agree to issue or transfer any Excess Shares or Excess Stock unless
effective provision is made for the issuance or transfer to the same person
of a number of Excess Shares and a number of shares of Excess Stock in a
1:1 proportion (or, from and after the occurrence of a Unit Adjustment
Event, in such proportion as shall equal the proportion of Class B Shares
and Corporation Shares then comprising a Unit); and
(iii) each certificate representing Excess Stock shall have printed on
its reverse side a certificate representing the appropriate number of
Excess Shares. A legend shall be placed on the face or reverse side of each
certificate representing ownership of Excess Shares and Excess Stock
referring to the restrictions on transfer of the Excess Shares and Excess
Stock set forth herein.
10. If a Tax Event, a Creditor Event or any Other Event (each as defined
below) shall occur and be continuing, or at any time after the date that is five
years after the Effective Time, the Corporation, at its sole option, but solely
in accordance with the Declaration of Trust of the Trust (as it may be amended
from time to time), will have the right to exchange (the "Exchange Right") for
all or any portion of the outstanding Class B Shares cash, Corporation Shares,
or other property with a fair market value, in the good faith judgment of the
Board of Trustees of the Trust, at least equal to the fair market value of the
Class B Shares being exchanged. Notwithstanding anything to the contrary
contained in this Agreement, (i) upon exercise of the Exchange Right, the
Corporation may acquire Class B Shares without acquiring any Corporation Shares;
(ii) any Class B Shares acquired by the Corporation upon exercise of the
Exchange Right may be transferred (and may be transferred by any transferee of
such Class B Shares) without any requirement that the transferee acquire any
Corporation Shares; and (iii) in connection with the exercise of the Exchange
Right, the Corporation may issue Corporation Shares without any requirement that
the Trust issue any Class B Shares. In connection with the exercise of the
Exchange Right, the Board of Directors of the Corporation, in its sole
discretion and without the consent of the Trustees of the Trust or the holders
of Units, may amend this Agreement to provide for any adjustments to the number
and the classes of securities comprising a Unit that it deems necessary or
appropriate.
"Tax Event" shall mean (i) the good faith determination by the Board of
Trustees of the Trust, after consultation with counsel experienced in such
matters, that, as a result of any amendment to, or change in (including any
enacted prospective amendment or change), the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the Effective Time, there is a substantially
increased likelihood that (A) dividends payable by the Trust are not, or within
90 days after the date of such determination, will not be, deductible by the
Trust, in whole or in part, for United States federal income tax purposes, or
(B) the Trust is not, or within 180 days after the date of such determination
will not be, taxable as a "real estate investment trust" for United States
federal income tax purposes (a "REIT") or (ii) the Trust revokes or terminates
or states its intention to revoke or terminate its election to be taxed as a
REIT.
"Creditor Event" shall mean the occurrence of one or more material defaults
(whether or not any applicable cure period has expired), as determined in good
faith by the Board of Directors of the Corporation or the Board of Trustees of
the Trust, under any agreement or instrument governing a material amount of
indebtedness of the Trust, the Corporation or any of their subsidiaries,
including, without limitation, the Credit Agreement, dated as of February 23,
1998, among the Corporation, the
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Trust, the Realty Partnership and ITT, certain additional borrowers, various
lenders and Lehman Brothers Commercial Paper Inc., as Syndication Agent, and
Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents,
together with the related documents thereto (including any guarantee agreements
and security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented, replaced,
refinanced or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder or adding or
deleting subsidiaries of the Corporation or the Trust as additional borrowers or
guarantors thereunder) all or any portion of the indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Other Event" shall mean any of the following: (i) the consummation of any
public offering or distribution of equity securities of the Trust (other than as
Units), (ii) the consummation of any transaction or series of transactions that
results in the Corporation beneficially owning securities carrying less than 50%
of the aggregate voting power of all the outstanding voting securities of the
Trust, (iii) consummation by the Corporation of any transaction or series of
related transactions in which stock of the Corporation or securities convertible
into or exchangeable or exercisable for stock of the Corporation are issued, if
the stock of the Corporation has or will have upon issuance voting power or
value equal to or in excess of 20% of the voting power or value, respectively,
of the stock of the Corporation outstanding before the issuance of such stock of
the Corporation or securities convertible into or exchangeable or exercisable
for stock of the Corporation or (iv) any change (including any prospective
change) after the Effective Time in the accounting principles applicable to the
preparation of the financial statements filed by the Trust or the Corporation
with the Securities and Exchange Commission that, in the good faith
determination of the Board of Trustees of the Trust or the Board of Directors of
the Corporation, respectively, has or would have a material adverse effect on
the Trust or the Corporation in the event the Exchange Right were not exercised,
but which effect would be mitigated by such exercise.
11. This Agreement, except for the provisions of Section 8, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
STARWOOD HOTELS & RESORTS
By:
------------------------------------
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By:
------------------------------------
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ANNEX D
STARWOOD HOTELS & RESORTS
1995 LONG-TERM INCENTIVE PLAN
(AMENDED AND RESTATED AS OF DECEMBER 3, 1998)
I. INTRODUCTION
1.1 PURPOSES AND GENERAL. The purposes of the 1995 Long-Term Incentive
Plan (the "Plan") of Starwood Hotels & Resorts (the "Trust"), as amended and
restated as of December 3, 1998, are to align the interests of the Trust's
shareholders and the recipients of awards under this Plan by increasing the
proprietary interest of such recipients in the Trust's growth and success and to
advance the interests of the Trust by attracting and retaining officers, key
employees, consultants and advisers, as well as qualified persons for service as
trustees of the Trust ("Trustees"). For purposes of this Plan, references to
employment by or service as an officer, employee, consultant, adviser or Trustee
of the Trust shall also mean employment by or service as an officer, employee,
consultant, adviser, trustee or director of a subsidiary of the Trust. In
addition, references to Trustees include persons elected as Trustees who will
begin to serve as Trustees at a future date.
This Plan seeks to accomplish the foregoing purposes by providing a means
whereby (i) options to purchase from the Trust shares of beneficial interest,
par value $.01 per share, of the Trust ("Trust Shares") and options to purchase
from the Trust shares of common stock, par value $.01 per share, of Starwood
Hotels & Resorts Worldwide, Inc. ("Corporation Shares") (or the right, with the
passage of time or upon the happening of certain events, to receive Corporation
Shares and Trust Shares) may be granted in accordance with Section II to
Eligible Persons and shall be granted, in accordance with Section V, to Eligible
Trustees, (ii) awards of Trust Shares and Corporation Shares may be granted in
accordance with Section III to Eligible Persons ("Restricted Stock Awards"), and
shall be granted in accordance with Section V to Eligible Trustees (such awards
to Trustees and the Restricted Stock Awards are herein referred to as "Stock
Awards"), and (iii) Performance Awards may be granted in accordance with Section
IV to Eligible Persons. Pursuant to an Agreement dated June 25, 1980, as
amended, between the Trust and Starwood Hotels & Resorts Worldwide, Inc. (the
"Corporation"), all outstanding Trust Shares and Corporation Shares are paired
on a one-for-one basis and trade as units consisting of one Trust Share and one
Corporation Share ("Paired Shares"). Accordingly, each option to purchase Trust
Shares (a "Trust Share Option") shall be paired with an option to purchase an
equal number of Corporation Shares (a "Corporation Share Option" and each such
paired Trust Share Option and Corporation Share Option is herein referred to as
a "Paired Option"); similarly, each award of Trust Shares shall be paired with
an award of an equal number of Corporation Shares.
Each Paired Option or Stock Award may be exercised, terminated, canceled,
forfeited, transferred or otherwise disposed of only in units consisting of
Paired Shares. Accordingly, a Trust Share Option, or portion thereof, or an
award of a Trust Share, or portion thereof, may be exercised, terminated,
canceled, forfeited, transferred or otherwise disposed of only in connection
with, and to the same extent as, the exercise, termination, cancellation,
forfeiture, transfer or other disposition of a Corporation Share Option or an
award of Corporation Share, as the case may be. The Committee may designate that
a Trust Share Option constituting part of a Paired Option is intended to be an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any successor provision (an
"incentive share option"). No Corporation Share Option constituting part of a
Paired Option hereunder may be an "incentive stock option" within the meaning of
Section 422 of the Code.
1.2 CERTAIN DEFINITIONS. As used herein, the words set forth in the
Glossary contained in Section 7.13 shall have the meanings therein indicated.
1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Any
one or a combination of the following Awards may be made under this Plan to
Eligible Persons: (i) Paired Options;
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(ii) Restricted Stock Awards and (iii) Performance Awards. The Committee may,
subject to the terms of this Plan, select Eligible Persons for participation in
the Plan and shall determine the form, amount and timing of each Award and, if
applicable, the number of Paired Options, shares of Restricted Stock, Paired
Shares or Performance Awards subject to such an Award, the exercise price or
base price associated with the Award, including the portion that is attributable
to the Trust Share or Trust Share Option and the Corporation Share or the
Corporation Share Option, respectively, the time and conditions of exercise or
settlement of the Award and all other terms and conditions of the Award,
including without limitation the form of the Agreement relating to the Award.
The Committee may, in its sole discretion and for any reason at any time,
subject to the requirements imposed by Section 162(m) of the Code and
regulations promulgated thereunder in the case of an Award intended to be
qualified performance-based compensation, take action such that (i) any or all
outstanding Paired Options shall become exercisable in part or in full, (ii) all
or a portion of the Restriction Period applicable to any outstanding Restricted
Stock Award shall lapse, (iii) all or a portion of the Performance Period
applicable to any outstanding Performance Award shall lapse, (iv) the
Performance Measures applicable to any outstanding Paired Option, Restricted
Stock Award or Performance Award shall be deemed to be satisfied in whole or in
part.
The Committee shall, subject to the terms of this Plan, interpret this Plan
and the application thereof, establish rules and regulations it deems necessary
or desirable for the administration of this Plan and may impose, incidental to
the grant of an Award, conditions with respect to the Award, such as limiting
competitive employment or other activities. All such interpretations, rules,
regulations and conditions shall be conclusive and binding on all parties. Each
Award shall be evidenced by a written Agreement between the Trust and the holder
setting forth the terms and conditions applicable to such Award.
Subject to the express provisions of this Plan, the Committee shall have
the authority:
(1) to determine from among those persons eligible to receive an Award
the particular Eligible Persons who will receive any Awards;
(2) to grant Awards to Eligible Persons, determine the price at which
Awards will be offered or awarded and the amount of Awards to any of such
Persons, and determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion (if any) of
such Awards;
(3) to approve the forms and terms of Agreements, which need not be
identical either as to type of Award or among Eligible Person;
(4) to construe and interpret this Plan and any Agreements, further
define the terms used in this Plan and prescribe, amend and rescind rules
and regulations relating to the administration of this Plan;
(5) to cancel, modify or waive the Trust's rights with respect to, any
or all outstanding Awards;
(6) to accelerate the exercisability or vesting or extend the term of
any or all such outstanding Awards within the maximum term permitted under
this Plan; and
(7) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
Any action taken by, or inaction of, the Trust, the Board or the Committee
relating or pursuant to this Plan shall be within the absolute discretion of
that entity or body and shall be conclusive and binding upon all persons. No
member of the Board or Committee, or officer of the Trust or any subsidiary,
shall be liable for any such action or inaction of the entity or body, of
another person or, except in circumstances involving bad faith, of himself or
herself. Subject only to compliance with the express provisions hereof, each of
the Board and the Committee may act in its absolute discretion in matters within
its authority related to this Plan.
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In making any determination or in taking or not taking any action under
this Plan, the Committee or the Board, as the case may be, may obtain and rely
upon the advice of experts, including professional advisers to the Trust. No
trustee, officer or agent of the Trust shall be liable for any such action or
determination taken or made or omitted in good faith.
The Committee may delegate ministerial, non-discretionary functions to
individuals who are officers or employees of the Trust.
The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or Chief Operating Officer or other executive
officer of the Trust as the Committee deems appropriate; provided, however, that
the Committee may not delegate its power and authority with regard to (i) the
grant of an Award to any person who is a "covered employee" within the meaning
of Section 162(m) of the Code or who, in the Committee's judgment, is likely to
be a covered employee at any time during the period an Award hereunder to such
employee would be outstanding, if the Committee intends that compensation
payable pursuant to such an Award be qualified performance-based compensation,
or (ii) the selection for participation in this Plan of an officer or other
person subject to Section 16 of the Exchange Act or decisions concerning the
timing, pricing or amount of an Award to such an officer or other person.
A majority of the Committee shall constitute a quorum. The Committee may
act at a meeting in person or by telephone, or by written consent without
meeting. The acts of the Committee shall be either (i) acts of a majority of the
members of the Committee present in person or by telephone at any meeting at
which a quorum is present or (ii) acts approved in writing by all of the members
of the Committee without a meeting.
1.4 ELIGIBILITY. Participants in this Plan shall consist of such
officers, key employees, consultants, advisers and Trustees of the Trust and its
subsidiaries, and persons who are expected to become, and subject to their
becoming, such officers, key employees, consultants, advisers and Trustees, as
the Committee in its sole discretion may select from time to time ("Eligible
Persons"), provided that only employees of the Trust (or a subsidiary of the
Trust) will be Eligible Persons to whom may be granted a Paired Option which
includes a Trust Share Option designated as an incentive share option. The
Committee's selection of a person to participate in this Plan at any time shall
not require the Committee to select such person to participate in this Plan at
any other time. Trustees shall also participate in this Plan in accordance with
Section V.
1.5 SHARES AVAILABLE. Subject to adjustment as provided in Section 7.7,
the aggregate number of Paired Shares available from time to time for all Awards
of Paired Options or Stock Awards under this Plan and the Corporation's 1995
Long-Term Incentive Plan (the "Corporation Plan") (with respect to Paired
Options, including all Paired Options whether or not they include Trust Share
Options that are designated as incentive share options) shall be equal to the
Aggregate Limit (as defined below), reduced by the aggregate number of Paired
Shares subject to outstanding Paired Options and outstanding Stock Awards under
this Plan and the Corporation Plan. Subject to adjustment as provided in Section
7.7, the number of Paired Shares available for grants of Paired Options that
include Trust Share Options that are designated as incentive share options shall
be equal to the Aggregate Limit, reduced by the aggregate number of Paired
Shares which become subject to (x) outstanding Paired Options under this Plan,
including each Paired Option that does not include a Trust Share Option that is
designated as an incentive share option and (y) outstanding options to purchase
Paired Shares under the Corporation Plan. As used herein "Aggregate Limit" means
26,724,741.
To the extent that Paired Shares subject to (i) an outstanding Paired
Option, (ii) an outstanding option to purchase Paired Shares under the
Corporation Plan or (iii) a Stock Award, are not issued or delivered or are
canceled or forfeited by reason of the expiration, termination, cancellation or
forfeiture of any such Award or by reason of the delivery or withholding of
Paired Shares to pay all or a portion of the exercise price of an Award, if any,
or to satisfy all or a portion of the tax withholding obligations relating to an
Award, then such Paired Shares shall again be available under this Plan.
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Paired Shares to be delivered under this Plan shall be made available
(i)(A) by the Trust from authorized and unissued Trust Shares issued by the
Trust directly to the holder and (B) by the Trust from authorized and unissued
Corporation Shares issued by the Corporation directly to the Trust for delivery
to the holder, (ii) from authorized and issued Paired Shares acquired and held
by the Trust or (iii) a combination thereof.
The maximum number of Paired Shares with respect to which Paired Options or
Stock Awards or a combination thereof may be granted to any person during any
calendar year beginning on or after January 1, 1998 shall be 900,000, subject to
adjustment as provided in Section 7.7.
II. PAIRED OPTIONS
2.1 AWARDS OF PAIRED OPTIONS. The Committee may, in its discretion, grant
Paired Options to such Eligible Persons as may be selected by the Committee.
Each Trust Share Option, or portion thereof, that is not an incentive share
option, shall be a non-qualified share option. Each Paired Option that includes
a Trust Share Option that is designated as an incentive share option shall be
granted within ten years of the original effective date of this Plan (June 29,
1995). To the extent that the aggregate fair market value (determined as of the
date of grant) of Trust Shares with respect to which Trust Share Options
designated as incentive share options are exercisable for the first time by a
holder during any calendar year (under this Plan or any other plan of the Trust
or any parent or subsidiary) exceeds the amount (currently $100,000) established
by the Code, such Trust Share Options shall constitute non-qualified share
options. The "fair market value" of a Trust Share shall be that portion of the
Fair Market Value of a Paired Share which the Committee determines to be
attributable to the Trust Share by applying in good faith a method of valuation
permissible under Section 422 of the Code.
2.2 TERMS OF PAIRED OPTIONS. Paired Options shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem advisable:
(a) Number of Paired Shares and Purchase Price. The number of Paired
Shares subject to a Paired Option and the purchase price per Paired Share
purchasable upon exercise of the Paired Option, including the portions of
the purchase price of a Paired Share that are attributable to a Trust Share
and a Corporation Share, respectively, shall be determined by the
Committee; provided, however, that (i) the purchase price per Paired Share
shall not be less than 100% of the Fair Market Value of a Paired Share on
the date of grant of such Paired Option, (ii) the portion of the purchase
price of a Paired Share which the Committee determines to be attributable
to a Trust Share shall not be less than 100% of the fair market value of a
Trust Share on the date of grant of such Paired Option, and (iii) the
portion of the purchase price of a Paired Share which the Committee
determines to be attributable to a Corporation Share (including the portion
of the purchase price, if any, of any such option attributable to a
Corporation Share) shall not be less than 100% of the fair market value of
a Corporation Share on the date of grant of such Paired Option; provided
further, that if a Trust Share Option designated as an incentive share
option shall be granted to any person who, at the time such incentive share
option is granted, owns shares of beneficial interest possessing more than
ten percent (10%) of the total combined voting power of all classes of
shares of beneficial interest of the Trust (or of any parent or subsidiary)
(a "Ten Percent Holder"), the purchase price per Trust Share shall be the
price (currently 110% of fair market value of a Trust Share) required by
the Code in order to constitute an incentive share option. The fair market
value of a Corporation Share shall be that portion of the Fair Market Value
of a Paired Share which the Committee determines to be attributable to the
Corporation Share.
(b) Option Period and Exercisability. The period during which a
Paired Option may be exercised shall be determined by the Committee;
provided, however, that no Paired Option which includes a Trust Share
Option designated as an incentive share option shall be exercised later
than ten years after its date of grant; provided further, that if a Paired
Option which includes a Trust Share Option designated as an incentive share
option shall be granted to a Ten Percent Holder, such Paired
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Option shall not be exercised later than five years after its date of
grant. The Committee shall determine whether a Paired Option shall become
exercisable in cumulative or non-cumulative installments and in part or in
full at any time. An exercisable Paired Option, or portion thereof, may be
exercised only with respect to whole Paired Shares. Except to the extent
otherwise specified in the Agreement relating to a Paired Option, in the
event of a Change of Control, such Paired Option shall become immediately
exercisable for the full amount of Paired Shares subject thereto and shall
be exercisable until expiration of the term of such Paired Option.
(c) Method of Exercise. A Paired Option may be exercised (i) by
giving written notice to the Trust specifying the number of whole Paired
Shares to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Trust's satisfaction) either (A)
in cash, (B) by delivery of previously owned whole Paired Shares (which the
holder has held for at least six months prior to the delivery of such
Paired Shares or which the holder purchased on the open market and for
which the holder has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date of
exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Trust to whom
the holder has submitted an irrevocable notice of exercise or (D) a
combination of (A) and (B), in each case to the extent set forth in the
Agreement relating to the Paired Option and (ii) by executing such
documents as the Trust may reasonably request. The Committee shall have
sole discretion to disapprove of an election pursuant to any of the
foregoing clauses (B) through (D). Any fraction of a Paired Share which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the holder. No certificate
representing a Paired Share shall be delivered until the full purchase
price therefor has been paid.
2.3 (Omitted.)
2.4 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability or Death. Unless otherwise specified in the Agreement
relating to a Paired Option, if the optionee's employment with the Trust or
service as a consultant, adviser or Trustee terminates by reason of
Disability or death, each Paired Option held by such optionee shall be
fully exercisable and may thereafter be exercised by such optionee (or such
optionee's executor, administrator, legal representative, beneficiary or
similar person, as the case may be) until and including the earliest to
occur of (i) the date which is one year (or such other period as set forth
in the Agreement relating to such Paired Option) after the effective date
of such optionee's termination of employment or service or date of death,
as the case may be, and (ii) the expiration date of the term of such Paired
Option.
(b) Termination for Cause. Unless otherwise specified in the
Agreement relating to a Paired Option, if the optionee's employment with
the Trust or service as a consultant, adviser or Trustee terminates for
Cause, each Paired Option held by such optionee, whether or not then
exercisable, shall terminate automatically on the effective date of such
optionee's termination of employment or service.
(c) Voluntary Termination by Optionee. Unless otherwise specified in
the Agreement relating to a Paired Option, if the optionee's employment
with the Trust or service as a consultant, adviser or Trustee terminates
because of the voluntary termination by the optionee, each Paired Option
held by such optionee shall be exercisable only to the extent that such
Paired Option is exercisable on the effective date of such optionee's
termination of employment or service and may thereafter be exercised by
such optionee (or such optionee's legal representative or similar person)
until and including the earliest to occur of (i) the date which is 30 days
(or such other period as set forth in the Agreement relating to such Paired
Option) after the effective date of such optionee's termination of
employment or service and (ii) the expiration date of the term of such
Paired Option.
(d) Other Termination. Unless otherwise specified in the Agreement
relating to a Paired Option, if the optionee's employment with the Trust or
service as a consultant, adviser or Trustee
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terminates for any reason other than Disability, death, voluntary
termination by the optionee or termination by the Trust for Cause, each
Paired Option held by such optionee shall be exercisable only to the extent
that such Paired Option is exercisable on the effective date of such
optionee's termination of employment or service and may thereafter be
exercised by such optionee (or such optionee's legal representative or
similar person) until and including the earliest to occur of (i) the date
which is three months (or such other period as set forth in the Agreement
relating to such Paired Option) after the effective date of such optionee's
termination of employment or service and (ii) the expiration date of the
term of such Paired Option.
(e) Death Following Termination of Employment or Service. Unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee dies during the one-year period following termination of
employment or service by reason of Disability, if an optionee dies during
the thirty-day period following voluntary termination of employment or
service by the optionee, or if an optionee dies during the three-month
period following termination of employment or service for any reason other
than voluntary termination by the optionee, Disability or Cause (or, in
each case, such other period as the Committee may specify in the Agreement
relating to a Paired Option), each Paired Option held by such optionee may
thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person, as the case may be, until
and including the earliest to occur of (i) the date which is three months
(thirty days in the case of voluntary termination of employment or service
by the optionee) (or such other period as set forth in the Agreement
relating to such Paired Option) after the date of death (but in the case of
death following termination of employment or service by reason of
Disability, no less than one year (or such other period as set forth in the
Agreement relating to such Paired Option) after the date of termination of
employment or service), and (ii) the expiration date of the term of such
Paired Option.
III. RESTRICTED STOCK AWARDS
3.1 RESTRICTED STOCK AWARDS. The Committee may, in its discretion, grant
Restricted Stock Awards to such Eligible Persons as may be selected by the
Committee.
3.2 TERMS OF RESTRICTED STOCK AWARDS. Restricted Stock Awards shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this Plan, as the
Committee in its discretion shall deem advisable:
(a) Number of Shares and Other Terms. The number of Paired Shares
subject to a Restricted Stock Award and the Performance Measures (if any)
and Restriction Period applicable to a Restricted Stock Award shall be
determined by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Restricted
Stock Award shall provide, in the manner determined by the Committee in its
discretion and subject to the provisions of this Plan, for the vesting of
the Paired Shares subject to such Award either (i) in accordance with the
attainment or satisfaction of specified Performance Measures during the
specified Restriction Period or (ii) over a period of years of employment
by, service to or compliance with agreements with the Trust during the
specified Restriction Period (or both), and for the forfeiture of all or a
portion of the Paired Shares subject to such Award (x) if and to the extent
specified Performance Measures are not satisfied or met during the
specified Restriction Period or (y) if the holder of such Award does not
remain in the employment of or service to the Trust or in compliance with
such agreements with the Trust during the specified Restriction Period.
Except to the extent otherwise specified in the Agreement relating to a
Restricted Stock Award, all Paired Shares subject to such an Award shall
immediately vest in full in the event of a Change of Control.
(c) Share Certificates. During the Restriction Period, a certificate
or certificates evidencing Paired Shares subject to a Restricted Stock
Award may be registered in the holder's name and may bear a legend, in
addition to any legend which may be required pursuant to Section 7.6,
indicating that the ownership of the Paired Shares represented by such
certificate is subject to the restrictions,
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terms and conditions of this Plan and the Agreement relating to the
Restricted Stock Award. All such certificates shall be deposited with the
Trust, together with stock powers or other instruments of assignment
(including a power of attorney), each endorsed in blank with a guarantee of
signature if deemed necessary or appropriate by the Trust, which would
permit transfer to the Trust of all or a portion of the Trust Shares and to
the Corporation all or a portion of the Corporation Shares subject to the
Restricted Stock Award in the event such Award is forfeited in whole or in
part. Upon termination of any applicable Restriction Period (and the
satisfaction or attainment of any applicable Performance Measures), subject
to the Trust's right to require payment of any taxes in accordance with
Section 7.5, a certificate or certificates evidencing ownership of the
requisite number of Paired Shares shall be delivered to the holder of such
Award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise
set forth in the Agreement relating to a Restricted Stock Award, and
subject to the terms and conditions of a Restricted Stock Award, the holder
of such Award shall have all rights as a stockholder of the Trust and the
Corporation, including, but not limited to, voting rights, the right to
receive dividends and the right to participate in any capital adjustment
applicable to all holders of Paired Shares.
3.3 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability, Death and Involuntary Termination Without
Cause. Except to the extent otherwise set forth in the Agreement relating
to a Restricted Stock Award, if the employment of the holder of a
Restricted Stock Award or his or her service as a consultant, adviser or
Trustee terminates by reason of Disability, death or involuntary
termination by the Trust without Cause, the Restriction Period shall
terminate as of the effective date of such holder's termination of
employment or service, and any applicable Performance Measures shall be
computed through such date.
(b) Other Termination. Except to the extent otherwise set forth in
the Agreement relating to a Restricted Stock Award, if the holder's
employment with the Trust or service as a consultant, adviser or Trustee
terminates for any reason other than Disability, death or involuntary
termination without Cause, then the portion of such Award which is subject
to a Restriction Period on the effective date of such holder's termination
of employment or service shall be forfeited to and canceled by the Trust.
IV. PERFORMANCE AWARDS
4.1 PERFORMANCE AWARDS. The Committee may, in its discretion, grant
Performance Awards to such Eligible Persons as may be selected by the Committee.
4.2 TERMS OF PERFORMANCE AWARDS. Performance Awards shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
in its discretion deem advisable:
(a) Grant of Performance Awards. A Performance Award may be granted
only in tandem with a Paired Option which is being or was granted under
Section II and shall apply to all or such portion of the Paired Shares
subject to such Paired Option as the Committee may designate. The
Performance Period and Performance Measures of a Performance Award shall be
as designated by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Performance
Award shall provide, in the manner determined by the Committee in its
discretion and subject to the provisions of this Plan, for the vesting of
such Award if specified Performance Measures are satisfied or met during
the specified Performance Period, and for the forfeiture of such Award if
specified Performance Measures are not satisfied or met during the
specified Performance Period. To the extent not otherwise provided in such
Agreement, such vesting and forfeiture provisions shall be as provided in
this Plan.
(c) Settlement of Vested Performance Awards. Vested Performance
Awards shall be settled in cash to the extent that both (i) the applicable
Paired Option has been exercised (whether before or after expiration of the
Performance Period) with respect to Paired Shares subject to the
Performance
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Award and (ii) the Performance Period has expired. The cash amount shall
be the sum (without interest or compounding) of all dividends and
distributions paid per Paired Share (subject to adjustment as provided in
Section 7.7), including the fair market value of any dividends and
distributions that are not paid in cash, as determined by the committee in
its sole discretion, during the Performance Period and thereafter to the
date of any subsequent exercise of the applicable Paired Options,
multiplied by the number of such Paired Shares purchased upon such
exercise. Except to the extent otherwise provided in the Agreement relating
to a Performance Award, in the event of a Change of Control the Performance
Period shall expire and the Performance Measures shall be computed through
such date and the applicable Performance Award shall forthwith be settled
on the date of such Change of Control or if later upon exercise of the
applicable Paired Option. Notwithstanding the foregoing, if the Committee
in good faith determines that a payment in settlement of a Performance
Award will or is likely to render the Trust insolvent, the Committee may
elect to defer such payment for a reasonable period of time and to pay at a
later date with interest at such reasonable rate as the Committee may
determine.
4.3 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability, Death and Involuntary Termination Without
Cause. Except to the extent otherwise set forth in the Agreement relating
to a Performance Award, if the employment of the holder of a Performance
Award or his or her service as a consultant, adviser or Trustee of the
Trust is terminated by reason of Disability, death or involuntary
termination by the Trust without Cause, the Performance Period with respect
to such Performance Award shall terminate and the Performance Measures
shall be computed through such date and the applicable Performance Award
shall be settled as described in Section 4.2(c) as soon as practicable
within 10 days thereafter, or if later, upon exercise of the applicable
Paired Option.
(b) Other Termination. Except to the extent otherwise set forth in
the Agreement relating to a Performance Award, if the holder's employment
with the Trust or service as a consultant, adviser or Trustee terminates
for any reason other than Disability, death, or involuntary termination by
the Trust without Cause, then the Performance Period for such Performance
Award shall be deemed to end on the date of such termination, no
Performance Measure shall be recognized or deemed attained, satisfied or
met, and the holder's Performance Award shall be forfeited to and canceled
by the Trust.
V. CERTAIN PROVISIONS RELATING TO TRUSTEES
5.1 ELIGIBILITY. Each Trustee who is not an employee of the Trust or the
Corporation or a subsidiary of either ("Eligible Trustee") shall be granted
Paired Options and Paired Shares in accordance with this Section V. All Trust
Share Options and Corporation Share Options included in the Paired Options
granted under this Section V shall constitute non-qualified share options.
5.2 GRANTS OF PAIRED OPTIONS. Each Eligible Trustee shall be granted
Paired Options as follows:
(a) Time of Grant. On June 30 of each calendar year beginning in 1997
(or, if later than June 30, on the date on which a person is first elected
as a Trustee), each Eligible Trustee on such date shall be granted a Paired
Option to purchase 4,500 Paired Shares (9,000 Paired Shares if such person
is a Trustee of a subsidiary only and does not receive grants of Paired
Shares or any cash in lieu thereof under Section 5.3) which amount shall be
pro-rated if such person is first elected to serve as a Trustee on a date
other than June 30 of a calendar year, at a purchase price per Paired Share
equal to 100% of the Fair Market Value of a Paired Share on the date of
grant of such Paired Option; provided, however, that the portion of the
purchase price of a Paired Share which is attributable to a Trust Share
shall be 100% of the fair market value of a Trust Share on the date of
grant of such Paired Option and the portion of the purchase price of a
Paired Share which is attributable to a Corporation Share shall be 100% of
the fair market value of a Corporation Share on the date of grant of such
Paired Option.
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(b) Option Period and Exercisability. Each Paired Option granted
under this Article V shall be fully exercisable on and after its date of
grant, shall expire ten years after its date of grant (notwithstanding
termination of service as a Trustee for any reason prior to such ten-year
anniversary date) and may be exercised in whole or in part (only with
respect to whole Paired Shares). Paired Options granted under this Article
V shall be exercisable in accordance with Section 2.2(c).
(c) Death. If a Trustee dies while a Paired Option is outstanding,
such Paired Option may thereafter be exercised by such Trustee's executor,
administrator, legal representative, beneficiary or similar person, as the
case may be, until and including the expiration date of the term of such
Paired Option.
5.3 GRANTS OF PAIRED SHARES. During each calendar year beginning in 1998,
each Eligible Trustee (except for Trustees of subsidiaries) on the last day of
March, June, September and December shall be awarded, on a current basis or at
the prior election of the Eligible Trustee under Section 5.4 on a deferred
basis, a number of Paired Shares (rounded to the nearest whole share) equal to
one-quarter of $50,000 divided by the Fair Market Value of a Paired Share on the
immediately preceding December 31; provided that the foregoing $50,000 shall be
reduced, but not below $25,000, to the extent an Eligible Trustee elects (prior
to such immediately preceding December 31, or with respect to any person who
became an Eligible Trustee subsequent to such date, within 10 days of becoming
an Eligible Trustee) to receive cash in lieu of Paired Shares under this Section
5.3 (a "Cash Election"). The Paired Shares awarded pursuant to this Section 5.3
shall not be Restricted Stock. The foregoing shall not in any way limit the
number of Paired Shares that may be awarded to Eligible Trustees, or the fees
that may be paid to members of the Board.
5.4 DEFERRAL ELECTION. On or before each December 31 (or in the case of a
person who first becomes an Eligible Trustee subsequent to December 31, within
10 days of becoming an Eligible Trustee), an Eligible Trustee may, by written
notice to the Trust, elect to defer receipt (a "Deferral Election") of any or
all of the Paired Shares provided in Section 5.3 (or cash to the extent of his
or her Cash Election under Section 5.3) which would otherwise be thereafter
payable to him or her in the manner prescribed by the Trust for such deferrals.
VI. SPECIAL
This Plan includes, or shall be deemed to include, without limitation, the
following Awards of Paired Options, Performance Awards (all of which include
Base Performance Measures) and Restricted Stock (unless otherwise indicated, all
Awards are as of August 12, 1996 and all Paired Options are exercisable at
$35.875, the Fair Market Value per Paired Share on that date):
1. BARRY S. STERNLICHT
(i) Award as of February 21, 1996 of 30,000 Paired Shares in the
form of warrants vesting over a one year period;
(ii) Paired Option to purchase 650,000 Paired Shares vesting over
the three year period August 12, 1996 to August 12, 1999;
(iii) Paired Option to purchase 300,000 Paired Shares vesting over
the five year period August 12, 1996 to August 12, 2001;
(iv) Performance Awards relating to all Paired Shares underlying
the above Paired Options granted to Barry S. Sternlicht;
(v) Paired Option to purchase 2,500,000 Paired Shares exercisable
at $54.6250 per Paired Share vesting over the three year period December
31, 1997 to December 31, 2000.
2. STARWOOD CAPITAL GROUP L.L.C.
Award of 167,247 Paired Shares to Starwood Capital Group L.L.C.
vesting over the two year period August 12, 1996 to August 12, 1998.
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3. RONALD C. BROWN
(i) Paired Option to purchase 25,000 Paired Shares vesting over the
five year period August 12, 1996 to August 12, 2001;
(ii) Performance Awards relating to all Paired Shares underlying
the above Paired Option granted to Ronald C. Brown;
(iii) Performance Awards relating to all Paired Shares underlying
the Paired Option granted April 30, 1996 to purchase 32,000 Paired
Shares exercisable at $33 per Paired Share vesting over the three year
period April 30, 1996 to April 30, 1999;
(iv) Award of 15,000 Paired Shares vesting over the three year
period August 12, 1996 to August 12, 1999.
4. STEVEN R. GOLDMAN
(i) Paired Option to purchase 25,000 Paired Shares vesting over the
five year period August 12, 1996 to August 12, 2001;
(ii) Performance Awards relating to all Paired Shares underlying
the above Paired Option granted to Steven R. Goldman;
(iii) Performance Awards relating to all Paired Shares underlying
the Paired Option granted April 30, 1996 to purchase 35,000 Paired
Shares exercisable at $33 per Paired Share vesting over the three year
period April 30, 1996 to April 30, 1999;
(iv) Award of 25,000 Paired Shares vesting over the three year
period August 12, 1996 to August 12, 1999.
VII. GENERAL
7.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan, as amended and restated
as of December 3, 1998, shall become effective as of December 3, 1998 and shall
apply, without limitation, to all Awards then or thereafter made or granted
under this Plan. All outstanding Awards under this Plan or its predecessors
prior to December 3, 1998 shall be unaffected and shall remain in full force and
effect. This Plan shall terminate on June 29, 2005 (ten years after its original
effective date) unless terminated earlier by the Board. Termination of this Plan
shall not affect the terms or conditions of any Award granted prior to
termination.
Awards may be granted hereunder at any time prior to the termination of
this Plan, provided that no Award may be granted later than June 29, 2005.
7.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of shareholder approval required by applicable law,
rule or regulation including Rule 16b-3 under the Exchange Act and Sections 422
and 856 of the Code; provided, however, that any amendment with respect to the
persons eligible to participate in this Plan or the number of Paired Shares
available for Awards under this Plan shall not be effective without shareholder
approval of such amendment within 12 months before or after the date such
amendment is approved by the Board. No amendment may impair the rights of a
holder of an outstanding Award without the consent of such holder.
Notwithstanding any other provision hereunder, without the approval by the
shareholders of the Trust, outstanding Paired Options may not be amended to
reduce their exercise price.
7.3 AGREEMENT. No Paired Option may be exercised and no other Award shall
be valid until confirmed in writing by the Trust, and, upon such confirmation,
the Award shall be effective as of the effective date set forth in such writing.
7.4 NON-TRANSFERABILITY. Unless otherwise specified in the Agreement
relating to a Paired Option or a Performance Award, no Paired Option or
Performance Award shall be transferable other than by will
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or the laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Trust. Except to the extent permitted by the
foregoing sentence, each Paired Option or Performance Award may be exercised or
settled during the optionee's lifetime only by the optionee or the optionee's
legal representative or similar person. Except as permitted by the second
preceding sentence, no Paired Option or Performance Award shall be sold,
transferred, assigned, pledged, hypothecated, voluntarily encumbered or
otherwise disposed of (whether by operation of law or otherwise) or be subject
to execution, attachment or similar process. Upon any attempt to so sell,
transfer, assign, pledge, hypothecate, voluntarily encumber or otherwise dispose
of any Paired Option or Performance Award, such Paired Option or Performance
Award and all rights thereunder shall, to the extent of any such attempt,
immediately become null and void.
Restricted Stock granted under this Plan shall be transferable, subject to
the transferee's receiving such Restricted Stock subject to the same
restrictions as those applicable to the transferor. Upon any such transfer, the
transferee shall execute such appropriate documents that may be requested by the
Trust to evidence the transferee's acceptance of the restrictions applicable to
such Restricted Stock.
7.5 TAX WITHHOLDING. The Trust shall have the right to require, prior to
the delivery of any Paired Shares or the payment of any cash pursuant to an
Award made hereunder, payment by the holder of such Award of any federal, state,
local or other taxes which may be required to be withheld or paid in connection
with such Award. An Agreement may provide that the holder of an Award may
satisfy any such obligation by any of the following means: (A) a cash payment to
the Trust, (B) delivery to the Trust of previously owned whole Paired Shares
(which such holder has held for at least six months prior to the delivery of
such Paired Shares or which such holder purchased on the open market and for
which such holder has good title, free and clear of all liens and encumbrances)
having an aggregate Fair Market Value, determined as of the date the obligation
to withhold or pay taxes arises in connection with an Award (the "Tax Date"),
equal to the amount necessary to satisfy any such obligation, (C) in the case of
the exercise of a Paired Option, a cash payment by a broker-dealer acceptable to
the Trust to whom the holder has submitted an irrevocable notice of exercise or
(D) any combination of (A) and (B), in each case to the extent set forth in the
Agreement relating to the Award; provided, however, that the Committee shall
have sole discretion to disapprove of an election pursuant to any of the
foregoing clauses (B) through (D). An Agreement may provide for Paired Shares to
be delivered having a Fair Market Value in excess of the minimum amount required
to be withheld, but not in excess of the amount determined by applying the
holder's maximum marginal tax rate. Any fraction of a Paired Share which would
be required to satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the holder.
7.6 RESTRICTIONS ON PAIRED SHARES. Each Award hereunder shall be subject
to the requirement that if at any time the Trust determines that the listing,
registration or qualification of the Paired Shares subject to such Award upon
any securities exchange or under any law, or the consent or approval of any
governmental body, or the taking of any other action is necessary or desirable
as a condition of, or in connection with, the delivery of Paired Shares
thereunder, such Paired Shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Trust. The
Trust may require that certificates evidencing Paired Shares delivered pursuant
to any Award made hereunder bear a legend indicating that the sale, transfer or
other disposition thereof by the holder is prohibited except in compliance with
the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
Notwithstanding any other provision hereunder, no Award hereunder shall be
exercisable or eligible for settlement if, as a result of either the ability to
exercise or settle, or the exercise or settlement of such Award, the Trust would
not satisfy the REIT Requirements in any respect. For purposes of the preceding
sentence, "REIT Requirements" shall mean the requirements for the Trust to (i)
qualify as a real estate investment trust under the Code and the rules and
regulations promulgated thereunder, (ii) prior to the effective time of the
Restructuring (as defined in Section 7.7), retain its status as grandfathered
pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984 and (iii)
prior to the effective time of the
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Restructuring, retain the benefits of that certain private letter ruling issued
by the Internal Revenue Service to the Trust dated as of January 4, 1980.
7.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Paired Shares other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding Paired Option, the
purchase price per security, and the number of securities subject to each Paired
Option and the number of Paired Shares to be granted to Trustees pursuant to
Article V, the number and class of securities subject to each outstanding Stock
Award and the terms of each outstanding Performance Award shall be appropriately
adjusted by the Committee, such adjustments to be made in the case of
outstanding Paired Options without an increase in the aggregate purchase price
or base price. The decision of the Committee regarding any such adjustment shall
be final, binding and conclusive. If any adjustment would result in a fractional
security being (i) available under this Plan, such fractional security shall be
disregarded, or (ii) subject to an Award under this Plan, the Trust shall pay
the holder of such Award, in connection with the first vesting, exercise or
settlement of such Award in whole or in part, occurring after such adjustment,
an amount in cash determined by multiplying (A) the fraction of such security
(rounded to the nearest hundredth) by (B) the excess, if any, of (x) the Fair
Market Value of a Paired Share on the vesting, exercise or settlement date over
(y) the exercise price or base price, if any, of such Award.
With respect to any holder who is subject to Section 16 of the Exchange Act
and notwithstanding the exercise periods set forth in paragraphs (a), (c) and
(d) of Section 2.4, paragraph (b) of Section 5.2 or as set forth pursuant to
such paragraphs in any Agreement to which such holder is a party (or as may be
set forth in any Agreement pursuant to paragraph (b) of Section 2.4), and
notwithstanding the expiration date of the term of a Paired Option, in the event
the Trust is involved in a business combination which is intended to be treated
as a pooling of interests for financial accounting purposes (a "Pooling
Transaction") or pursuant to which such holder receives a substitute option to
purchase securities of any entity, including an entity directly or indirectly
acquiring the Trust, then each Paired Option (or option in substitution thereof)
held by such holder shall be exercisable to the extent set forth in the
Agreement evidencing such option until and including the latest of (x) the date
set forth pursuant to the then applicable paragraph of Section 2.4 or 5.2, or
the expiration date of the term of the Paired Option, as the case may be, (y)
the date which is seven months after the consummation of such business
combination and (z) the date which is ten business days after the date of
expiration of any period during which such holder may not dispose of a security
issued in the Pooling Transaction in order for the Pooling Transaction to be
accounted for as a pooling of interests.
The Board of Directors of the Corporation and the Board of Trustees of the
Trust have approved a restructuring transaction (the "Restructuring") pursuant
to an Agreement and Plan of Restructuring between the Trust and the Corporation
dated as of September 16, 1998. In the Restructuring, a subsidiary of the
Corporation will merge with and into the Trust, with the result that a newly
issued class of shares of the Trust designated as Class B Shares of the Trust
("Class B Shares") will be exchanged and substituted for the outstanding Trust
Shares, and the Agreement dated June 25, 1980 as amended between the Corporation
and the Trust will be amended and restated so that the Class B Shares, instead
of the Trust Shares, will be attached to the Corporation Shares and will trade
with them as units consisting of one Corporation Share and one Class B Share.
The Restructuring is subject to certain conditions, including approval by the
stockholders of the Corporation and the shareholders of the Trust at meetings
scheduled to be held on January 6, 1999. If the Restructuring occurs, then for
all purposes of this LTIP, all references to Trust Shares shall be deemed to be
references instead to the Class B Shares.
7.8 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in this Plan. Neither this Plan nor any Award made
hereunder shall confer upon any person any right to continued employment by, or
service to, the Trust, any subsidiary or any affiliate of the Trust or affect in
any manner the right of the Trust, any subsidiary or any affiliate of the Trust
to terminate the employment of, or service by, any person at any time without
liability hereunder. For purposes of Section 2.4,
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Section 3.3, Section 4.3 and Section 5.2, employment with the Trust or service
as a consultant, adviser or Trustee includes such employment or service with or
for a subsidiary or affiliate of the Trust. It does not, however, include such
employment or service with or for Starwood Capital Group, L.L.C. or its
successors.
7.9 RIGHTS AS SHAREHOLDER. No person shall have any rights as a
shareholder of the Trust or Corporation with respect to any Trust Shares or
Corporation Shares which are subject to an Award hereunder until such person
becomes a shareholder of record with respect to such Trust Shares or Corporation
Shares.
7.10 DESIGNATION OF BENEFICIARY. If permitted by the Trust, an Eligible
Person who is granted an Award hereunder may file with the Committee a written
designation of one or more persons as such Eligible Person's beneficiary or
beneficiaries (both primary and contingent) in the event of the person's death.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during such Eligible Person's lifetime on a form
prescribed by the Committee. Such person's spouse who is domiciled in a
community property jurisdiction shall join in any designation of a beneficiary
other than such spouse. The filing with the Committee of a new beneficiary
designation shall cancel all previously filed beneficiary designations.
To the extent an outstanding Paired Option granted hereunder is exercisable
or an outstanding Performance Award may be settled in accordance with the terms
of this Plan and the Agreement relating to such Award, such beneficiary or
beneficiaries shall be entitled to exercise such Paired Option or settle such
Performance Award.
If such an Eligible Person fails to designate a beneficiary, or if all
designated beneficiaries predecease him, then each outstanding Award hereunder
held by such Eligible Person to the extent vested, exercisable or eligible for
settlement, may be exercised or settled by such Eligible Person's executor,
administrator, legal representative or similar person.
7.11 GOVERNING LAW. This Plan, each Award hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of Maryland and construed in
accordance therewith without giving effect to principles of conflicts of laws.
7.12 TERMINATION OF PAIRING AGREEMENT. Notwithstanding anything in this
Plan to the contrary, if at any time the Agreement dated June 25, 1980, as
amended, by and between the Trust and the Corporation, pursuant to which Trust
Shares and Corporation Shares are paired on a share-for-share basis, is
terminated for any reason and as a result of such termination Trust Shares and
Corporation Shares no longer are required to be transferred together, then
concurrently with such termination (i) Paired Options will no longer be granted
hereunder; (ii) Stock Awards and Performance Awards will no longer be made with
respect to Paired Shares; (iii) only Trust Share Options, Stock Awards and
Performance Awards relating to the Trust Shares may thereafter be granted or
made hereunder; (iv) each then outstanding Award shall constitute a wholly
separate and independent Trust Share Award and Corporation Share Award and the
Trust, in its discretion, may require that each Agreement evidencing such an
Award be returned to the Trust for cancellation in exchange for separate
agreements evidencing the Trust Share Award and Corporation Share Award subject
to such Award; (v) Trust Share Awards and Corporation Share Awards shall no
longer be required to be exercised, terminated, canceled, forfeited, transferred
or otherwise disposed of together; and (vi) the fair market value and the
"closing price" of the Trust Shares and Corporation Shares as used herein shall
thereafter be deemed to refer, respectively, to the fair market value and the
closing price of a Trust Share and a Corporation Share.
7.13 GLOSSARY. As used herein, the following words shall have the
meanings indicated.
"AGGREGATE LIMIT" shall have the meaning set forth in Section 1.5.
"AGREEMENT" shall mean the written agreement evidencing an Award hereunder
between the Trust and the recipient of such Award.
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"AWARD" shall include a grant of Paired Options, a Restricted Stock Award,
an award of Paired Shares and an award of a Performance Award under this Plan.
"BASE PERFORMANCE MEASURE" shall mean a 15% Shareholder Return over the
Performance Period of five years commencing August 12, 1996.
"BOARD" shall mean the Board of Trustees of the Trust.
"CAUSE" shall mean embezzlement or misappropriation of the Trust's funds or
other assets, other act deemed by the Committee in the good faith exercise of
its sole discretion to be an act of dishonesty with respect to the Trust,
significant activities materially harmful to the reputation of the Trust,
willful and repeated refusal to perform or substantial disregard of the duties
properly assigned to the holder by the Trust (other than as a result of
Disability), material violation of any statutory or common law duty of loyalty
to the Trust or a material breach by the holder of the holder's employment
agreement with the Trust, if any (subject to any cure period therein provided).
"CHANGE OF CONTROL" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act, of beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act, of 51% or more of either (i) the
then outstanding Paired Shares, including for this purpose Partnership
Units of SLT Realty Limited Partnership and SLC Operating Limited
Partnership exchangeable for Paired Shares (collectively, the "Outstanding
Paired Shares") or (ii) the combined voting power of the then outstanding
securities of the Trust entitled to vote generally in the election of
trustees (the "Outstanding Voting Securities"); excluding, however, the
following: (A) any acquisition by the Trust, (B) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the
Trust or any corporation or trust controlled by the Trust or (C) any
acquisition by any corporation or trust pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this
definition.
(2) individuals who, as of December 3, 1998 constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided that any individual who becomes a trustee of the
Trust subsequent to December 3, 1998 whose election, or nomination for
election by the Trust's shareholders, was approved by the vote of at least
a majority of the Trustees then comprising the Incumbent Board shall be
deemed a member of the Incumbent Board; and provided further, that any
individual who was initially elected as a Trustee of the Trust as a result
of an actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consent by or on behalf of
any Person other than the Board shall not be deemed a member of the
Incumbent Board;
(3) consummation by the Trust of a reorganization, merger or
consolidation or sale of all or substantially all of the assets of the
Trust (a "Corporate Transaction"); excluding, however, a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the beneficial owners, respectively, of the
Outstanding Paired Shares and the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 66 2/3% of, respectively, the outstanding shares of
beneficial interest or common stock, and the combined voting power of the
outstanding securities of such trust or corporation entitled to vote
generally in the election of trustees or directors, as the case may be, of
the trust or corporation resulting from such Corporate Transaction
(including, without limitation, an entity which as a result of such
transaction owns the Trust or all or substantially all of the Trust's
assets either directly or indirectly) in substantially the same proportions
relative to each other as their ownership immediately prior to such
Corporate Transaction, of the Outstanding Paired Shares and the Outstanding
Voting Securities as the case may be, (ii) no Person (other than: the
Trust; any employee benefit plan (or related trust) sponsored or maintained
by the Trust or any trust or corporation controlled by the
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Trust; the trust or corporation resulting from such Corporate Transaction;
and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 33 1/3% or more of the
Outstanding Paired Shares or the Outstanding Voting Securities, as the case
may be) will beneficially own, directly or indirectly, 33 1/3% or more of,
respectively, the outstanding shares of beneficial interest or common stock
of the trust or corporation resulting from such Corporate Transaction or
the combined voting power of the outstanding securities of such trust or
corporation entitled to vote generally in the election of trustees or
directors and (iii) individuals who were members of the incumbent Board
will constitute at least a majority of the members of the board of trustees
or directors of the trust or corporation resulting from such Corporate
Transaction; or
(4) approval by the shareholders of the Trust of a plan of complete
liquidation or dissolution of the Trust.
"COMMITTEE" shall mean the Committee designated by the Board, consisting of
two or more members of the Board, each of whom shall be (i) a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act, and (ii) at
the election of the Board, an "outside director" within the meaning of Section
162(m) of the Code.
"DISABILITY" shall mean the inability of the holder of an Award
substantially to perform such holder's duties and responsibilities for a
continuous period of at least six months.
"ELIGIBLE PERSONS" shall have the meaning set forth in Section 1.4.
"ELIGIBLE DIRECTOR" shall have the meaning set forth in Section 5.1.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall mean the closing transaction price of a Paired
Share as reported in the New York Stock Exchange Composite Transactions on the
first business day immediately preceding the date as of which such value is
being determined, or, if there shall be no reported transaction on such day, on
the next preceding business day for which a transaction was reported; provided
that if the Fair Market Value of a Paired Share for any date cannot be
determined as above provided, Fair Market Value of a Paired Share shall be
determined by the Committee by whatever means or method as the Committee, in the
good faith exercise of its discretion, shall at such time deem appropriate.
"PERFORMANCE AWARD" shall mean a right, contingent upon the attainment of
specified Performance Measures within a specified Performance Period, to receive
a payment in cash.
"PERFORMANCE MEASURES" shall mean the criteria and objectives, established
by the Committee, which shall be satisfied or met (i) as a condition to the
exercisability of all or a portion of a Paired Option, or (ii) during the
applicable Restriction Period or Performance Period as a condition to the
holder's receipt or retention, in the case of a Restricted Stock Award, of the
Paired Shares subject to such Award, or, in the case of a Performance Award, of
payment with respect to such Award. Such criteria and objectives may include,
without limitation, one or more of the following: the attainment by a Paired
Share of a specified Fair Market Value for a specified period of time, earnings
per share, return to stockholders (including dividends), return on equity,
earnings of the Trust, revenues, market share, funds from operations, cash flow
or cost reduction goals, or any combination of the foregoing. The Committee may,
in its sole discretion, amend or adjust the Performance Measures or other terms
and conditions of an outstanding Award in recognition of unusual or nonrecurring
events affecting the Trust or its financial statements or changes in law or
accounting principles. If the Committee consists solely of "outside directors"
(within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder) and the Committee desires that compensation payable
pursuant to any award subject to Performance Measures shall be "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code, the Performance Measures (i) shall be established by the Committee no
later than the end of the first quarter of the Performance Period or Restriction
Period, as applicable (or such other time permitted pursuant to Treasury
Regulations promulgated under Section 162(m) of the
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Code or otherwise permitted by the Internal Revenue Service) and (ii) shall
satisfy all other applicable requirements imposed under Treasury Regulations
promulgated under Section 162(m) of the Code, including the requirement that
such Performance Measures be stated in terms of an objective formula or
standard. Unless otherwise designated by the Committee, the Performance Measures
shall be the Base Performance Measure.
"PERFORMANCE PERIOD" shall mean any period designated by the Committee for
which the Performance Measures shall be calculated. The Performance Period shall
be the five year period commencing August 12, 1996 unless otherwise designated
by the Committee.
"RESTRICTED STOCK" shall mean Paired Shares that are subject to a
Restriction Period.
"RESTRICTION PERIOD" shall mean any period designated by the Committee
during which the Paired Shares subject to a Restricted Stock Award may not be
sold, transferred, assigned, pledged, hypothecated or otherwise voluntarily
encumbered or disposed of, except as provided in this Plan or the Agreement
relating to such award.
"SHAREHOLDER RETURN" shall mean the per annum compounded rate of increase
in the Fair Market Value of an investment in Paired Shares on the first day of
the Performance Period (assuming purchase of Paired Shares at their Fair Market
Value on such day) through the last day of the Performance Period, plus all
dividends or distributions paid with respect to such Paired Shares during the
Performance Period, and assuming reinvestment in Paired Shares of all such
dividends and distributions, adjusted to give effect to Section 7.7 of this
Plan.
"TRUST PLAN" shall have the meaning set forth in Section 1.5.
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ANNEX E
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1995 LONG-TERM INCENTIVE PLAN
(AMENDED AND RESTATED AS OF DECEMBER 3, 1998)
I. INTRODUCTION
1.1 PURPOSES AND GENERAL. The purposes of the 1995 Long-Term Incentive
Plan (the "Plan") of Starwood Hotels & Resorts Worldwide, Inc. (the
"Corporation"), as amended and restated as of December 3, 1998, are to align the
interests of the Corporation's stockholders and the recipients of awards under
this Plan by increasing the proprietary interest of such recipients in the
Corporation's growth and success and to advance the interests of the Corporation
by attracting and retaining officers, key employees, consultants and advisers,
as well as qualified persons for service as directors of the Corporation
("Directors"). For purposes of this Plan, references to employment by or service
as an officer, employee, consultant, adviser or Director of the Corporation
shall also mean employment by or service as an officer, employee, consultant,
adviser, director or member of the Board of Trustees of a subsidiary of the
Corporation. In addition, references to Directors include persons elected as
Directors who will begin to serve as Directors at a future date.
This Plan seeks to accomplish the foregoing purposes by providing a means
whereby (i) options to purchase from the Corporation shares of common stock, par
value $.01 per share, of the Corporation ("Corporation Shares") and options to
purchase from the Corporation shares of beneficial interest, par value $.01 per
share, of Starwood Hotels & Resorts ("Trust Shares") (or the right, with the
passage of time or upon the happening of certain events, to receive Corporation
Shares and Trust Shares) may be granted in accordance with Section II to
Eligible Persons and shall be granted, in accordance with Section V, to Eligible
Directors, (ii) awards of Corporation Shares and Trust Shares may be granted in
accordance with Section III to Eligible Persons ("Restricted Stock Awards"), and
shall be granted in accordance with Section V to Eligible Directors (such awards
to Directors and the Restricted Stock Awards are herein referred to as "Stock
Awards"), and (iii) Performance Awards may be granted in accordance with Section
IV to Eligible Persons. Pursuant to an Agreement dated June 25, 1980, as
amended, between the Corporation and Starwood Hotels & Resorts (the "Trust"),
all outstanding Corporation Shares and Trust Shares are paired on a one-for-one
basis and trade as units consisting of one Corporation Share and one Trust Share
("Paired Shares"). Accordingly, each option to purchase Corporation Shares (a
"Corporation Share Option") shall be paired with an option to purchase an equal
number of Trust Shares (a "Trust Share Option" and each such paired Corporation
Share Option and Trust Share Option is herein referred to as a "Paired Option");
similarly, each award of Corporation Shares shall be paired with an award of an
equal number of Trust Shares.
Each Paired Option or Stock Award may be exercised, terminated, canceled,
forfeited, transferred or otherwise disposed of only in units consisting of
Paired Shares. Accordingly, a Corporation Share Option, or portion thereof, or
an award of a Corporation Share, or portion thereof, may be exercised,
terminated, canceled, forfeited, transferred or otherwise disposed of only in
connection with, and to the same extent as, the exercise, termination,
cancellation, forfeiture, transfer or other disposition of a Trust Share Option
or an award of a Trust Share, as the case may be. The Committee may designate
that a Corporation Share Option constituting part of a Paired Option is intended
to be an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor
provision (an "incentive share option"). No Trust Share Option constituting part
of a Paired Option hereunder may be an "incentive stock option" within the
meaning of Section 422 of the Code.
1.2 CERTAIN DEFINITIONS. As used herein, the words set forth in the
Glossary contained in Section 7.13 shall have the meanings therein indicated.
1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Any
one or a combination of the following Awards may be made under this Plan to
Eligible Persons: (i) Paired Options;
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(ii) Restricted Stock Awards; and (iii) Performance Awards. The Committee may,
subject to the terms of this Plan, select Eligible Persons for participation in
the Plan and shall determine the form, amount and timing of each Award and, if
applicable, the number of Paired Options, shares of Restricted Stock, Paired
Shares or Performance Awards subject to such an Award, the exercise price or
base price associated with the Award, including the portion that is attributable
to the Corporation Share or Corporation Share Option and the Trust Share or the
Trust Share Option, respectively, the time and conditions of exercise or
settlement of the Award and all other terms and conditions of the Award,
including without limitation the form of the Agreement relating to the Award.
The Committee may, in its sole discretion and for any reason at any time,
subject to the requirements imposed by Section 162(m) of the Code and
regulations promulgated thereunder in the case of an Award intended to be
qualified performance-based compensation, take action such that (i) any or all
outstanding Paired Options shall become exercisable in part or in full, (ii) all
or a portion of the Restriction Period applicable to any outstanding Restricted
Stock Award shall lapse, (iii) all or a portion of the Performance Period
applicable to any outstanding Performance Award shall lapse, (iv) the
Performance Measures applicable to any outstanding Paired Option, Restricted
Stock Award or Performance Award shall be deemed to be satisfied in whole or in
part.
The Committee shall, subject to the terms of this Plan, interpret this Plan
and the application thereof, establish rules and regulations it deems necessary
or desirable for the administration of this Plan and may impose, incidental to
the grant of an Award, conditions with respect to the Award, such as limiting
competitive employment or other activities. All such interpretations, rules,
regulations and conditions shall be conclusive and binding on all parties. Each
Award shall be evidenced by a written Agreement between the Corporation and the
holder setting forth the terms and conditions applicable to such Award.
Subject to the express provisions of this Plan, the Committee shall have
the authority:
(1) to determine from among those persons eligible to receive an Award
the particular Eligible Persons who will receive any Awards;
(2) to grant Awards to Eligible Persons, determine the price at which
Awards will be offered or awarded and the amount of Awards to any of such
Persons, and determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion (if any) of
such Awards;
(3) to approve the forms and terms of Agreements, which need not be
identical either as to type of Award or among Eligible Persons;
(4) to construe and interpret this Plan and any Agreements, further
define the terms used in this Plan and prescribe, amend and rescind rules
and regulations relating to the administration of this Plan;
(5) to cancel, modify or waive the Corporation's rights with respect
to, any or all outstanding Awards;
(6) to accelerate the exercisability or vesting or extend the term of
any or all such outstanding Awards within the maximum term permitted under
this Plan; and
(7) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
Any action taken by, or inaction of, the Corporation, the Board or the
Committee relating or pursuant to this Plan shall be within the absolute
discretion of that entity or body and shall be conclusive and binding upon all
persons. No member of the Board or Committee, or officer of the Corporation or
any subsidiary, shall be liable for any such action or inaction of the entity or
body, of another person or, except in circumstances involving bad faith, of
himself or herself. Subject only to compliance with the express
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provisions hereof, each of the Board and the Committee may act in its absolute
discretion in matters within its authority related to this Plan.
In making any determination or in taking or not taking any action under
this Plan, the Committee or the Board, as the case may be, may obtain and rely
upon the advice of experts, including professional advisers to the Corporation.
No director, officer or agent of the Corporation shall be liable for any such
action or determination taken or made or omitted in good faith.
The Committee may delegate ministerial, non-discretionary functions to
individuals who are officers or employees of the Corporation.
The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or Chief Operating Officer or other executive
officer of the Corporation as the Committee deems appropriate; provided,
however, that the Committee may not delegate its power and authority with regard
to (i) the grant of an Award to any person who is a "covered employee" within
the meaning of Section 162(m) of the Code or who, in the Committee's judgment,
is likely to be a covered employee at any time during the period an Award
hereunder to such employee would be outstanding, if the Committee intends that
compensation payable pursuant to such an Award be qualified performance-based
compensation, or (ii) the selection for participation in this Plan of an officer
or other person subject to Section 16 of the Exchange Act or decisions
concerning the timing, pricing or amount of an Award to such an officer or other
person.
A majority of the Committee shall constitute a quorum. The Committee may
act at a meeting in person or by telephone, or by written consent without
meeting. The acts of the Committee shall be either (i) acts of a majority of the
members of the Committee present in person or by telephone at any meeting at
which a quorum is present or (ii) acts approved in writing by all of the members
of the Committee without a meeting.
1.4 ELIGIBILITY. Participants in this Plan shall consist of such
officers, key employees, consultants, advisers and Directors of the Corporation
and its subsidiaries, and persons who are expected to become, and subject to
their becoming, such officers, key employees, consultants, advisers and
Directors, as the Committee in its sole discretion may select from time to time
("Eligible Persons"), provided that only employees of the Corporation (or a
subsidiary of the Corporation) will be Eligible Persons to whom may be granted a
Paired Option which includes a Corporation Share Option designated as an
incentive share option. The Committee's selection of a person to participate in
this Plan at any time shall not require the Committee to select such person to
participate in this Plan at any other time. Directors shall also participate in
this Plan in accordance with Section V.
1.5 SHARES AVAILABLE. Subject to adjustment as provided in Section 7.7,
the aggregate number of Paired Shares available from time to time for all Awards
of Paired Options or Stock Awards under this Plan and the Trust's 1995 Long-Term
Incentive Plan (the "Trust Plan") (with respect to Paired Options, including all
Paired Options whether or not they include Corporation Share Options that are
designated as incentive share options) shall be equal to the Aggregate Limit (as
defined below), reduced by the aggregate number of Paired Shares subject to
outstanding Paired Options and outstanding Stock Awards under this Plan and the
Trust Plan. Subject to adjustment as provided in Section 7.7, the number of
Paired Shares available for grants of Paired Options that include Corporation
Share Options that are designated as incentive share options shall be equal to
the Aggregate Limit, reduced by the aggregate number of Paired Shares which
become subject to (x) outstanding Paired Options under this Plan, including each
Paired Option that does not include a Corporation Share Option that is
designated as an incentive share option and (y) outstanding options to purchase
Paired Shares under the Trust Plan. As used herein "Aggregate Limit" means
26,724,741.
To the extent that Paired Shares subject to (i) an outstanding Paired
Option, (ii) an outstanding option to purchase Paired Shares under the Trust
Plan or (iii) a Stock Award, are not issued or delivered or are canceled or
forfeited by reason of the expiration, termination, cancellation or forfeiture
of any such Award or by reason of the delivery or withholding of Paired Shares
to pay all or a portion of the exercise
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price of an Award, if any, or to satisfy all or a portion of the tax withholding
obligations relating to an Award, then such Paired Shares shall again be
available under this Plan.
Paired Shares to be delivered under this Plan shall be made available (i)
(A) by the Corporation from authorized and unissued Corporation Shares issued by
the Corporation directly to the holder and (B) by the Trust from authorized and
unissued Trust Shares issued by the Trust directly to the Corporation for
delivery to the holder, (ii) from authorized and issued Paired Shares acquired
and held by the Corporation or (iii) a combination thereof.
The maximum number of Paired Shares with respect to which Paired Options or
Stock Awards or a combination thereof may be granted to any person during any
calendar year beginning on or after January 1, 1998 shall be 900,000, subject to
adjustment as provided in Section 7.7.
II. PAIRED OPTIONS
2.1 AWARDS OF PAIRED OPTIONS. The Committee may, in its discretion, grant
Paired Options to such Eligible Persons as may be selected by the Committee.
Each Corporation Share Option, or portion thereof, that is not an incentive
share option, shall be a non-qualified share option. Each Paired Option that
includes a Corporation Share Option that is designated as an incentive share
option shall be granted within ten years of the original effective date of this
Plan (June 29, 1995). To the extent that the aggregate fair market value
(determined as of the date of grant) of Corporation Shares with respect to which
Corporation Share Options designated as incentive share options are exercisable
for the first time by a holder during any calendar year (under this Plan or any
other plan of the Corporation or any parent or subsidiary) exceeds the amount
(currently $100,000) established by the Code, such Corporation Share Options
shall constitute non-qualified share options. The "fair market value" of a
Corporation Share shall be that portion of the Fair Market Value of a Paired
Share which the Committee determines to be attributable to the Corporation Share
by applying in good faith a method of valuation permissible under Section 422 of
the Code.
2.2 TERMS OF PAIRED OPTIONS. Paired Options shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem advisable:
(a) Number of Paired Shares and Purchase Price. The number of Paired
Shares subject to a Paired Option and the purchase price per Paired Share
purchasable upon exercise of the Paired Option, including the portions of
the purchase price of a Paired Share that are attributable to a Corporation
Share and a Trust Share, respectively, shall be determined by the
Committee; provided, however, that (i) the purchase price per Paired Share
shall not be less than 100% of the Fair Market Value of a Paired Share on
the date of grant of such Paired Option, (ii) the portion of the purchase
price of a Paired Share which the Committee determines to be attributable
to a Corporation Share shall not be less than 100% of the fair market value
of a Corporation Share on the date of grant of such Paired Option, and
(iii) the portion of the purchase price of a Paired Share which the
Committee determines to be attributable to a Trust Share (including the
portion of the purchase price, if any, of any such option attributable to a
Trust Share) shall not be less than 100% of the fair market value of a
Trust Share on the date of grant of such Paired Option; provided further,
that if a Corporation Share Option designated as an incentive share option
shall be granted to any person who, at the time such incentive share option
is granted, owns capital stock possessing more than ten percent (10%) of
the total combined voting power of all classes of capital stock of the
Corporation (or of any parent or subsidiary) (a "Ten Percent Holder"), the
purchase price per Corporation Share shall be the price (currently 110% of
fair market value of a Corporation Share) required by the Code in order to
constitute an incentive share option. The fair market value of a Trust
Share shall be that portion of the Fair Market Value of a Paired Share
which the Committee determines to be attributable to the Trust Share.
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(b) Option Period and Exercisability. The period during which a
Paired Option may be exercised shall be determined by the Committee;
provided, however, that no Paired Option which includes a Corporation Share
Option designated as an incentive share option shall be exercised later
than ten years after its date of grant; provided further, that if a Paired
Option which includes a Corporation Share Option designated as an incentive
share option shall be granted to a Ten Percent Holder, such Paired Option
shall not be exercised later than five years after its date of grant. The
Committee shall determine whether a Paired Option shall become exercisable
in cumulative or non-cumulative installments and in part or in full at any
time. An exercisable Paired Option, or portion thereof, may be exercised
only with respect to whole Paired Shares. Except to the extent otherwise
specified in the Agreement relating to a Paired Option, in the event of a
Change of Control, such Paired Option shall become immediately exercisable
for the full amount of Paired Shares subject thereto and shall be
exercisable until expiration of the term of such Paired Option.
(c) Method of Exercise. A Paired Option may be exercised (i) by
giving written notice to the Corporation specifying the number of whole
Paired Shares to be purchased and accompanied by payment therefor in full
(or arrangement made for such payment to the Corporation's satisfaction)
either (A) in cash, (B) by delivery of previously owned whole Paired Shares
(which the holder has held for at least six months prior to the delivery of
such Paired Shares or which the holder purchased on the open market and for
which the holder has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date of
exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Corporation to
whom the holder has submitted an irrevocable notice of exercise or (D) a
combination of (A) and (B), in each case to the extent set forth in the
Agreement relating to the Paired Option and (ii) by executing such
documents as the Corporation may reasonably request. The Committee shall
have sole discretion to disapprove of an election pursuant to any of the
foregoing clauses (B) through (D). Any fraction of a Paired Share which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the holder. No certificate
representing a Paired Share shall be delivered until the full purchase
price therefor has been paid.
2.3 (Omitted)
2.4 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability or Death. Unless otherwise specified in the Agreement
relating to a Paired Option, if the optionee's employment with the
Corporation or service as a consultant, adviser or Director terminates by
reason of Disability or death, each Paired Option held by such optionee
shall be fully exercisable and may thereafter be exercised by such optionee
(or such optionee's executor, administrator, legal representative,
beneficiary or similar person, as the case may be) until and including the
earliest to occur of (i) the date which is one year (or such other period
as set forth in the Agreement relating to such Paired Option) after the
effective date of such optionee's termination of employment or service or
date of death, as the case may be, and (ii) the expiration date of the term
of such Paired Option.
(b) Termination for Cause. Unless otherwise specified in the
Agreement relating to a Paired Option, if the optionee's employment with
the Corporation or service as a consultant, adviser or Director terminates
for Cause, each Paired Option held by such optionee, whether or not then
exercisable, shall terminate automatically on the effective date of such
optionee's termination of employment or service.
(c) Voluntary Termination by Optionee. Unless otherwise specified in
the Agreement relating to a Paired Option, if optionee's employment with
the Corporation or service as a consultant, adviser or Director terminates
because of the voluntary resignation by the optionee, each Paired Option
held by such optionee shall be exercisable only to the extent that such
Paired Option is exercisable on the effective date of such optionee's
termination of employment or service and may thereafter be exercised by
such optionee (or such optionee's legal representative or similar person)
until and
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including the earliest to occur of (i) the date which is 30 days (or such
other period as set forth in the Agreement relating to such Paired Option)
after the effective date of such optionee's termination of employment or
service and (ii) the expiration date of the term of such Paired Option.
(d) Other Termination. Unless otherwise specified in the Agreement
relating to a Paired Option, if the optionee's employment with the
Corporation or service as a consultant, adviser or Director terminates for
any reason other than Disability, death, voluntary termination by the
optionee or termination by the Corporation for Cause, each Paired Option
held by such optionee shall be exercisable only to the extent that such
Paired Option is exercisable on the effective date of such optionee's
termination of employment or service and may thereafter be exercised by
such optionee (or such optionee's legal representative or similar person)
until and including the earliest to occur of (i) the date which is three
months (or such other period as set forth in the Agreement relating to such
Paired Option) after the effective date of such optionee's termination of
employment or service and (ii) the expiration date of the term of such
Paired Option.
(e) Death Following Termination of Employment or Service. Unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee dies during the one-year period following termination of
employment or service by reason of Disability, if an optionee dies during
the thirty-day period following voluntary termination of employment or
service by the optionee, or if an optionee dies during the three-month
period following termination of employment or service for any reason other
than voluntary termination by the optionee, Disability or Cause (or, in
each case, such other period as the Committee may specify in the Agreement
relating to a Paired Option), each Paired Option held by such optionee may
thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person, as the case may be, until
and including the earliest to occur of (i) the date which is three months
(thirty days in the case of voluntary termination of employment or service
by the optionee) (or such other period as set forth in the Agreement
relating to such Paired Option) after the date of death (but in the case of
death following termination of employment or service by reason of
Disability, no less than one year (or such other period as set forth in the
Agreement relating to such Paired Option) after the date of termination of
employment or service), and (ii) the expiration date of the term of such
Paired Option.
III. RESTRICTED STOCK AWARDS
3.1 RESTRICTED STOCK AWARDS. The Committee may, in its discretion, grant
Restricted Stock Awards to such Eligible Persons as may be selected by the
Committee.
3.2 TERMS OF RESTRICTED STOCK AWARDS. Restricted Stock Awards shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this Plan, as the
Committee in its discretion shall deem advisable:
(a) Number of Shares and Other Terms. The number of Paired Shares
subject to a Restricted Stock Award and the Performance Measures (if any)
and Restriction Period applicable to a Restricted Stock Award shall be
determined by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Restricted
Stock Award shall provide, in the manner determined by the Committee in its
discretion and subject to the provisions of this Plan, for the vesting of
the Paired Shares subject to such Award either (i) in accordance with the
attainment or satisfaction of specified Performance Measures during the
specified Restriction Period or (ii) over a period of years of employment
by, service to or compliance with agreements with the Corporation during
the specified Restriction Period (or both), and for the forfeiture of all
or a portion of the Paired Shares subject to such Award (x) if and to the
extent that specified Performance Measures are not satisfied or met during
the specified Restriction Period or (y) if the holder of such Award does
not remain in the employment of or service to the Corporation or in
compliance with such agreements with the Corporation during the specified
Restriction Period. Except to the extent
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otherwise specified in the Agreement relating to a Restricted Stock Award,
all Paired Shares subject to such an Award shall immediately vest in full
in the event of a Change of Control.
(c) Share Certificates. During the Restriction Period, a certificate
or certificates evidencing Paired Shares subject to a Restricted Stock
Award may be registered in the holder's name and may bear a legend, in
addition to any legend which may be required pursuant to Section 7.6,
indicating that the ownership of the Paired Shares represented by such
certificate is subject to the restrictions, terms and conditions of this
Plan and the Agreement relating to the Restricted Stock Award. All such
certificates shall be deposited with the Corporation, together with stock
powers or other instruments of assignment (including a power of attorney),
each endorsed in blank with a guarantee of signature if deemed necessary or
appropriate by the Corporation, which would permit transfer to the
Corporation of all or a portion of the Corporation Shares and to the Trust
all or a portion of the Trust Shares subject to the Restricted Stock Award
in the event such Award is forfeited in whole or in part. Upon termination
of any applicable Restriction Period (and the satisfaction or attainment of
any applicable Performance Measures), subject to the Corporation's right to
require payment of any taxes in accordance with Section 7.5, a certificate
or certificates evidencing ownership of the requisite number of Paired
Shares shall be delivered to the holder of such Award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise
set forth in the Agreement relating to a Restricted Stock Award, and
subject to the terms and conditions of a Restricted Stock Award, the holder
of such Award shall have all rights as a stockholder of the Corporation and
the Trust, including, but not limited to, voting rights, the right to
receive dividends and the right to participate in any capital adjustment
applicable to all holders of Paired Shares.
3.3 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability, Death and Involuntary Termination Without
Cause. Except to the extent otherwise set forth in the Agreement relating
to a Restricted Stock Award, if the employment of the holder of a
Restricted Stock Award or his or her service as a consultant, adviser or
Director terminates by reason of Disability, death or involuntary
termination by the Corporation without Cause, the Restriction Period shall
terminate as of the effective date of such holder's termination of
employment or service, and any applicable Performance Measures shall be
computed through such date.
(b) Other Termination. Except to the extent otherwise set forth in
the Agreement relating to a Restricted Stock Award, if the holder's
employment with the Corporation or service as a consultant, adviser or
Director terminates for any reason other than Disability, death or
involuntary termination without Cause, the portion of such Award which is
subject to a Restriction Period on the effective date of such holder's
termination of employment or service shall be forfeited to and canceled by
the Corporation.
IV. PERFORMANCE AWARDS
4.1 PERFORMANCE AWARDS. The Committee may, in its discretion, grant
Performance Awards to such Eligible Persons as may be selected by the Committee.
4.2 TERMS OF PERFORMANCE AWARDS. Performance Awards shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
in its discretion deem advisable:
(a) Grant of Performance Awards. A Performance Award may be granted
only in tandem with a Paired Option which is being or was granted under
Section II and shall apply to all or such portion of the Paired Shares
subject to such Paired Option as the Committee may designate. The
Performance Period and Performance Measures of a Performance Award shall be
as designated by the Committee.
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(b) Vesting and Forfeiture. The Agreement relating to a Performance
Award shall provide, in the manner determined by the Committee in its
discretion and subject to the provisions of this Plan, for the vesting of
such Award if specified Performance Measures are satisfied or met during
the specified Performance Period, and for the forfeiture of such Award if
specified Performance Measures are not satisfied or met during the
specified Performance Period. To the extent not otherwise provided in such
Agreement, such vesting and forfeiture provisions shall be as provided in
this Plan.
(c) Settlement of Vested Performance Awards. Vested Performance
Awards shall be settled in cash to the extent that both (i) the applicable
Paired Option has been exercised (whether before or after expiration of the
Performance Period) with respect to Paired Shares subject to the
Performance Award and (ii) the Performance Period has expired. The cash
amount shall be the sum (without interest or compounding) of all dividends
and distributions paid per Paired Share (subject to adjustment as provided
in Section 7.7), including the fair market value of any dividends and
distributions that are not paid in cash, as determined by the Committee in
its sole discretion, during the Performance Period and thereafter to the
date of any subsequent exercise of the applicable Paired Options,
multiplied by the number of such Paired Shares purchased upon such
exercise. Except to the extent otherwise provided in the Agreement relating
to a Performance Award, in the event of a Change of Control the Performance
Period shall expire and the Performance Measures shall be computed through
such date and the applicable Performance Award shall forthwith be settled
on the date of such Change of Control or if later upon exercise of the
applicable Paired Option. Notwithstanding the foregoing, if the Committee
in good faith determines that a payment in settlement of a Performance
Award will or is likely to render the Corporation insolvent, the Committee
may elect to defer such payment for a reasonable period of time and to pay
at a later date with interest at such reasonable rate as the Committee may
determine.
4.3 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability, Death and Involuntary Termination Without
Cause. Except to the extent otherwise set forth in the Agreement relating
to a Performance Award, if the employment of the holder of a Performance
Award or his or her service as a consultant, adviser or Director of the
Corporation is terminated by reason of Disability, death or involuntary
termination by the Corporation without Cause, the Performance Period with
respect to such Performance Award shall terminate and the Performance
Measures shall be computed through such date and the applicable Performance
Award shall be settled as described in Section 4.2(c) as soon as
practicable within 10 days thereafter, or if later, upon exercise of the
applicable Paired Option.
(b) Other Termination. Except to the extent otherwise set forth in
the Agreement relating to a Performance Award, if the holder's employment
with the Corporation or service as a consultant, adviser or Director
terminates for any reason other than Disability, death, or involuntary
termination by the Corporation without Cause, then the Performance Period
for such Performance Award shall be deemed to end on the date of such
termination, no Performance Measures shall be recognized or deemed
attained, satisfied or met, and the holder's Performance Award shall be
forfeited to and canceled by the Corporation.
V. CERTAIN PROVISIONS RELATING TO DIRECTORS
5.1 ELIGIBILITY. Each Director who is not an employee of the Corporation
or the Trust or a subsidiary of either ("Eligible Director") shall be granted
Paired Options and Paired Shares in accordance with this Section V. All
Corporation Share Options and Trust Share Options included in the Paired Options
granted under this Section V shall constitute non-qualified share options.
5.2 GRANTS OF PAIRED OPTIONS. Each Eligible Director shall be granted
Paired Options as follows:
(a) Time of Grant. On June 30 of each calendar year beginning in 1997
(or, if later than June 30, on the date on which a person is first elected
as a Director), each Eligible Director on such date shall be granted a
Paired Option to purchase 4,500 Paired Shares (9,000 Paired Shares if such
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person is a Director of a subsidiary only and does not receive grants of
Paired Shares or any cash in lieu thereof under Section 5.3) which amount
shall be pro-rated if such person is first elected to serve as a Director
on a date other than June 30 of a calendar year, at a purchase price per
Paired Share equal to 100% of the Fair Market Value of a Paired Share on
the date of grant of such Paired Option; provided, however, that the
portion of the purchase price of a Paired Share which is attributable to a
Corporation Share shall be 100% of the fair market value of a Corporation
Share on the date of grant of such Paired Option and the portion of the
purchase price of a Paired Share which is attributable to a Trust Share
shall be 100% of the fair market value of a Trust Share on the date of
grant of such Paired Option.
(b) Option Period and Exercisability. Each Paired Option granted
under this Article V shall be fully exercisable on and after its date of
grant, shall expire ten years after its date of grant (notwithstanding
termination of service as a Director for any reason prior to such ten-year
anniversary date) and may be exercised in whole or in part (only with
respect to whole Paired Shares). Paired Options granted under this Article
V shall be exercisable in accordance with Section 2.2(c).
(c) Death. If a Director dies while a Paired Option is outstanding,
such Paired Option may thereafter be exercised by such Director's executor,
administrator, legal representative, beneficiary or similar person, as the
case may be, until and including the expiration date of the term of such
Paired Option.
5.3 GRANTS OF PAIRED SHARES. During each calendar year beginning in 1998,
each Eligible Director (except for Directors of subsidiaries) on the last day of
March, June, September and December shall be awarded, on a current basis or at
the prior election of the Eligible Director under Section 5.4 on a deferred
basis, a number of Paired Shares (rounded to the nearest whole share) equal to
one-quarter of $50,000 divided by the Fair Market Value of a Paired Share on the
immediately preceding December 31; provided that the foregoing $50,000 shall be
reduced, but not below $25,000, to the extent an Eligible Director elects (prior
to such immediately preceding December 31, or with respect to any person who
became an Eligible Director subsequent to such date, within 10 days of becoming
an Eligible Director) to receive cash in lieu of Paired Shares under this
Section 5.3 (a "Cash Election"). The Paired Shares awarded pursuant to this
Section 5.3 shall not be Restricted Stock. The foregoing shall not in any way
limit the number of Paired Shares that may be awarded to Eligible Directors, or
the fees that may be paid to members of the Board.
5.4 DEFERRAL ELECTION. On or before each December 31 (or in the case of a
person who first becomes an Eligible Director subsequent to December 31, within
10 days of becoming an Eligible Director), an Eligible Director may, by written
notice to the Corporation, elect to defer receipt (a "Deferral Election") of any
or all of the Paired Shares provided in Section 5.3 (or cash to the extent of
his or her Cash Election under Section 5.3) which would otherwise be thereafter
payable to him or her in the manner prescribed by the Corporation for such
deferrals.
VI. SPECIAL
This Plan includes, or shall be deemed to include, without limitation, the
following Awards of Paired Options, Performance Awards (all of which include
Base Performance Measures) and Restricted Stock (unless otherwise indicated, all
Awards are as of August 12, 1996 and all Paired Options are exercisable at
35.875, the Fair Market Value per Paired Share on that date):
1. ERIC A. DANZIGER
(i) Paired Option to purchase 75,000 Paired Shares vesting over the
five year period August 12, 1996 to August 12, 2001.
(ii) Performance Awards relating to all Paired Shares underlying
the above Paired Options granted to Eric A. Danziger.
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(iii) Performance Awards relating to all Paired Shares underlying
the Paired Option granted to Eric A. Danziger to purchase 125,000 Paired
Shares at an exercise price of $36 3/4 per Paired Share vesting over the
three year period June 27, 1996 to June 27, 1999 granted June 27, 1996
in connection with Mr. Danziger's employment agreement dated June 27,
1996.
(iv) Award of 66,815 Paired Shares on June 27, 1996 vesting over
the three year period June 27, 1996 to June 27, 1999 in connection with
Mr. Danziger's employment agreement dated June 27, 1996.
2. THEODORE DARNALL
(i) Paired Option to purchase 50,000 Paired Shares vesting over the
five year period August 12, 1996 to August 12, 2000.
(ii) Performance Awards relating to all Paired Shares underlying
the above Paired Option granted to Theodore Darnall.
(iii) Performance Awards relating to all Paired Shares underlying
the Paired Option to purchase 50,000 Paired Shares at an exercise price
of $33 1/8 per Paired Share vesting over the three year period April 26,
1996 to April 26, 1999 granted April 26, 1996 in connection with Mr.
Darnall's employment agreement dated April 19, 1996.
(iv) Award of 30,189 Paired Shares on April 26, 1996 vesting over
the three year period April 26, 1996 to April 26, 1999 in connection
with Mr. Darnall's employment agreement dated April 19, 1996.
3. SUSAN R. BOLGER
(i) Paired Option to purchase 30,000 paired shares at an exercise
price of $39 3/4 per share vesting over the three year period September
9, 1996 to September 9, 1999 granted September 9, 1996 in connection
with Ms. Bolger's employment agreement dated August 15, 1996.
(ii) Award of 8,805 Paired Shares on September 9, 1996, vesting
over the three year period September 9, 1996 to September 9, 1999 in
connection with Ms. Bolger's employment agreement dated August 15, 1996.
4. RICHARD D. NANULA
(i) Paired Option to purchase 600,000 Paired Shares at an exercise
price of $53.2875 per share vesting in 48 equal monthly installments
beginning on May 1, 1998 provided that Mr. Nanula is still employed by
the Company on such monthly vesting date and terminating one year (two
years in certain circumstances) after the termination of Mr. Nanula's
employment and expiring ten years after the date of grant granted on
April 15, 1998 in connection with Mr. Nanula's employment agreement
dated as of April 15, 1998.
(ii) Paired Option to purchase 400,000 Paired Shares at an exercise
price of $53.2875 per share vesting in 48 equal monthly installments
beginning on May 1, 1998 provided that Mr. Nanula is still employed by
the Company on such monthly vesting date and terminating one year (two
years in certain circumstances) after the termination of Mr. Nanula's
employment and expiring ten years after the date of grant granted on
April 15, 1998 in connection with Mr. Nanula's employment agreement
dated as of April 15, 1998.
(iii) Paired Option to purchase 1,000,000 Paired Shares at an
exercise price of $55.825 per share vesting in 48 equal monthly
installments beginning on May 1, 1998 provided that Mr. Nanula is still
employed by the Company on such monthly vesting date and terminating one
year (two years in certain circumstances) after the termination of Mr.
Nanula's employment and expiring ten years after the date of grant
granted on April 15, 1998 in connection with Mr. Nanula's employment
agreement dated as of April 15, 1998.
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(iv) Paired Option to purchase 500,000 Paired Shares at an exercise
price of $63.4375 per share vesting in 48 equal monthly installments
beginning on May 1, 1998 provided that Mr. Nanula is still employed by
the Company on such monthly vesting date and terminating one year (two
years in certain circumstances) after the termination of Mr. Nanula's
employment and expiring ten years after the date of grant granted on
April 15, 1998 in connection with Mr. Nanula's employment agreement
dated as of April 15, 1998.
(v) Paired Option to purchase 500,000 Paired Shares at an exercise
price of $76.125 per share vesting in 48 equal monthly installments
beginning on May 1, 1998 provided that Mr. Nanula is still employed by
the Company on such monthly vesting date and terminating one year (two
years in certain circumstances) after the termination of Mr. Nanula's
employment and expiring ten years after the date of grant granted on
April 15, 1998 in connection with Mr. Nanula's employment agreement
dated as of April 15, 1998.
VII. GENERAL
7.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan, as amended and restated
as of December 3, 1998, shall become effective as of December 3, 1998 (and shall
apply, without limitation, to all Awards then or thereafter made or granted
under this Plan). All outstanding Awards made under this Plan or its
predecessors prior to December 3, 1998 shall be unaffected and shall remain in
full force and effect. This Plan shall terminate on June 29, 2005 (ten years
after its original effective date) unless terminated earlier by the Board.
Termination of this Plan shall not affect the terms or conditions of any Award
granted prior to termination.
Awards may be granted hereunder at any time prior to the termination of
this Plan, provided that no Award may be granted later than June 29, 2005.
7.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of stockholder approval required by applicable law,
rule or regulation including Rule 16b-3 under the Exchange Act and Sections 422
and 856 of the Code; provided, however, that any amendment with respect to the
persons eligible to participate in this Plan or the number of Paired Shares
available for Awards under this Plan shall not be effective without stockholder
approval of such amendment within 12 months before or after the date such
amendment is approved by the Board. No amendment may impair the rights of a
holder of an outstanding Award without the consent of such holder.
Notwithstanding any other provision hereunder, without the approval by the
stockholders of the Corporation, outstanding Paired Options may not be amended
to reduce their exercise price.
7.3 AGREEMENT. No Paired Option may be exercised and no other Award shall
be valid until confirmed in writing by the Corporation, and, upon such
confirmation, the Award shall be effective as of the effective date set forth in
such writing.
7.4 NON-TRANSFERABILITY. Unless otherwise specified in the Agreement
relating to a Paired Option or Performance Award, no Paired Option or
Performance Award shall be transferable other than by will or the laws of
descent and distribution or pursuant to beneficiary designation procedures
approved by the Corporation. Except to the extent permitted by the foregoing
sentence, each Paired Option or Performance Award may be exercised or settled
during the optionee's lifetime only by the optionee or the optionee's legal
representative or similar person. Except as permitted by the second preceding
sentence, no Paired Option or Performance Award shall be sold, transferred,
assigned, pledged, hypothecated, voluntarily encumbered or otherwise disposed of
(whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, voluntarily encumber or otherwise dispose of any Paired
Option or Performance Award, such Paired Option or Performance Award and all
rights thereunder shall, to the extent of any such attempt, immediately become
null and void.
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Restricted Stock granted under this Plan shall be transferable, subject to
the transferee's receiving such Restricted Stock subject to the same
restrictions as those applicable to the transferor. Upon any such transfer, the
transferee shall execute such appropriate documents that may be requested by the
Corporation to evidence the transferee's acceptance of the restrictions
applicable to such Restricted Stock.
7.5 TAX WITHHOLDING. The Corporation shall have the right to require,
prior to the delivery of any Paired Shares or the payment of any cash pursuant
to an Award made hereunder, payment by the holder of such Award of any federal,
state, local or other taxes which may be required to be withheld or paid in
connection with such Award. An Agreement may provide that the holder of an Award
may satisfy any such obligation by any of the following means: (A) a cash
payment to the Corporation, (B) delivery to the Corporation of previously owned
whole Paired Shares (which such holder has held for at least six months prior to
the delivery of such Paired Shares or which such holder purchased on the open
market and for which such holder has good title, free and clear of all liens and
encumbrances) having an aggregate Fair Market Value, determined as of the date
the obligation to withhold or pay taxes arises in connection with an Award (the
"Tax Date"), equal to the amount necessary to satisfy any such obligation, (C)
in the case of the exercise of a Paired Option, a cash payment by a
broker-dealer acceptable to the Corporation to whom the holder has submitted an
irrevocable notice of exercise or (D) any combination of (A) and (B), in each
case to the extent set forth in the Agreement relating to the Award; provided,
however, that the Committee shall have sole discretion to disapprove of an
election pursuant to any of the foregoing clauses (B) through (D). An Agreement
may provide for Paired Shares to be delivered having a Fair Market Value in
excess of the minimum amount required to be withheld, but not in excess of the
amount determined by applying the holder's maximum marginal tax rate. Any
fraction of a Paired Share which would be required to satisfy such an obligation
shall be disregarded and the remaining amount due shall be paid in cash by the
holder.
7.6 RESTRICTIONS ON PAIRED SHARES. Each Award hereunder shall be subject
to the requirement that if at any time the Corporation determines that the
listing, registration or qualification of the Paired Shares subject to such
Award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the delivery of Paired
Shares thereunder, such Paired Shares shall not be delivered unless such
listing, registration, qualification, consent, approval or other action shall
have been effected or obtained, free of any conditions not acceptable to the
Corporation. The Corporation may require that certificates evidencing Paired
Shares delivered pursuant to any Award made hereunder bear a legend indicating
that the sale, transfer or other disposition thereof by the holder is prohibited
except in compliance with the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
Notwithstanding any other provision hereunder, no Award hereunder shall be
exercisable or eligible for settlement if, as a result of either the ability to
exercise or settle, or the exercise or settlement of such Award, the Trust would
not satisfy the REIT Requirements in any respect. For purposes of the preceding
sentence, "REIT Requirements" shall mean the requirements for the Trust to (i)
qualify as a real estate investment trust under the Code and the rules and
regulations promulgated thereunder, (ii) prior to the effective time of the
Restructuring (as defined in Section 7.7), retain its status as grandfathered
pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984 and (iii)
prior to the effective time of the Restructuring, retain the benefits of that
certain private letter ruling issued by the Internal Revenue Service to the
Trust dated as of January 4, 1980.
7.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Paired Shares other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding Paired Option, the
purchase price per security, and the number of securities subject to each Paired
Option and the number of Paired Shares to be granted to Directors pursuant to
Article V, the number and class of securities subject to each outstanding Stock
Award and the terms of each outstanding Performance Award shall be appropriately
adjusted by the Committee, such adjustments to be made in the case of
outstanding Paired Options without an increase in the aggregate purchase price
or base price. The
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decision of the Committee regarding any such adjustment shall be final, binding
and conclusive. If any adjustment would result in a fractional security being
(i) available under this Plan, such fractional security shall be disregarded, or
(ii) subject to an Award under this Plan, the Corporation shall pay the holder
of such Award, in connection with the first vesting, exercise or settlement of
such Award in whole or in part, occurring after such adjustment, an amount in
cash determined by multiplying (A) the fraction of such security (rounded to the
nearest hundredth) by (B) the excess, if any, of (x) the Fair Market Value of a
Paired Share on the vesting, exercise or settlement date over (y) the exercise
price or base price, if any, of such Award.
With respect to any holder who is subject to Section 16 of the Exchange Act
and notwithstanding the exercise periods set forth in paragraphs (a), (c) and
(d) of Section 2.4, paragraph (b) of Section 5.2 or as set forth pursuant to
such paragraphs in any Agreement to which such holder is a party (or as may be
set forth in any Agreement pursuant to paragraph (b) of Section 2.4), and
notwithstanding the expiration date of the term of a Paired Option, in the event
the Corporation is involved in a business combination which is intended to be
treated as a pooling of interests for financial accounting purposes (a "Pooling
Transaction") or pursuant to which such holder receives a substitute option to
purchase securities of any entity, including an entity directly or indirectly
acquiring the Corporation, then each Paired Option (or option in substitution
thereof) held by such holder shall be exercisable to the extent set forth in the
Agreement evidencing such option until and including the latest of (x) the date
set forth pursuant to the then applicable paragraph of Section 2.4 or 5.2, or
the expiration date of the term of the Paired Option, as the case may be, (y)
the date which is seven months after the consummation of such business
combination and (z) the date which is ten business days after the date of
expiration of any period during which such holder may not dispose of a security
issued in the Pooling Transaction in order for the Pooling Transaction to be
accounted for as a pooling of interests.
The Board of Directors of the Corporation and the Board of Trustees of the
Trust have approved a restructuring transaction (the "Restructuring") pursuant
to an Agreement and Plan of Restructuring between the Trust and the Corporation
dated as of September 16, 1998. In the Restructuring, a subsidiary of the
Corporation will merge with and into the Trust, with the result that a newly
issued class of shares of the Trust designated as Class B shares of the Trust
("Class B Shares") will be exchanged and substituted for the outstanding Trust
Shares, and the Agreement dated June 25, 1980 as amended between the Corporation
and the Trust will be amended and restated so that the Class B Shares, instead
of the Trust Shares, will be attached to the Corporation Shares and will trade
with them as units consisting of one Corporation Share and one Class B Share.
The Restructuring is subject to certain conditions, including approval by the
stockholders of the Corporation and the shareholders of the Trust at meetings
scheduled to be held on January 6, 1999. If the Restructuring occurs, then for
all purposes of this LTIP, all references to Trust Shares shall be deemed to be
references instead to the Class B Shares.
7.8 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in this Plan. Neither this Plan nor any Award made
hereunder shall confer upon any person any right to continued employment by, or
service to, the Corporation, any subsidiary or any affiliate of the Corporation
or affect in any manner the right of the Corporation, any subsidiary or any
affiliate of the Corporation to terminate the employment of, or service by, any
person at any time without liability hereunder. For purposes of Section 2.4,
Section 3.3, Section 4.3 and Section 5.2, employment with the Corporation or
service as a consultant, adviser or Director includes such employment or service
with or for a subsidiary or affiliate of the Corporation. It does not, however,
include such employment or service with or for Starwood Capital Group, L.L.C. or
its successors.
7.9 RIGHTS AS SHAREHOLDER. No person shall have any rights as a
shareholder of the Corporation or Trust with respect to any Corporation Shares
or Trust Shares which are subject to an Award hereunder until such person
becomes a shareholder of record with respect to such Corporation Shares or Trust
Shares.
7.10 DESIGNATION OF BENEFICIARY. If permitted by the Corporation, an
Eligible Person who is granted an Award hereunder may file with the Committee a
written designation of one or more persons as
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such Eligible Person's beneficiary or beneficiaries (both primary and
contingent) in the event of the person's death.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during such Eligible Person's lifetime on a form
prescribed by the Committee. Such person's spouse who is domiciled in a
community property jurisdiction shall join in any designation of a beneficiary
other than such spouse. The filing with the Committee of a new beneficiary
designation shall cancel all previously filed beneficiary designations.
To the extent an outstanding Paired Option granted hereunder is exercisable
or an outstanding Performance Award may be settled in accordance with the terms
of this Plan and the Agreement relating to such Award, such beneficiary or
beneficiaries shall be entitled to exercise such Paired Option or settle such
Performance Award.
If such an Eligible Person fails to designate a beneficiary, or if all
designated beneficiaries predecease him, then each outstanding Award hereunder
held by such Eligible Person to the extent vested, exercisable or eligible for
settlement, may be exercised or settled by such Eligible Person's executor,
administrator, legal representative or similar person.
7.11 GOVERNING LAW. This Plan, each Award hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of Maryland and construed in
accordance therewith without giving effect to principles of conflicts of laws.
7.12 TERMINATION OF PAIRING AGREEMENT. Notwithstanding anything in this
Plan to the contrary, if at any time the Agreement dated June 25, 1980, as
amended, by and between the Corporation and the Trust, pursuant to which
Corporation Shares and Trust Shares are paired on a share-for-share basis, is
terminated for any reason and as a result of such termination Corporation Shares
and Trust Shares no longer are required to be transferred together, then
concurrently with such termination (i) Paired Options will no longer be granted
hereunder; (ii) Stock Awards and Performance Awards will no longer be made with
respect to Paired Shares; (iii) only Corporation Share Options, Stock Awards and
Performance Awards relating to the Corporation Shares may thereafter be granted
or made hereunder; (iv) each then outstanding Award shall constitute a wholly
separate and independent Corporation Share Award and Trust Share Award and the
Corporation, in its discretion, may require that each Agreement evidencing such
an Award be returned to the Corporation for cancellation in exchange for
separate agreements evidencing the Corporation Share Award and Trust Share Award
subject to such Award; (v) Corporation Share Awards and Trust Share Awards shall
no longer be required to be exercised, terminated, canceled, forfeited,
transferred or otherwise disposed of together; and (vi) the fair market value
and the "closing price" of the Corporation Shares and Trust Shares as used
herein shall thereafter be deemed to refer, respectively, to the fair market
value and the closing price of a Corporation Share and a Trust Share.
7.13 GLOSSARY. As used herein, the following words shall have the
meanings indicated.
"AGGREGATE LIMIT" shall have the meaning set forth in Section 1.5.
"AGREEMENT" shall mean the written agreement evidencing an Award hereunder
between the Corporation and the recipient of such Award.
"AWARD" shall include a grant of Paired Options, a Restricted Stock Award,
an award of Paired Shares and an award of a Performance Award under this Plan.
"BASE PERFORMANCE MEASURE" shall mean a 15% Shareholder Return over the
Performance Period of five years commencing August 12, 1996.
"BOARD" shall mean the Board of Directors of the Corporation.
"CAUSE" shall mean embezzlement or misappropriation of the Corporation's
funds or other assets, other act deemed by the Committee in the good faith
exercise of its sole discretion to be an act of dishonesty with respect to the
Corporation, significant activities materially harmful to the reputation of the
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Corporation, willful and repeated refusal to perform or substantial
disregard of the duties properly assigned to the holder by the Corporation
(other than as a result of Disability), material violation of any statutory
or common law duty of loyalty to the Corporation or a material breach by
the holder of the holder's employment agreement with the Corporation, if
any (subject to any cure period therein provided).
"CHANGE OF CONTROL" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act, of beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act, of 51% or more of either (i) the
then outstanding Paired Shares, including for this purpose Partnership
Units of SLT Realty Limited Partnership and SLC Operating Limited
Partnership exchangeable for Paired Shares (collectively, the "Outstanding
Paired Shares") or (ii) the combined voting power of the then outstanding
securities of the Corporation entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); excluding, however, the
following: (A) any acquisition by the Corporation, (B) any acquisition by
an employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation or (C) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (3) of this definition.
(2) individuals who, as of December 3, 1998 constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided that any individual who becomes a director of the
Corporation subsequent to December 3, 1998 whose election, or nomination
for election by the Corporation's stockholders, was approved by the vote of
at least a majority of the Directors then comprising the Incumbent Board
shall be deemed a member of the Incumbent Board; and provided further, that
any individual who was initially elected as a Director of the Corporation
as a result of an actual or threatened election contest, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any other actual or threatened solicitation of proxies or consent by or
on behalf of any Person other than the Board shall not be deemed a member
of the Incumbent Board;
(3) consummation by the Corporation of a reorganization, merger or
consolidation or sale of all or substantially all of the assets of the
Corporation (a "Corporate Transaction"); excluding, however, a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the beneficial owners, respectively, of the
Outstanding Paired Shares and the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 66 2/3% of, respectively, the outstanding shares of
common stock, and the combined voting power of the outstanding securities
of such corporation entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, an entity which as a
result of such transaction owns the Corporation or all or substantially all
of the Corporation's assets either directly or indirectly) in substantially
the same proportions relative to each other as their ownership immediately
prior to such Corporate Transaction, of the Outstanding Paired Shares and
the Outstanding Voting Securities as the case may be, (ii) no Person (other
than: the Corporation; any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by
the Corporation; the corporation resulting from such Corporate Transaction;
and any Person which beneficially owned, immediately prior to such
Corporation Transaction, directly or indirectly, 33 1/3% or more of the
Outstanding Paired Shares or the Outstanding Voting Securities, as the case
may be) will beneficially own, directly or indirectly, 33 1/3% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of
the outstanding securities of such corporation entitled to vote generally
in the election of directors and (iii) individuals who were members of the
incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction; or
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(4) approval by the stockholders of the Corporation of a plan of
complete liquidation or dissolution of the Corporation.
"COMMITTEE" shall mean the Committee designated by the Board, consisting of
two or more members of the Board, each of whom shall be (i) a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act, and (ii) at
the election of the Board, an "outside director" within the meaning of Section
162(m) of the Code.
"DISABILITY" shall mean the inability of the holder of an Award
substantially to perform such holder's duties and responsibilities for a
continuous period of at least six months.
"ELIGIBLE DIRECTOR" shall have the meaning set forth in Section 5.1.
"ELIGIBLE PERSONS" shall have the meaning set forth in Section 1.4.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall mean the closing transaction price of a Paired
Share as reported in the New York Stock Exchange Composite Transactions on the
first business day immediately preceding the date as of which such value is
being determined, or, if there shall be no reported transaction on such day, on
the next preceding business day for which a transaction was reported; provided
that if the Fair Market Value of a Paired Share for any date cannot be
determined as above provided, Fair Market Value of a Paired Share shall be
determined by the Committee by whatever means or method as the Committee, in the
good faith exercise of its discretion, shall at such time deem appropriate.
"PERFORMANCE AWARD" shall mean a right, contingent upon the attainment of
specified Performance Measures within a specified Performance Period, to receive
a payment in cash.
"PERFORMANCE MEASURES" shall mean the criteria and objectives, established
by the Committee, which shall be satisfied or met (i) as a condition to the
exercisability of all or a portion of a Paired Option, or (ii) during the
applicable Restriction Period or Performance Period as a condition to the
holder's receipt or retention, in the case of a Restricted Stock Award, of the
Paired Shares subject to such Award, or, in the case of a Performance Award, of
payment with respect to such Award. Such criteria and objectives may include,
without limitation, one or more of the following: the attainment by a Paired
Share of a specified Fair Market Value for a specified period of time, earnings
per share, return to stockholders (including dividends), return on equity,
earnings of the Corporation, revenues, market share, funds from operations, cash
flow or cost reduction goals, or any combination of the foregoing. The Committee
may, in its sole discretion, amend or adjust the Performance Measures or other
terms and conditions of an outstanding Award in recognition of unusual or
nonrecurring events affecting the Corporation or its financial statements or
changes in law or accounting principles. If the Committee consists solely of
"outside directors" (within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder) and the Committee desires that compensation
payable pursuant to any award subject to Performance Measures shall be
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code, the Performance Measures (i) shall be established by the Committee
no later than the end of the first quarter of the Performance Period or
Restriction Period, as applicable (or such other time permitted pursuant to
Treasury Regulations promulgated under Section 162(m) of the Code or otherwise
permitted by the Internal Revenue Service) and (ii) shall satisfy all other
applicable requirements imposed under Treasury Regulations promulgated under
Section 162(m) of the Code, including the requirement that such Performance
Measures be stated in terms of an objective formula or standard. Unless
otherwise designated by the Committee, the Performance Measures shall be the
Base Performance Measure.
"PERFORMANCE PERIOD" shall mean any period designated by the Committee for
which the Performance Measures shall be calculated. The Performance Period shall
be the five year period commencing August 12, 1996 unless otherwise designated
by the Committee.
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"RESTRICTED STOCK" shall mean Paired Shares that are subject to a
Restriction Period.
"RESTRICTION PERIOD" shall mean any period designated by the Committee
during which the Paired Shares subject to a Restricted Stock Award may not be
sold, transferred, assigned, pledged, hypothecated or otherwise voluntarily
encumbered or disposed of, except as provided in this Plan or the Agreement
relating to such award.
"SHAREHOLDER RETURN" shall mean the per annum compounded rate of increase
in the Fair Market Value of a Paired Share on the first day of the Performance
Period (assuming purchase of Paired Shares at their Fair Market Value on such
day) to the last day of the Performance Period, plus all dividends or
distributions paid with respect to such Paired Share during the Performance
Period, and assuming reinvestment of all such dividends and distributions,
adjusted to give effect to Section 7.7 of this Plan.
"TRUST PLAN" shall have the meaning set forth in Section 1.5.
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SIDLEY & AUSTIN
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
555 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90013-1010
TELEPHONE 213 896 6000
FACSIMILE 213 896 6600
FOUNDED 1866
<TABLE>
<S> <C>
CHICAGO WASHINGTON, D.C.
---- ----
DALLAS LONDON
---- ----
NEW YORK SINGAPORE
----
TOKYO
</TABLE>
WRITER'S DIRECT NUMBER
December 3, 1998
ANNEX F
Starwood Hotels & Resorts
777 Westchester Avenue
White Plains, New York 10604
Starwood Hotels & Resorts Worldwide, Inc.
777 Westchester Avenue
White Plains, New York 10604
Re: Starwood Hotels & Resorts
Starwood Hotels & Resorts Worldwide, Inc.
Joint Proxy Statement
Ladies and Gentlemen:
We have acted as special tax counsel to Starwood Hotels & Resorts, a
Maryland real estate investment trust (the "Trust"), and Starwood Hotels &
Resorts Worldwide, Inc., a Maryland corporation (the "Corporation" and, together
with the Trust, "Starwood Hotels"), in connection with (a) the Restructuring of
Starwood Hotels and (b) the preparation of the joint proxy statement of Starwood
Hotels dated of even date herewith (together with all annexes thereto, the
"Proxy Statement"). This opinion is being furnished pursuant to the request of
Starwood Hotels. Capitalized terms used but not otherwise defined herein have
the respective meanings set forth in the Proxy Statement.
Our opinion is based upon an examination of the Proxy Statement, the
Restructuring 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
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 factual statements and representations
of Starwood Hotels set forth in its officer's certificates to us dated the date
of this opinion, which officer's certificates are incorporated by reference
herein. Our opinion is premised on the accuracy of such officer's certificates
and factual statements and representations.
I. ANALYSIS AND DISCUSSION
1. In General
The analysis and discussion set forth in the summary contained in the Proxy
Statement under the caption "Material Federal Income Tax Consequences" is hereby
incorporated by reference as though set forth herein in its entirety.
<PAGE> 253
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts
Starwood Hotels & Resorts Worldwide, Inc.
December 3, 1998
Page 2
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 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 published 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.
However, Section 7002 of the Internal Revenue Service Restructuring and
Reform Act of 1998 ("H.R. 2676"), which was enacted on July 22, 1998, has the
effect of repealing the grandfathering of Starwood Hotels from the application
of Section 269B(a)(3) of the Code with respect to certain acquisitions of
interests in real property occurring after March 26, 1998. Starwood Hotels has
represented that it has not held or directly or indirectly acquired and that it
will not hold or directly or indirectly acquire before the effective date of the
Restructuring any "nonqualified real property interests" or "nonqualified
obligations," as such terms are defined in Section 7002 of H.R. 2676, unless
such acquisition would not cause the Trust to fail the gross income tests of
Section 856(c)(2) or (c)(3) of the Code.
After the Restructuring, the Corporation Shares will trade together with
the Trust's Class B Shares. Starwood Hotels has represented that the Class B
Shares will constitute less than 50 percent in value of the shares of beneficial
interest of the Trust. Therefore, after the Restructuring, the Trust and the
Corporation will not be stapled entities and, while Starwood Hotels will no
longer be grandfathered from
<PAGE> 254
SIDLEY & AUSTIN LOS ANGELES
Starwood Hotels & Resorts
Starwood Hotels & Resorts Worldwide, Inc.
December 3, 1998
Page 3
the potential application of Section 269B(a)(3) of the Code, neither Section
269B(a)(3) of the Code nor Section 7002 of H.R. 2676 will apply to the Trust and
the Corporation.
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 on and subject to the foregoing, the discussion set forth in the
section of the Proxy Statement entitled "Material Federal Income Tax
Consequences" constitutes the opinion of Sidley & Austin with respect to the
federal income tax consequences of the Restructuring that are likely to be
material to Starwood Hotels and to its shareholders and stockholders.
Other than as expressly stated above, we express no opinion on any issue
relating to Starwood Hotels or to any investment therein or under any other law.
We are furnishing this opinion to you pursuant to your request 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 inclusion of this opinion as an annex to the Proxy
Statement and to the reference to Sidley & Austin therein under the caption
"Legal Matters."
Very truly yours,
/s/ SIDLEY & AUSTIN
Sidley & Austin
<PAGE> 255
PROXY
STARWOOD HOTELS & RESORTS
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
PROXY FOR ANNUAL MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS
TO BE HELD JANUARY 6, 1999
The undersigned shareholder of Starwood Hotels & Resorts, a Maryland real
estate investment trust (the "Trust"), and stockholder of Starwood Hotels &
Resorts Worldwide, Inc., a Maryland corporation (the "Corporation"), hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders of the
Trust and the Notice of Annual Meeting of Stockholders of the Corporation (the
"Annual Meetings") and the accompanying Joint Proxy Statement relating to the
Annual 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, Barry S. Sternlicht and
Richard D. Nanula and (b) with respect to the undersigned's shares of the
Corporation, Barry S. Sternlicht and Richard D. Nanula. 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 Annual Meetings to be held on
January 6, 1999 at the Caribbean Ballroom of the Sheraton Bal Harbour, 9701
Collins Avenue, Bal Harbour, Florida, at 10:00 a.m. (local time) and
immediately after the Annual Meeting of Shareholders of the Trust,
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
[On the proxy cards sent to certain shareholders and stockholders, one of
the following two messages has been added: (i) "THE SHARE BALANCE STATED ON
THIS PROXY CARD REPRESENTS YOUR UNEXCHANGED SHARES OF HOTEL INVESTORS TRUST" or
(ii) "THE SHARE BALANCE STATED ON THIS PROXY CARD REPRESENTS YOUR UNEXCHANGED
SHARES OF ITT CORPORATION."]
<PAGE> 256
<TABLE>
<CAPTION>
Please mark
your votes as /X/
indicated in
this example.
<S> <C> <C> <C>
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Approval by shareholders of the Trust of the Restructuring
Proposal (as defined in the Joint Proxy Statement), including FOR AGAINST ABSTAIN
approval of the amendment and restatement of the Declaration / / / / / /
of Trust of the Trust and the Pairing Agreement between the
Trust and the Corporation, as described in the Joint Proxy
Statement.
2. Election of each of the following nominees as Trustees FOR all of the nominees WITHHOLD
of the Trust: Madison F. Grose, George J. Mitchell and Stuart M. / / / /
Rothenberg.
Instruction: To withhold authority to vote for any nominee, write that
nominee's name in the space provided:
3. Approval by shareholders of the Trust of an amendment and FOR AGAINST ABSTAIN
restatement of the 1995 Long-Term Incentive Plan of the Trust / / / / / /
as described in the Joint Proxy Statement.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE FOR PROPOSALS 4, 5 AND 6.
4. Approval by stockholders of the Corporation of the Restructuring
Proposal (as defined in the Joint Proxy Statement), including approval FOR AGAINST ABSTAIN
of the amendment and restatement of the Pairing Agreement between / / / / / /
the Trust and the Corporation as described in the Joint Proxy Statement.
5. Election of each of the following nominees as Directors of
the Corporation: Bruce M. Ford, Graeme W. Henderson, FOR all of the nominees WITHHOLD
Earle F. Jones and Daniel W. Yih. / / / /
Instruction: To withhold authority to vote for any nominee, write that
nominee's name in the space provided:
6. Approval by stockholders of the Corporation of an amendment and
restatement of the 1995 Long-Term Incentive Plan of the Corporation FOR AGAINST ABSTAIN
as described in the Joint Proxy Statement. / / / / / /
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 Restructuring Proposal, FOR the election of all nominees named above as
Trustees of the Trust, FOR the approval of the amendment and restatement of the
1995 Long-Term Incentive Plan of the Trust, FOR the election of all nominees
named above as Directors of the Corporation and FOR the amendment and restatement
of the 1995 Long-Term Incentive Plan of the Corporation. If any other matter is
presented at one or both of the Annual Meetings, in the absence of directions by
the undersigned, this proxy will be voted on such matter(s) in accordance with
the best judgement of the named proxies.
Signature(s)_________________________________________________________________ Dated:______________, 199__
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.
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- FOLD AND DETACH HERE -
</TABLE>
